Singapore Companies (Amendment) Act 2014
The Singapore Companies Act is the primary legislation regulating corporate entities in Singapore. The 2014 Amendment to the Act made several significant changes to the regulations that cover the formation and operation of companies in the country. The Amendment Bill aimed to reduce the burden of regulation on companies and improve corporate governance.
The most recent amendment to the Companies Act took effect March 31, 2017. See the comprehensive list of changes from the 2017 Amendment here.
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After the passing of the Bill, the national regulator of business entities and public accountants in Singapore, the Accounting and Corporate Regulatory Authority (ACRA), decided to implement the Bill in two phases: Phase 1 from 1st July 2015, and Phase 2 from 3rd January 2016. This article provides a summary of key changes that were introduced in the 2014 Amendment Bill, and what these regulations mean for businesses in Singapore.
A model Constitution is made available by ACRA and if a company chooses to accept a model constitution without amendments at the time of its incorporation, the company does not need to file its constitution with ACRA.
Fewer and standardized documents result in simplified legal compliance; therefore, this change reduces the compliance burden for companies.
Directors & Officers
This amendment reduces the amount of paperwork for annual filings.
This requirement has been removed, on the basis that a person’s age does not determine their ability to act as a company director. In practice, it is not uncommon for people over the age of 70 to be appointed or re-appointed as director.
The Amendment 2014 allows these individuals to provide a contact address that is different from their private residential address. In order to qualify as an alternative address, the address given must be in the same jurisdiction as the residential address. It also cannot be a PO Box address.
Safeguards have been introduced to prevent fraudulent reporting of alternate addresses. If an individual cannot be located at their reported alternate address, ACRA will investigate and may replace the alternate address with the residential address. The individual may also be subject to criminal sanctions if they use a fraudulent alternate address.
Impact on startups: Adds more flexibility to company operations. For example, a company secretary can be located at the secretarial firm’s office while the registered address can be the company owner’s home office.
The disbarment process ensures that irresponsible directors or secretaries will be prevented from holding similar positions in other companies. Upon being disbarred, a corporate officer is forbidden from taking on any new positions as a director or secretary – although they are allowed to keep working in any current positions.
- they were an undischarged bankrupt,
- they had previously been unfit directors of insolvent companies,
- they had been convicted of certain criminal offences, or
- they had repeatedly failed to deliver official documents.
The Amendment introduces an additional restriction: would-be directors will now be disqualified for a period of five years if they have acted as a director for a company struck off by ACRA in the last five years.
Financial Year End
As part of amendment 2014, this requirement has been removed, as the alignment of financial years for parent companies and subsidiaries will now be governed by the Accounting Standards Body. The standards state that a subsidiary may end its financial year no more than three months before or after its parent company ends its financial year. Some adjustments are permitted for significant transactions which occur between the statements submitted by the subsidiary and the consolidated financial statements submitted by the parent company.
- Total annual revenue of SG$10 million or less
- Total assets of not more SG$10 million
- Fewer than 50 employees
If a company is part of a group, then the group must meet the criteria of a small group in order to be exempt from audits. Groups meet these criteria if they satisfy two of the three conditions above after all their collective resources are added up.
This change has a positive impact on startup companies as more such companies will be able to qualify for audit exemption in the early years of their lifecycle, saving them the money and time.
A public interest company is defined as one of the following:
- A company which is listed on a stock exchange
- A company that is in the process of floating on a stock exchange
- A company in the banking, insurance, or capital market industries
- Large charities
- Public institutions such as schools
As the premature resignation of an auditor can be disruptive to a company’s day-to-day operations, the auditor must give compelling reasons for their resignation. Exceptional circumstances which would justify premature resignation of an auditor include:
- If the auditor is having health problems
- If the auditor’s circumstances have changed such that they are no longer independent from the company they are auditing
Impact on startups: This change only affects larger companies categorized as “public interest companies” as defined above and does not impact startups.
- The dormant company is non-listed and is not a subsidiary of a listed company
- The total assets of the company do not exceed $SG50,000
- The company has been dormant since the end of the previous financial year, or since its formation
Impact on startups: These changes reduce the regulatory burden on small, dormant companies since they have low public impact.
Capital, Compensation, Payments, Etc.
The Amendment removes this restriction for private companies, although not for public companies or their subsidiaries. The argument in favor of this change is that private companies are generally managed by a small number of people, so shareholders should have full control over financial decisions.
Even for public companies, an exemption to the prohibition of financial assistance has been introduced in the Amendment. Public companies will benefit from being permitted to provide financial assistance for the acquisition of their own shares provided that doing so would not materially prejudice the interests of the company, its shareholders or the company’s ability to pay its creditors. This exemption can be used if the board of directors passes a resolution agreeing to the terms of the assistance to be fair and reasonable.
This amendment brings Singapore more closely in line with the system in the UK, so businesses and individuals who operate internationally can expect to see a standardization of regulations to an international norm.
- The amount to be paid out is less than the total salary of the director for the previous year
- The termination of the director’s employment is based on an existing agreement between company and director
- The particulars of the payment are disclosed to shareholders before the payment is made
This change was made because the management of employees falls to the board of directors, even though shareholders are responsible for the appointment of directors. Given that the retirement of the director is an employee issue, it falls under the remit of the board. Note that although shareholders no longer have to approve termination payments, they must still be informed of the particulars.
The Amendment has updated this limit to either five months’ salary or five times the salary cap for non-workmen specified in the Employment Act, whichever is lower. This is to adjust for inflation, since the limit has been at SG$7,500 since 1993. Tying the limit to the salary cap in the Employment Act ensures that the limit will be automatically adjusted to current economic conditions.
The Amendment also allows companies to issue shares for no consideration. This is intended to allow for situations such as bonuses being given in the form of shares.
However, there are some restrictions on the use of electronic communications. When a member requests a physical copy of communications, they must be provided with such. If the email includes documents which are hosted on the company’s website, then the company must inform members of the location of these documents, through the means specified in their company constitution. Some especially important documents, such as documents related to takeover or rights issues, must be sent to members in physical form.
Foreign Company Branch
There are also changes to the powers of the Registrar to strike off a branch office which now can be struck off for any of the following reasons:
- There is reason to believe that the company no longer operates in Singapore, or is being used for an unlawful purpose
- The authorised representative has resigned to the Registrar, but no replacement representative has been appointed within 12 months
- The authorised representative dies whilst in office and no replacement has been appointed within six months
- Following a request as to whether the company intends to continue registration in Singapore, the authorised representative does not receive instructions from the company within twelve months.
Additionally, branch offices must file financial statements with ACRA that meet the same requirements as locally incorporated companies.
For details on different types of legal structures available to foreign companies when registering in Singapore, see Foreign Company Registration Options in Singapore.
The Amendment 2014 allows courts to order that struggling companies applying for a wind-up be instead bought out. A buy-out is where the majority share of a company is purchased by another company or individual. If the court finds compelling reason to do so, it will order that members’ shares be made available for purchase, perhaps via a broker who specializes in the sale of small businesses. By providing an option for such business consolidation instead of a dissolution, sometimes more value can be retained and some jobs can be protected.
These changes to the Companies Act will reduce the regulatory burden on Singapore companies, provide them greater flexibility in their operational decision making and provide greater transparency to various stakeholders.