New changes will have implications on audit, reporting and striking off measures for Singapore-incorporate companies. Is your company ready?
As announced on 15 April 2015, the Accounting and Corporate Regulatory Authority (“ACRA”) will begin implementing the legislative amendments to the Companies Act, with 40% of the new changes to take effect from 1 July 2015.
We take a look at how these changes are expected to impact private limited companies in Singapore.
If a company qualifies for audit exemption, it enjoys the following concessions:-
- No requirement for its profit and loss accounts, or consolidated accounts and balance sheets to be audited by an approved auditor;
- No requirement to provide members of the company with copies of the auditors’ report;
- No requirement to present copies of the auditors’ report at its Annual General Meeting (“AGM”).
Do note however, that companies that qualify for audit exemptions will still need to prepare unaudited accounts.
For any company, hiring an auditor will mean additional costs and will mean that their employees will also have to sacrifice time to attend to the auditors’ queries and oversee audit inspections, as and when required. Having recognised this fact, the definition for companies that will qualify for audit exemption has been broadened, which will benefit many small and medium enterprises (“SMEs”). The comparative table below shows the difference between the current classification and the future classification of companies that can benefit from audit exemptions:-
|Current criteria for companies to benefit from audit exemptions||New criteria for companies to benefit from audit exemptions|
|Revenue not more than S$5 million||Meets any two of the following criteria*:-Revenue not more than S$10 million;Total assets of not more than S$10 million;Number of employees not more than 50.|
* For companies that are part of a group, the entire group must qualify as a small group, i.e. it needs to meet at least two of these criteria on a consolidated basis for the immediate past two consecutive financial years.
Similarly, dormant companies can now enjoy the benefits of accounts preparation exemption. Previously, dormant companies were exempt from statutory audit requirements, but were still required to prepare profit and loss accounts, or consolidated accounts and balance sheets. Under the new regime however, dormant companies will also be exempt from the requirement to prepare their accounts, subject to a substantial assets threshold test (i.e. the value of the company’s total assets should be less than S$500,000).
These new definitions align Singapore’s practices with other countries such as the United Kingdom and Australia. Moreover, with a higher revenue threshold, more SMEs can qualify under the new exemption and can therefore cut the proportion of costs paid to auditors and any other associated costs in relation to an audit.
For all companies, it is a requirement that the company secretary and one director is locally resident in Singapore. As a local resident would typically have their personal details, such as their residential address, nationality, etc., in the government system, that individual’s residential address would automatically appear during the application when he or she is appointed as either the director or company secretary.
Details of the local or foreign directors, company secretary and the shareholders would then be made available to members of the public who purchase the company’s business profile through ACRA’s Bizfile shop, which is similar to a Certificate of Incumbency. Given that residential addresses of the directors and company secretary are revealed in the company’s business profile, it is understandable that concerns about their privacy have been raised by these individuals. Particularly if there is a business deal gone wrong or if there is someone with a personal vendetta against them, there is little control over who can purchase their information.
As such, ACRA has introduced the option of alternate addresses. This alternate address is restricted to one per person and should be located in the same jurisdiction as the individual’s residential address (i.e. a foreign director or shareholder can also utilise this option, provided that their alternate address is in their country of residence). That said, ACRA still has certain conditions to be met before an alternate address can be accepted:-
- The alternate address cannot be a P.O. Box
- Should be in the same jurisdiction as the individual’s residential address
- Individual must still provide his or her residential address to ACRA
In the event that the alternate address is found to be inaccurate, ACRA will then publish the individual’s residential address and bar the individual from using alternate addresses for three years.
Traditionally, companies have maintained paper registers, i.e. the registers are updated manually, printed and kept in its physical files, which auditors will inspect during their annual statutory audits. Under the new regime however, ACRA will deem it sufficient for companies to register all changes with regards to share ownership and directors with ACRA; and ACRA’s electronic register of members and register of directors will be available for access by the company and public at large.
