*Produced by SilverKris for HC Consultancy*
Singapore Press Holdings (SPH) has been in the news recently thanks to its restructuring exercise. Its decision to reshape its media arm as a non-profit entity got people talking about how non-profit organisations (NPOs) differ from regular businesses. A slice of social minded entrepreneurs, small business owners and other hopefuls are reconsidering whether it makes sense to set up their entities as NPOs.
We sat down to learn more with Helen Campos, lawyer and founder of business advisory firm HC Consultancy, which offers consulting services related to the registration and running of business entities and NPOs in Singapore.
Here, Helen answers a few pressing questions about how NPOs in Singapore work and whether you should register as one.
Company limited by guarantee
In Singapore, NPOs range from business-minded platforms such as the British Chamber of Commerce and Grow Asia, which brokers relationships among small-scale farmers and agricultural MNCs across the region, to social efforts such as Aidha, which imparts life skills to domestic workers, to even churches and other religious organisations.
But not all are set up the same. “Most non-profit organisations usually set up companies limited by guarantee (CLG) for corporate status,” Helen explains. A company limited by guarantee has a separate legal identity. It can carry out activities in the name of the company it oversees such as employing workers, borrowing credit, and buying and selling property.
She adds, “These entities do not have share capital or shareholders but instead have members who are guarantors.” It is prohibited to pay dividends and profits to a CLG’s members. Additionally, companies limited by guarantee are governed by the Companies Act and are held to stringent statutory obligations.
Non-profit doesn’t mean no profit
“People think NPOs don’t make any profit, but this is inaccurate,” Helen says. Like any other business, non-profits also make, literally, a profit – usually referred to as a surplus. “The difference is that NPOs do not financially reward its board members or trustees. Instead, the money is used to fund future activities,” she explains. For example, an NPO such as Project Dignity may spend its surplus to train and/or find jobs for a range of people with disabilities, intellectual and social challenges.
The many types of NPOs
As mentioned earlier, non-profit organisations usually incorporate CLGs. “CLG is one of the most desirable structures for an NPO, because it offers organisations an independent legal personality. “Additionally,” says Helen, “there is no share capital, and liability for losses is limited to the guarantee given by each member.” However, there are drawbacks, too, as CLGs are subject to statutory control and often have public disclosure obligations.
By contrast, a society – defined as a club, company or association that comprises 10 or more persons – requires membership or is volunteer-based. A good example would the Nature Society (Singapore) which is run by volunteers and seeks to protect Singapore’s natural heritage. “Societies have strong ties to the community and don’t rely heavily on donations or external funding,” Helen explains. And while it’s quick and relatively inexpensive to set up, it is important to remember that societies do not enjoy a separate legal identity, therefore exposing members to liabilities.
A third option is the charitable trust. “Charitable trusts are the go-to when you want to set aside funds that will benefit a specific cause,” says Helen. A charitable trust isn’t necessarily the best option for NPOs, as it often exposes the organisation to liabilities from its own operations or financial transactions, she adds. “While limited public disclosure is often a plus, setting up a charitable trust can be expensive and time-consuming.”
Which NPO structure is best
This depends on your organisation’s goals, intended size and complexity, fundraising strategies and the potential legal liabilities it may face. “The easiest way to determine this is to examine your NPO’s business model or working with consultancies like HCCS before deciding on a structure that is right for you,” suggests Helen.