Decide on what legal setup we should use

[iqbalabd]

Find a legal setup within a legal framework that can work for directorship which will comprise of different nationalities and to be easily changed annually.

[iqbalabd]

SG has Company Limited by Guarantee

Key points are:

1. A public company limited by guarantee is one which carries out non-profit making activities that have some basis of national or public interest, such as for promoting art, charity etc.
2. The company has no share capital.
3. A company limited by guarantee has members, rather than shareholders, the members of the company guarantee/undertake to contribute a predetermined sum to the liabilities of the company which becomes due in the event of the company being wound up. The sum set aside as guarantee may be as low as SGD 1.
4. A Singapore company setup as a public company limited by guarantee must include the suffix “Limited” in its name. However after incorporation, the company may apply to Singapore authorities for the removal of the word “Limited” from its name. One condition of this exclusion is that the company does not distribute profits.
5. A company limited by guarantee is a legal entity which exists in its own right in the eyes of the law, separate and distinct from the individuals who are involved in it. A company is like a person in law. It can sue, or to be sued, in its own name; it can enter into contracts, and can own property all in its own name.

But one condition it has is

Requires at least 2 directors, 2 members, and qualified Company Secretary. One director and secretary must be ordinarily resident in Singapore i.e. a Singaporean Citizen, a Singaporean Permanent Resident. A foreigner who wishes to act as a local director of a company has to be a person who has been issued a Employment Pass or a Dependant Pass.

which requires that we need at least 2 citizens or PR of Singapore.

[iqbalabd]

EE also allows you to have a non-profit known as Mittetulundusühing (MTÜ)

Key points are:

1. MTÜs require at least two founding members and must have a non-profit objective
2. Forming the MTÜ can be done fully online if all founding members have an Estonian or e-resident digital ID
3. An MTÜ’s articles of association should not conflict with the Estonian Non-profit Association Act

And unlike SG's Company Limited By Guarantee,

There is no legal requirement that both of these founders must be e-residents or Estonian citizens/residents. But, it would be useful and save a lot of time if each board member is able to sign in to Estonian e-services and give digital signatures.

but at the same time

For MTÜs whose management board is located abroad, finding a business service provider to act as a legal address and contact person is also a must.

This means we need to hire a service provider in Estonia to act as our contact person and also obtain a legal address. This will incur costs.

Other items to consider

1. Will the public understand the need for an Estonian non-profit for an Asian related endeavour?
2. Most probably all directors will need to be an e-resident of Estonia, which does come at a personal cost of around EUR120 everytime it is renewed.

[iqbalabd]

I talked to Ms. Jaqueline from corporateservices.com about SG's Company Limited by Guarantee on 2023-07-25 and these are what I found out:

• We note that you are looking at setting up a non-profit organisation in Singapore and this would be the public company limited by guarantee (CLG) entity type.
• We understand that you are in the IT and technology space and parties are located globally and you would like to have a structured official entity.
• The base requirements of a CLG in SG are:
  • having at least one local resident director
  • a local company secretary
  • a local registered address
  • and Members.
• As explained, the Members are similar to Shareholders, except that Members commit/guarantee an amount, which is used in the event of the company closing.
• Any surplus funds in the CLG at the time of closing are to be distributed to organisations with similar objectives as the CLG, where the CLG deems fit.
• CLGs are scrutinised more in-depth by the authorities at the time of incorporation and there may be questions/clarifications asked by the authorities.
• CLGs must also audit their accounts annually.
• As spoken, it would be beneficial for you to better understand the taxation part. Predominantly CLGs are like pte ltd companies and are taxed, however, there are some exceptions if you meet them. We would advise that you get tax advise in order to understand this part. We will be happy to introduce you to our 3rd party tax consultant. Consultation fees may apply. Let us know.
• The applicable services and fees are as follows:
  • Company registration: S$600 (discounted - our service fee)
  • Company registration: S$315 (government fee)
  • Bank account assistance: S$300 (discounted - our service fee)
  • Company secretary service per annum: S$800
  • Registered address service per annum: S$300
  • Nominee director service per annum: S$2,000
• Below is a guide to other services that you may require later on:
  • Bookkeeping service: S$50 per month for simple and small transaction volume (<10 transactions per month)
  • Payroll service: S$50 per month per employee + S$100 one-time setup fee
  • Annual tax return computation and filing: S$350 - S$500
  • Any other services required during the life of the company are considered ad-hoc services, and depending on what is required, service fees will apply. This will be informed to you prior.
• The fees exclude disbursement fees

In total, having the entity in SG with a company to take care of it for us and also a nominal local director will cost us around SGD5,000 per year (budgeting a bit higher) just for maintenance costs and around 40% of that goes to the nominal director.

