Key corporate legislative changes coming to Singapore
As Singapore strives to keep its environment conducive for businesses, the Ministry of Finance of Singapore and the Accounting and Corporate Regulatory Authority (“ACRA”) conducted a second review on the Companies Act, not long after changes to the Companies Act were implemented in two phases on 1 July 2015 and 3 January 2016, respectively.
The recent review resulted in the passing of the Companies (Amendment) Bill 2017 and Limited Partnerships (Amendment) Bill by the Singapore Parliament on 10 March 2017 (“Bills”). The Bills also contain changes to the legislative framework for corporate debt restructuring in Singapore, although details of that will not be the focus of this article.
The legislative changes will come into effect in three different stages, with the most immediate date having taken place on 31 March 2017. The second set of changes should take effect by the end of the second quarter of 2017, while the third set of changes is targeted to take effect in early 2018. To supplement the most recent changes, a set of subsidiary legislation have also been prescribed and came into effect on 31 March 2017.
The key legislative changes arising from the Bills are as follows:
Increase transparency in the ownership and control of business entities
(i) Companies, foreign companies and limited liability partnerships incorporated or registered in Singapore shall obtain and maintain a Register of Registrable Controllers (“RRC”), which will set out beneficial ownership information, unless exempted to do so
This is mainly to align legislation to the recommendations of the Financial Action Task Force (“FATF”), which Singapore is a member country of. In the mutual evaluation conducted last year, FATF recommended that Singapore improve its legal framework to allow law enforcement agencies to have easier access to information on beneficial ownership of legal persons.
A controller is an individual or a legal entity which has a significant interest in, or significant control over, the company. There is a presumption of control if an individual or a legal entity has interests in more than 25% of the shares or voting rights of the company, which is aligned with FATF’s recommendation in relation to controlling ownership interests. Companies, foreign companies and limited liability partnerships incorporated or registered in Singapore shall then keep a register of such persons, unless exempted to do so.
To allow for easy access to law enforcement agencies, companies must make the RRC available to public agencies (for example, the Inland Revenue Authority of Singapore and ACRA) upon request. Such requests must only be made by public agencies in connection with the administration or enforcement of any written law. However, the RRC is not a public register and access to it by any member of the public (including members of the company) is to be restricted.
This came into effect on 31 March 2017.
(ii) Nominee directors are to inform companies of their nominee status and details of their respective nominators
A director is a nominee if the director is accustomed or under an obligation whether formal or informal to act in accordance with the directions, instructions or wishes of any other person. Companies must keep a register of its directors who are nominees (“RND”) in such form and at such place as prescribed in the subsidiary legislation. Similar to the RRC, companies must make the RND available to public agencies upon request, but the RND is not a public register.
This came into effect on 31 March 2017.
Enhance Singapore’s attractiveness as a place to do business
In order to enhance the attractiveness of Singapore as a place to do business, the Bills propose to introduce an inward re-domiciliation regime in Singapore, which will allow foreign corporate entities to transfer their registration to Singapore, instead of setting up subsidiaries under the foreign corporate holding entity or undergoing a scheme of arrangement for restructuring purposes. This will be a cost-efficient way for foreign corporate entities to set up domicile in Singapore and enjoy the corporate benefits that Singapore has to offer.
This will come into effect within the first half of 2017.
Reduce administrative burden
(i) Private companies will no longer be required to hold annual general meetings
Private companies will be exempted from holding annual general meetings if they send the financial statements to their shareholders within five months of the financial year end. This is an improvement from the current regime, which allows the company to dispense with holding an annual general meeting only if all the shareholders resolve to do so. There are also safeguards in place to prevent companies from arbitrarily changing their financial year end in order to comply with the timeline.
This is a welcome change, as countries such as Australia and United Kingdom have adopted similar regimes to reduce administrative burden on private companies.
This will come into effect early 2018.
(ii) Common seal will no longer be required
Under the old law, deeds have to be executed by a Singaporean company through the affixation of the company’s common seal. This sometimes imposes practical and logistical difficulties if the deed is kept at a location other than the company’s principal place of business, or if the deed is to be executed overseas. The new legislative amendments will allow for a company to execute a deed without affixing a common seal onto the document, as long as it is executed on behalf of the company by signature from the following persons:
- a director and a secretary;
- at least two directors; or
- a director in the presence of a witness who attests the signature.
Executing a deed in one of the manners described above has the same effect as if the deed was executed under the common seal of the company. Countries such as Australia, Canada, Hong Kong, New Zealand and United Kingdom have already removed the requirement for common seal, so this is a welcome improvement to the ease of doing business in Singapore.
This came into effect on 31 March 2017.
Conclusion
The RRC and the RND will improve transparency in the ownership and control of business entities, which will help mitigate risks of money laundering and terrorist financing posed by nominee shareholders and directors. It will now be harder to misuse business entities for illegal purposes, and the amendments will allow Singapore to better comply with the recommendations from FATF, and the increasing global pressure for higher level of transparency in the ownership and control of corporate entities. The exemption from having to hold annual general meetings by private companies and the removal of the requirement for a company to have a common seal are also progressive steps towards modernising the corporate landscape in Singapore and will no doubt make the administration of companies easier.
