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Singapore Reviews Companies Act

Thursday, June 23, 2011

Singapore’s Ministry of Finance (MOF) and the Accounting and Corporate Regulatory Authority (ACRA) have invited public feedback on the final report of the Steering Committee that has been reviewing the Companies Act, and on a review of the regulatory framework for foreign entities in Singapore.

The Steering Committee was set up by the MOF in October 2007 to carry out a fundamental review of the Companies Act. It was said that the review was aimed at ensuring an efficient and transparent corporate regulatory framework that would support Singapore’s future growth as an international hub for both businesses and investors.

The Steering Committee made recommendations that existing disclosure requirements for company directors should be extended also to chief executive officers, as the latter also make key decisions; together with a further enfranchisement of indirect investors, such that members of a company who provide custodial or nominee services will be allowed to appoint multiple proxies, provided that each proxy is appointed to exercise the rights attached to a different share.

Currently, public companies can only issue shares that carry one vote per share, although the restriction does not apply to private companies. To allow public companies greater flexibility in capital management, the report recommends allowing them to issue non-voting and multiple vote shares subject to certain safeguards. Listed companies may also be subject to additional restrictions imposed by the Singapore Exchange.

Small company criteria would be introduced for audit exemption. At the moment, a company must be audited unless it is dormant, or an exempt private company (EPC) with revenue of SD5m (USD4m) or less. An EPC is a private company whose members are persons, and which has not more than 20 members. The report recommends replacing the EPC criterion with a “small company” criterion for audit exemption.

A company would qualify as a “small company” if it is a private company and fulfils two of the following three criteria: total annual revenue of not more than SGD10m; total gross assets of not more than SGD10m; and/or no more than 50 employees. The report further recommends that a subsidiary may be exempt from audit as a “small company”, only if the entire group of companies meets the “small company” criteria on a consolidated basis.

A company’s Memorandum and Articles of Association would be merged into one document known as the Constitution. In addition, the report recommends that there should be two models of the Constitution for private companies and public companies limited by guarantee. There will be no prescribed model Constitution for public companies limited by shares, given the complexity of such companies and since they will be in a better position to determine their own Constitution.

With regard to foreign companies, the Companies Act presently contains the provisions for their registration and regulation. However, the Steering Committee has now taken the view that, in the future, those laws relating to foreign entities (as re-named), namely branches of foreign corporations registered in Singapore, should be placed in separate legislation to facilitate the streamlining of the Companies Act.

Certain of the requirements and procedures for registration of foreign entities are proposed to be streamlined, as would their continuing filing obligations. It is recommended that requirements to file non-essential information (for example, changes in the authorized capital and in the number of members) be removed.

It was emphasized that, while there is no intent for any significant widening of the scope of regulation of foreign entities, they would be subject to enhanced financial disclosure requirements and accountability for financial information filed by foreign entities for greater transparency. It is recommended that foreign entities lodge with ACRA components of their financial statements similar to those expected of locally-incorporated companies.

The proposed standalone legislation will not regulate the operations of subsidiaries (incorporated in Singapore) of foreign companies, which will continue to be regulated under the Companies Act.

The three-month public consultation period began on June 20, 2011, and will end on September 16, 2011.