Recent Legislative Changes to the Companies Act

The recent legislative changes to the Companies Act are the largest number of changes since its enactment in 1967. We highlight some of the key changes made and discuss their impact on companies in Singapore.

New “Small Company” Concept for Audit Exemption

Currently, only companies that have annual revenue of S$5 million or less, with no corporate shareholders, can be considered as exempt private companies that are not required to have their accounts audited.

Moving forward however, the amendments to the Companies Act will introduce a new “small company” concept, which effectively expands the audit exemption to include companies that fulfil any two of the three quantitative criteria in each of the immediate past two financial years:

• Total annual revenue of not more than S$10 million;
• Total assets of not more than S$10 million;
• Number of employees of not more than 50

For companies that are part of a group of companies, the group as a whole would need to meet at least two of the quantitative criteria on a consolidated basis.

However, existing safeguards will continue to be retained, such as the requirement for all companies to keep proper accounting records and empowering shareholders with at least 5% voting rights to require a company to prepare audited accounts.

New Exemption from Preparation of Financial Statements for Dormant Unlisted Companies

A dormant company is generally defined as a company that has no accounting transactions throughout the financial year, or has not commenced operations since the date of its incorporation. With the new legislative changes, a dormant non-listed company will be exempt from the requirement to prepare financial statements if:

• The company’s total assets at any time within the financial year has not exceeded S$500,000
• If the company belongs to a group, the consolidated total assets within the financial year has not exceeded S$500,000
• The company has been dormant from the time of formation or since the end of the previous financial year

Notably, these two changes will mean reduced regulatory costs for smaller and/or dormant companies that do not have significant market impact.

New Procedures for Resignation of Auditors

Prior to the legislative changes, auditors were only allowed to resign provided that the auditor was not the sole auditor or the auditor’s resignation is approved by shareholders at a general meeting, where a replacement auditor is also appointed.

Given that it is rare for companies to have more than one auditor; and that there may be situations where the company declines to call for a general meeting even when the auditor has indicated his desire to resign, the new legislative change now allows for auditors of non-public interest companies (other than subsidiaries of public interest companies) to resign before the end of the term of his appointment by providing written notice.

Public interest companies are generally defined as companies that are listed or are going to be listed on a securities exchange in Singapore, such as the Main Board or Catalist Board. For auditors of public interest companies or their subsidiaries, he may resign by providing written notice and obtaining the consent of the Registrar of Companies. In the auditor’s written notice, he must provide the reasons for his resignation, which should be circulated by the company to its shareholders. This is in line with the best practices for good corporate governance.

Use of Alternate Addresses in ACRA’s Records

Currently, individuals such as directors, alternate directors and company secretaries are required to report their personal particulars, such as their residential address, to the Accounting and Corporate Regulatory Authority (“ACRA”), as part of the process where they are appointed as officers of the company. This information is accessible by the public, as it is reflected in the company’s Business Profile, which can be purchased from ACRA’s electronic portal, known as Bizfile.

With this new amendment, an individual can choose to reflect an alternate address (such as an office address) where he or she can be located at, in ACRA’s public records, instead of his or her residential address. This will accord individuals greater privacy. However, there will still be safeguards to minimise fraudulent reporting and filing of invalid addresses. Individuals found to be guilty of doing so will be barred from the option of using alternate addresses for three years.

For individuals that choose to use alternate addresses, they should take note of the following criteria:

• 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

Statutory Duty on Disclosure Extended to CEOs

The current practice is for directors to disclosure their conflicts of interest in transactions and shareholdings in the company and related corporations at the end of each financial year. Moving forward, this requirement will be extended to CEOs of companies, to better reflect the importance of their role.

This new legislative change is in line with the requirements for CEOs of public listed companies to do so under the Securities and Futures Act.

New Powers for the Registrar to Debar Directors and Company Secretaries

To incentivise directors and company secretaries to comply with the ongoing statutory obligations stipulated under the Companies’ Act, the Registrar (ACRA) will now be granted the authority to debar any director or company secretary of a company who has failed to lodge documents at least three months after the required deadlines under the Companies’ Act.

By doing so, irresponsible directors and company secretaries will not be able to act in similar positions in other companies; and will be less likely to ignore the issues that have caused the company to be late in meeting its filing requirements. Directors and company secretaries who have been debarred will not be allowed to take on any new appointments as a director or company secretary, but may continue with his or her existing appointments.

However, the Registrar acknowledges that there may be situations where either the directors or company secretaries (or both parties) are faced with issues beyond their control. Hence, the Registrar will consider representations from directors and company secretaries, before making the decision.

ACRA’s Register of Members for Private Companies

Traditionally, companies keep paper hard copies of their register of members; and manage share ownership through the issuance and cancellation of paper share certificates. However, with the pool of shareholders of companies incorporated in Singapore becoming increasingly international, the practice of issuing and cancelling paper share certificates is not as efficient.

Moving forward, ACRA will maintain the registers of members for private companies in electronic form. This will streamline the administrative process for private companies and give the public and the company’s shareholders greater access to the register, regardless of where they are physically located.

However, given that an electronic submission can be effected in a short amount of time, the new legislative change has also reduced the “grace period” during which changes in share ownership can be filed; and the date of filing any changes in share ownership will now be taken as the effective date of entry of the individual as a shareholder of the company, or the date of cessation of a shareholder. This may pose difficulties for companies that may be involved in international major and acquisition deals, where the legal documents may state a specific date of change in ownership.

What do these changes mean for companies?

In general, it can be seen that these legislative changes are aimed at modernising the Companies Act to address the needs of companies and their shareholders in an increasingly digitised world, while streamlining various administrative tasks for companies to enable them to save costs. Evidently, small companies who keep themselves updated on these changes can potentially take advantage of these changes to reduce their administrative burdens.