The implication for companies is that they may be able to save on time required to update the physical files and its associated administrative costs. However, the onus is on the company to be prompt in notifying ACRA of the changes. Particularly for the company’s register of members, there is no “grace period” and ACRA will deem the date of filing as the effective date of membership or cessation. This is a significant change from the previous allowance of 14 days for companies to notify ACRA of any changes related to a change in shareholders.
For companies that only have domestic shareholders, or do not anticipate any change in their shareholders, this may not have an immediate impact. In contrast, companies that may be anticipating a change in their shareholders, such as an international merger and acquisition exercise, may view this as a very stressful change, especially if a foreign shareholder has specific desired date on which it will become a shareholder or cease to be a shareholder, due to tax reasons or other reasons unique to the laws of its jurisdiction.
For changes made in relation to a company’s directors, companies are allowed to notify ACRA within 30 days from the date of change, which is similar to the current practice. The main difference is that members of the public will now have access to the electronic registers maintained by ACRA.
Merging of Memorandum and Articles into Constitution
For seasoned business owners, they will be familiar with the term “Memorandum and Articles of Association” (“M&AA”), which is a legal document that governs powers of the company and its by-laws, such as how its AGM or Extraordinary General Meeting (“EGM”) should be held.
Prior to the new changes, companies have the option to upload a customised M&AA during the process of incorporation. Businesses such as clinics or investment companies may require more customisation for their M&AA, due to the unique nature of their business. For example, a clinic may wish to implement an employee share scheme, where doctors are gradually vested with more shares as they increase their investment to the clinic, or have clocked a certain number of years with the clinic. However, it is undeniable that there are very old companies that have M&AAs that are relatively outdated. Such companies may not allow for meetings of directors to be held by electronic means, or have other clauses that are no longer relevant.
Given such situations, ACRA will now introduce a merged constitution document and M&AAs will now be known as the company’s Constitution. Under this new regime, companies can choose to completely adopt or partially adopt the model constitution prepared by ACRA. If the company completely adopts the new constitution, it would not be required to attach a copy of the constitution documents with ACRA. However, if the company chooses to only partially adopt the model constitution and add provisions or object clauses, it will be required to file a copy of the amended model constitution with ACRA.
A company’s striking off process is generally known to be quite tedious and time consuming. On average, the Registrar (ACRA) provides for a one month period during which the company can protest against its own striking off, followed by a subsequent three month waiting period for unwilling parties to file their objection, before the company is eventually struck off. With the new changes, this process will generally be shortened, as depicted in the table below:-
|Current Process||New Process|
|Application is submitted to the Registrar||Application is submitted to the Registrar|
|Letter is sent to the company to confirm that there are no reasons as to why it should not be struck off||Letter is sent to the company to confirm that there are no reasons as to why it should not be struck off|
|Waiting period of 1 month||Waiting period of 1 month|
|Registrar will publish a notice in the Gazette||Registrar will publish a notice in the Gazette|
|Waiting period of 3 months||Waiting period of 60 days|
|Company will be struck off||Company will be struck off|
|Aggrieved persons can appeal to the Court for restoration
of the company within 15 years
|Aggrieved persons can appeal to the Court for restoration
of the company within 6 years
|Registrar can administratively restore a struck-off company if it was made due to Registrar’s mistake (due to false or misleading information provided) within 6 years.|
With these new changes, the striking off process is significantly shortened by at least one month; and companies that have been mistakenly struck off can save on restoration costs as the Registrar now has a direct avenue to administratively restore the company.
Staying Ahead of the Curve
The changes to the Companies Act are expected to have a substantial impact on corporate entities in Singapore, as the audit, registration, reporting and striking off measures will all undergo changes in the coming months, directly affecting Singapore-incorporated companies.
It is in the interest of business owners and investors – both foreign and domestic – to adapt to these changes quickly to remain ahead of the curve.
Is your company ready for these legislative changes?
As an established professional service group in Singapore that provides corporate and business solutions, Rikvin has specialists who can advise you on your needs and answer any queries that you may have. For a personalised assessment of your company, call us at +65 6320 1888 or contact us now for a free consultation.
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