Pitfalls in Companies Act - recent changes

To continue to promote Singapore as one of the world's best locations for business, and to ensure we have an edge over countries such as Malaysia and Hong Kong, our government recently decided to make significant changes to the Companies Act.

Some of the major changes include:

  • Private Limited Companies with annual turnover of less than $5 million are now exempt from audit.
  • A Private Limited Company may now have only one Director/Shareholder.
  • The Company Secretary of a Private Limited Company need not be formally qualified.

These changes have been welcomed by small companies as they will help reduce their costs dramatically - in the short term. But I foresee major problems for such companies in the long run.

Audits may not be crucial for small companies, especially if they are family-owned. And the role of a qualified secretary may not seem significant. My concern is that these small companies, managed only by directors with no prior corporate experience or knowledge of the law, may be unaware that their records and accounts are not being kept in accordance with the Act - until it is too late. For professionals to then step in and clean up the mess is going to be time-consuming and very costly. I therefore believe that an external, qualified accountant or company secretary should oversee the statutory records at least once a year.

The irony of the audit exemption initiative is that it applies only to exempt private limited companies with annual turnover of less than $5 million. One of the prerequisites to qualify as an exempt company is that a company should not have any corporate shareholding - that is, all the shareholders have to be individuals. Therefore, a small company that has low turnover but a corporate shareholder will not qualify as exempt, and will still have to have its accounts audited. In other words, a big exempt company need not audit its accounts however complex the business may be, whereas a non-exempt company, however small and simple, will still be required to do an annual audit.

The other change - allowing only one Director/Shareholder in a Private Limited Company - may well make it easier for small companies to run their daily affairs without having to seek approval from co-directors. But what would happen to such a company if that director suddenly disappeared, leaving huge debts and unresolved issues? Under the amended Act, there will be no qualified company secretary in position or with the powers to decide what happens next.

Ragini Dhanvantray
ACIS Managing Director
Rikvin Consultancy Pte Ltd