Tuesday, 29 September, 2015

Changes to the Singapore Companies Act Ease Administrative Burden on Private Companies

The Companies (Amendment) Act 2014 was passed by the Singapore Parliament on 8 October 2014, introducing a wide range of changes to the Singapore Companies Act (the CA). The changes will be implemented in two phases: the first set of changes came into force on 1 July 2015; the second set is due to come into force in the first quarter of 2016.

Many of the provisions implemented earlier this year ease the administrative burden on private companies. This article summarises the main provisions and their effect.

 

Changes to company audits

‘Small’ companies are exempt from audit requirements

Under the amended CA, a company may be exempt from audit requirements if it qualifies as ‘small’. To do so, it must be a private company for the financial year in question and satisfy two of the following criteria for the preceding two financial years:

  • Its annual revenue must not exceed S$10 million.
  • Its total assets must not exceed S$10 million.
  • It must have no more than 50 employees.

If the company is part of a group, that group must also qualify as ‘small’ by meeting two out of three quantitative criteria on a consolidated basis for the preceding two financial years.

Previously, the audit requirement applied to any company with a corporate shareholder. This is no longer the case and a small company may benefit from the exemption, irrespective of whether it has a corporate shareholder.

Companies exempt from an audit are still required to file financial statements with the Accounting and Corporate Regulatory Authority.

What this means in practice:

Many more companies will benefit from the audit exemption. This should substantially reduce compliance costs, especially for companies in the early years of trading. 

 

Auditors of private companies can resign by giving notice

Under previous provisions, auditors were not able to resign before the end of their term of office unless the company had found replacement auditors. Under the new provisions, auditors can resign by giving notice to the company, and the company has three months to replace them. This makes it significantly easier for private companies to switch auditors.

The change does not affect auditors of listed companies or their subsidiaries, which need to obtain consent from the Accounting and Corporate Regulatory Authority if they wish to resign prematurely.

 

Changes to the issuance of shares

Private companies may provide financial assistance

Before its amendment, the CA prohibited a company from granting financial assistance for the purchase of shares in itself or its holding company.

The prohibition has been relaxed and a private company may now provide financial assistance for this purpose. However, the prohibition on financial assistance still applies if the company or any of its holding companies is a public company.

Companies may issue shares for no consideration

A company may now issue shares for no consideration, provided it is permitted under the company’s Memorandum and Articles of Association. This amendment should reduce related administrative costs.

What this means in practice:

It is easier for private companies to issue shares to an employee or third party outside of an employee share scheme.

It should also be easier to structure transactions where an equity-business swap or equity-debt swap forms part of the consideration, reducing completion time and legal costs.

 

Changes to company director and secretary obligations

Relaxed conditions for disclosure of information by nominee directors

Under previous provisions, a nominee director needed specific board authorisation to disclose to a nominating shareholder information that he or she had in a capacity as director or employee of the company.

Now, a nominee director may disclose such information with general authorisation from the board, provided the disclosure does not prejudice the company.

What this means in practice:

This should facilitate the transfer of information in large corporate groups, improving management efficiency.

 

The company secretary does not need to be at the company’s registered office

This change applies to secretaries of private companies. Provided the secretary is readily contactable by telephone or another method of instant communication, he or she does not need to be physically located at the registered office.

What this means in practice:

This change should reduce costs for companies that do not keep their register of members at the registered office.

 

For more information and guidance on how the Companies (Amendment) Act 2014 might affect your company, please contact us:

Anila Shukla

Vistra Singapore | Corporate Services Manager

Tel: +65 6854 9077

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