The Companies (Amendment) Bill was passed by the Parliament of Singapore on 8 October 2014, following the last round of significant amendments made in 2000. The purpose of amending the Companies Act is to allow companies greater flexibility in how they are run in Singapore, while maintaining a high standard of corporate governance.
1) Audit Exemptions for small companies
Previously, a company was only exempted from having its accounts audited if it was an exempt private company (a company with not more than 20 members, who must be individuals and not corporations, or wholly owned by the government) with a revenue of $5million or less. To reduce this regulatory burden, the threshold for audit exemptions was lowered. Under the amended Act, a private company has to fulfill 2 out of 3 of the following conditions to enjoy this exemption:
- total annual revenue of not more than $10 million;
- total assets of not more than $10 million; and
- total number of employees of not more than 50.
Likewise, this new threshold also applies to subsidiaries of a group of companies, if the entire group have met 2 out of the above 3 conditions. These changes are expected to affect approximately 25,000 companies which do not currently enjoy these exemptions. Other regulations, such as the requirement for companies to keep proper accounting records, will continue to apply.
2) Removal of 1 share 1 vote restrictions
Previously, public companies (other than newspaper companies) are only allowed to issue equity shares that are entitled to only one vote. With the amendments, public companies are now entitled to issue shares with different voting rights, or even no voting rights at all.
This development mirrors similar legal developments in other established financial markets, such as in the United States and United Kingdom, and is intended to enhance Singapore’s position as a premier destination for companies to launch IPOs and to list in Singapore. Such a change will increase flexibility in the capital management of public companies. One possible application would be a dual-class share structure, which is popular in offerings by technological and media companies, where shares are divided into common shares with only one vote each and management shares with multiple votes per share. This reduces volatility and allows for executives to steer the company towards its long term objectives.
However, this amendment has also raised criticisms as the creation of multiple-vote shares may undermine the position of minority shareholders by greatly reducing their power relative to the powers controlling the company (usually the holder of multiple-vote shares), and hence can be detrimental to good corporate governance. To protect minority rights, the Amendment contains the following conditions:
- shareholders must approve of the issue of these shares through a special resolution;
- information on the voting rights of the different classes of shares must be provided together with the notice of meeting;
- companies should make freely available the information on the voting rights of the different classes of shares to shareholders in the Articles;
- all shareholders will have equal voting rights in voting on resolutions related to winding up of the company, or amending the voting rights of shares.
3) Maintenance of a register of members
Previously, all companies incorporated in Singapore were required to maintain a physical register of all their members. With the amendment, ACRA will now maintain an electronic register of all the members of a private company. The private company has the responsibility of lodging this information with the Registrar, and the electronic register will serve as the only authoritative register. Any transfer or allotment of shares will not take effect until the register has been updated.
A company does not have the right to amend any mistakes on the electronic register on its own accord. Instead, it must notify the registrar of the mistake, and the registrar will in turn make the necessary amendments. Should a private company wish to go public (for example, by making an Initial Public Offer), company secretaries may refer to this electronic register to create the register of members required for public companies.
This amendment does not apply to public companies in Singapore or foreign companies, which are still required under the Companies Act to maintain a physical register of members.
4) Removal of prohibition of financial assistance
Previously, the Companies Act prohibited companies from providing financial assistance for the acquisition of their own shares. This usually took place in the form of providing loans to the buyers (sometimes secured on the company’s own assets), or releasing the acquirer from an obligation. These restrictions were designed to protect the rights of shareholders and preserve the capital of a company, but had the unintended side effect of banning other unrelated transactions as well. While companies could carry out whitewashing measures to clear these transactions, it was a time-consuming and tedious endeavor.
With the amendments, these restrictions on financial assistance will only apply to public companies and their subsidiaries. Private companies (who are not subsidiaries of public companies) will be free to provide financial assistance, subject to the “no material prejudice” condition stipulated in the amendments. This means that private companies which engage in these transactions may only do so if the transactions are not materially detrimental to the interests of the company or its shareholders, and do not diminish the company’s ability to pay its creditors. Generally speaking, a transaction that does not materially reduce a company’s assets should hold.
However, the lift of these restrictions do not apply in relation to the distribution of a company’s assets following liquidation, or the allotment/redemption of bonus or redeemable shares.
5) Statutory Disclosure by CEOs
Prior to the amendments to the Companies Act, only the directors of a company were required to submit disclosures on any conflicts-of-interest in a transaction, or any shareholdings in the company or related firms. In view of the increased significance of the CEO in the day-to-day management of a company, and the power wielded by him, CEOs are now required to submit such disclosures as well. This is similar to the requirements for listed companies under the Securities and Futures Act, where both directors and CEOs are required to make disclosures.
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