Singapore is still among the least complex Asian countries for business compliance, despite a change in its ranking from last year in TMF Group's Global Benchmark Complexity Index. Recent regulatory amendments have pushed the country up 17 places to 42nd position and these changes are expected to make the legal and regulatory environment more favourable.
Following the 2007 establishment of a steering committee to review Singapore's Companies Act and improve the regulatory framework, draft amendments were made and the Companies (Amendment) Act 2014 was enacted. This was designed to reduce regulatory burden, provide greater business flexibility and improve Singapore's corporate governance landscape.
Phase one legislative changes were implemented on 1 July 2015, followed by phase two on 3 January 2016. Alongside phase two was the launch of Bizfile, a newly revamped business filing and information portal maintained by the Accounting and Corporate Regulatory Authority of Singapore (ACRA).
Previously, private companies with annual revenue of S$5 million or less and with fewer than 20 non-corporate shareholders for the financial year were exempt from statutory audit requirements. These are known as Exempt Private Companies (EPCs).
EPCs simply submitted a declaration of solvency signed by the directors and company secretary, as opposed to filing audited financial statements. Under the new regime, small private companies and SMEs benefit if they are qualified under new, broader criteria either as a 'small company' or 'small group'. This requires them to fulfil at least two of the following in each of the previous two financial years:
- Total revenue of not more than S$10 million
- Total assets of not more than S$10 million
- Total number employees not more than 50.
A company may now have corporate shareholders and/or more than 20 members and still be exempt. However, certain safeguards remain in place, including the requirement of all companies to keep proper accounting records, and shareholders with at least 5% voting rights require a company to prepare audited financial statements. The Inland Revenue Authority of Singapore randomly checks on the financial statements of small companies.
Although audits of financial statements are useful, they cost a company time and money. It is also not necessary for ACRA to impose this annual requirement on small companies which do not have any public interest. The amendment has reduced compliance costs for at least 25,000 small companies that previously did not qualify for audit exemption. However, smaller audit firms that used to audit such companies have lost a big part of their business.
Under phase two of the amendment, ACRA now maintains the registers of members of private companies in electronic form. Previously, every company kept its own register of its members. All private companies submit information, including share ownership and changes, and the filing date is the effective date of entry or cessation of a person in the register.
For private companies incorporated on or after 3 January 2016, the Electronic Register of Members (EROM) contains company information, shareholder(s) and their share information.
Private companies existing prior to the above date have until the next filing of their annual return or six months from 3 January 2016, whichever is earlier, to access the electronic form 'Notice to Update Paid Up Share Capital' and update it with shareholder(s) and their shares information.
ACRA places this information in the EROM. The transfer of shares in a private company will only take effect once the EROM is updated by the registrar. Similarly, the transfer of shares in Singapore in restructuring cases will only take effect once EROM is updated by the registrar.
Previously, the transfer of shares took effect following any sales and purchase agreement, and an entry in the Register of Members by the company secretary after the payment of stamp duty to the stamp duty office of the Inland Revenue Authority of Singapore.
The EROM is publicly available and a company (through its directors/company secretary) may access its own records for no charge.
Maintenance of registers
Companies are no longer required to keep a register of directors, secretaries, auditors and managers. ACRA now maintains the definitive electronic register of directors, secretaries and auditors. However there is a requirement to maintain a register of CEOs.
This serves to streamline the administrative process for companies in Singapore and allow the public greater access to records. A company must update the registrar within 14 days of the date of change of director, secretary, auditor or chief executive officer. The word 'manager' has been replaced by 'chief executive officer', but the legal definition remains substantially similar.
The register of managers is replaced with the register of CEOs; and details of any current managers in ACRA's records are automatically transferred to, and remain in, the register of CEOs until the company notifies the registrar of any change.
The implementation of the amendments to the Companies Act sees company secretaries continue to support their clients' companies with corporate governance in preparing resolutions of the directors to approve changes on such officers.
Company secretaries must be diligent in their actions and in monitoring the approval of the appointment process, its completion and to lodge the changes with ACRA within the 14-day deadline (versus the previous 30-day deadline).
Company secretaries will still maintain the registers of directors, secretaries, auditors and CEO. As the responsible party for making the lodgement with ACRA on behalf of clients, they are the source of the information and should aim keep a set of registers that mirror the ACRA electronic register. Moreover, they are required to keep the registers that were maintained prior to the phase two implementation date.
The Amendment Act also introduced the 'model constitution'. A company may choose to adopt either the whole model (in force at the time of registration or from time to time) for the type of company to which it belongs; or part of the model.
If it adopts a model constitution without amendments, it does not need to file the constitution but can refer to the type of constitution chosen during registration. The model constitution adopted can be either the constitution as at the point of registration, or whatever version of the constitution that is in force from time to time.
If the company chooses the latter, there is no need for it to amend its constitution whenever changes are made to the model constitution. This is aimed to save businesses money and time, however the model constitution may not be suitable for businesses of a more complex nature.
This article originally appeared in Governance and Compliance magazine.
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