Impact of New Legislative Amendments on Companies in Singapore
- Posted by admin
- 20 December 2017
- Company Secretarial
Legislative amendments passed into law in 2015 will have a severe impact on Singaporean companies. The Accounting and Regulatory Authority (ACRA) started implementing these changes in phases, with Phase 1 implemented on July 1, 2015.
Private limited companies will be affected directly by the changes.
Major changes that will have a direct impact on companies in 2016 and going forward include:
Compensation Provided to Executive Directors No Longer Requires Approval
Shareholders no longer need to approve compensation packages granted to executive directors under the new amendment. Shareholders will not have to approve compensation that meets the following requirements, in accordance with the new amendments:
- The amount paid does not surpass the director’s total remunerations for one year following termination;
- Termination is agreed upon by the director and the company in an existing agreement;
- Payment particulars are provided to shareholders before payment disbursement
Audit Exemption Changes
New criteria have been put forth for companies to benefit from audit exemptions. Companies must meet two of three criteria to be exempt from audits. The company’s:
- Total assets must be no more than S$10 million
- Revenue must not exceed S$10 million
- Employees must be no more than 50
Companies that are part of a larger company or group are only provided an audit exemption if the group meets the above criteria as a whole.
For example, if Group A owns XYZ Company, and Group A has 55 employees and S$11 million in revenue, but XYZ Company has 5 employees and S$5 million in revenue, XYZ Company would not be eligible for a tax exemption due to the parent company’s figures.
Numerous concessions are provided to companies that are eligible for audit exemptions:
- Auditors’ reports are not required to be provided to members of the company
- Auditors’ report copies are not required at Annual General Meetings
- Balance sheets, consolidated accounts, and profit and loss accounts are not required to be audited by an approved auditor
Only companies that are private will be able to seek audit protection.
Higher revenue requirements allow many small- and medium-sized businesses to qualify under the new exemption laws. Associated costs of an audit are lowered as a result in an attempt to help small businesses flourish.
Financial Assistance Changes
Singaporean companies were prohibited under Section 76 from giving financial assistance to acquire its own shares. Any financial assistance for the purpose of or in connection to share acquisition was not allowed.
These stringent rules prohibited companies from making share purchases when:
Protecting the company’s financial capital was the reason behind Section 76. The above provision has been removed for private companies wherein the company is owned by a few shareholders.
Private companies owned by a public company may be allowed to finance the purchase of the company’s own shares.
Insolvent Company Preferential Payments to Employees
Insolvent companies under previous law were required to pay employee salaries and wages before paying retrenchment benefits and unsecured creditors. The Companies’ Act included limits imposed by the Employee Act of 1993.
Previous law stated that insolvent companies must pay employees S$7,500, or five months of salary, whichever is lower.
The amendment moves in the right direction and updates the limit automatically based on the salary cap of non-workmen. The Employment Act included the salary cap and adjustments. An updated maximum salary limit will be better aligned with current salary requirements.
Share warrants issued before December 29, 1967 will be phased out. Bearers of the warrants will have a period of two-years from the amendment to surrender their warrants and have them cancelled. Names will be added to the company’s register of members when the warrants are surrendered for cancellation.
The transition period for share warrants has been over 40 years.
Legislation aims to phase out share warrants in their entirety.
The final legislative amendment that warrants discussion is striking-off. The implementation changes of striking off are to occur in Phase 2 of ACRA’s process. Companies will need to submit the documents through Bizfile in accordance with filing procedures, which is the reason for the amendment occurring in Phase 2.
Circumstances in which the ACRA will take into consideration during its review include:
- Failure to file an annual return
- Failure to respond to correspondences sent by the ACRA via registered post
- Mail delivered by the ACRA to the company’s registered office returned as “undelivered”
- Credible information provided to the ACRA backing the company not carrying on business
- Failure to contact resident directors
- The death or disqualification of a sole director resulting in the inability to act as director
If companies fall into any of the criteria above, immediate action is required if the company wishes to remain in existence.
Amendments to previous legislation will require businesses and their stakeholders to take a proactive approach to understanding the changes set forth by the ACRA. Small companies in particular will want to take advantage of audit exemptions, where applicable, to keep administrative costs down.