[iqbalabd]

Looking at the Estonian Service Provider Marketplace, a sample of costs in running an MTU in Estonia can be found here.

Initial startup costs EUR348 (includes state fee, registration fee, Virtual Office and Authorized Contact point service fee) Monthly: EUR19.00 (EUR228 per annum)

Magrat.eu

In an email from magrat.eu, they mentioned that the costs for starting and maintaining the MTU with them are something like

Initial costs EUR1636 Monthly costs EUR176 (Monthly accounting service) Annual costs (i.e. once a year payment for annual reports) EUR768

Which adds up to the total of at least EUR2880/year of maintaining fees.

[iqbalabd]

I contacted 1Office and Magrat.eu which can help with establishing and running the MTU in Estonia. One thing that both of them mentioned which was a concern is that ideally all members , including ordinary members, should be e-residents of Estonia.

This is what Dmytro from magrat.eu said:

You are right, the members of the Board of directors should have e-Residency to sign documentation. Regarding ordinary members - they are not required to be e-Residents, however if they will be annually electing the Board of directors, and not all of them are e-Residents, this will create additional complications, since it will be required to submit original protocols with the voting results and signatures of the AGM participants to the Estonian e-business Register.

This creates a barrier for members of our community to participate meaningfully in PAO, since their acceptance to discuss, propose and ultimately vote on the direction of PAO is dependent on being an e-resident.

[iqbalabd]

Update concerning SG's Company Limited by Guarantee structure:

I talked again to Ms. Jaqueline on 2023-08-21 and confirmed that:

• Legal entitities (i.e. corporations) can also be Founding Members
• Founding Members doesn't need to be a Director and vice-versa (you can keep the Directors and Founding Mmebers separate)
• By convention, the Board Of Directors (BoD) decides who will be new board members or who will replace current board members
• On the other hand, the removal of Directors are done by the Founding Members
• Founding Members and Directors go through a formal KYC and government registration process.

Now, having the concept of so-called "ordinary members" having a say on who gets to be a director cannot be done as it is. If an "ordinary member" wants to have a say, then they need to be a Founding Member in the current legal framework. In short, a quick and easy registration process that allows an ordinary member to vote on who gets to be a director like the PSF or the EPS is not possible.

Ms. Jaqueline also mentioned that there is another legal vehicle called "Society" in SG which fits more with how the EPS and PSF does things, but it requires a majority of its members to be residents/citizens of SG.

[ojii]

Now, having the concept of so-called "ordinary members" having a say on who gets to be a director cannot be done as it is. If an "ordinary member" wants to have a say, then they need to be a Founding Member in the current legal framework. In short, a quick and easy registration process that allows an ordinary member to vote on who gets to be a director like the PSF or the EPS is not possible.

thank you for your continued effort in all of this. are there similar restrictions in an Estonian MTÜ, or could 'ordinary members' of one be responsible for electing the board of directors?

[iqbalabd]

@ojii For the Estonian MTÜ, only Members (i.e. shareholders) can elect board members. I used the term Founding Members above to point to the group of entities or people founding the MTU, but there is no distinction between Members and Founding Members. There will be a KYC process and the Members (and Founding Members) need to be an e-resident

ordinary members here refer to members who join the Organization using an email address or online form or some other method which the Organization will decide. They don't need to go through a KYC process or be an e-resident, but they will not have any say in how the Diretors are elected, which only Members do.

[ojii]

thank you for the clarifications

[iqbalabd]

More info on EE MTU:

Some samples of Articles Of Association for a Non-Profit.

Capital

Non-Profit doesn't have the concept of "capital", but it has the concept of membership fees, which are paid by the members (founders).

At dissolution, all assets the MTU has needs to be transferred to another "member of the list of non-profit associations and foundations with tax incentives, to a legal person in public law (including the state) or to the local government."