Singapore: Corporate Compliance In Singapore

A. CORPORATE COMPLIANCE IN SINGAPORE

This guidebook article sets out briefly the guidelinescertain matters relating to for corporate compliance in Singapore.

Every company and its directors and managers thereof have to keep such accounting and other records as will sufficiently explain the transactions and financial position of the company and enable true and fair profit and loss accounts and balance-sheets and any documents required to be attached thereto to be prepared from time to time. These records should be kept in a manner so as to enable them to be conveniently and properly audited.

Under Section 199 of the Singapore Companies Act, Chapter 50 ("Companies Act"), such records must be retained for 7 years after the completion of transactions or operations to which they relate. The records shall be kept at the registered office of the company or at such other place as the directors deem fit, and shall at all times be open to inspection by the directors.

A breach of this provision may expose the company and its officers to liability.

Under Section 175 of the Companies Act, a company has to hold an annual general meeting ("AGM") once in every calendar year, and not more than 15 months after the holding of the previous AGM. However, if a company holds its first AGM within 18 months of its incorporation, it need not hold it in the year of its incorporation, or the following year.

Under the Companies Act, certain matters must be done at the AGM, for example, the audited accounts of the company must be laid before the members at the AGM and the appointment of auditors must also be decided at an AGM (unless exempted under the Companies Act).

Notice of such meeting should be given to all persons entitled to receive notice of the meeting. If default is made in holding a general meeting, the company and any officer of the company who is in default will be guilty of an offence.

However, a private company in Singapore may dispense with the holding of AGMs provided a resolution has been passed to that effect.

Any general meeting other than the annual general meeting is an extraordinary general meeting ("EGM"). Under Section 176 of the Companies Act, two or more members holding not less than 10% of the company’s issued share capital may call of a meeting of the company. General meetings may also be convened by the directors, in accordance with the company’s Articles of Association.

Once there has been a requisition for a general meeting, the directors must hold one, notwithstanding anything in the company’s Articles of Association. The Companies Act provides for the procedure to be undertaken by members if they wish to requisite forrequisition for a general meeting.

A company’s articles of association usually provides for board meetings to be convened by the directors of a company. Each and every director of the company should be given notice of such board meeting, in accordance with the company’s Articles of Association.

A company must keep minutes of all general meetings and directors’ meetings held, and these minute books may be inspected by any member of the company without charge.

Under Section 205 of the Companies Act, the directors of a company shall, within 3 months after incorporation of the company, appoint auditors of the company. The appointed auditors will hold office until the conclusion of the first general meeting.

At each subsequent annual general meeting, the company shall appoint auditors of the company, who shall hold office until the conclusion of the next annual general meeting of the company.

However, under section 205A of the Companies Act, a dormant company or an exempt private company is exempted from the obligation to appoint auditors.

Under Section 201 of the Companies Act, a company must produce a profit and loss account and balance sheet to its shareholders at least once every calendar year. These must also be laid before the company at its AGM within the first 18 months after incorporation and thereafter at intervals no greater than 15 months from the preceding accounts. The accounts and balance sheet must be made up to a date not more than 6 months before the date of the meeting.

The profit and loss account and balance sheet must comply with the requirements of the Accounting Standards and give a true and fair view of the profit and loss of the Company for the period covered by the accounts.

Personnel should not conceal information from authorized auditors (both external and internal) or regulatory agencies and must disclose, on a timely basis, all information required to evaluate the company’s position and the propriety of its operations.

However, dormant companies and exempt private companies are exempted from audit requirements. Section 205B of the Companies Act provides that a company which has been dormant from the time of its formation or since the end of the previous financial year is exempt from audit requirements. Likewise, under Section 205C of the Companies Act, an exempt private company shall be exempt from audit requirements if its revenue in that year does not exceed a prescribed amount. As of June 2003, the prescribed amount is S$2.5 million.

Despite this exemption, members of companies holding not less than 5% in nominal value of the company's issued share capital or if there is no share capital, not less than 5% of the membership in number may, no later than one month from the end of the financial year in question, require the company to audit its accounts. In addition, the Registrar of Companies and Businesses (the "Registrar") has the power to require these companies to lodge audited accounts if he is satisfied that the company has breached sections 199 or 201 of the Companies Act or if it is in public interest for such accounts to be lodged

There are two types of resolutions: ordinary and special resolutions. Special resolutions are usually required for more important matters, e.g. amendments to a company’s articles of association, to effect a voluntary winding up.

An ordinary resolution may be passed by a simple majority of members present and voting at the meeting. A special resolution may be passed with 75% of members present and voting and entitled to vote.

Under the Companies Act, a private company may now pass any resolution by written means, provided the provisions of the Companies Act are satisfied. This however, excludes resolutions for which special notice is required, e.g. if a company wishes to dispense with an AGM.

Under Section 184B of the Companies Act, a resolution of a private company can only be passed by written means if either agreement to the resolution was first sought by the directors of the company, or a requisition of that resolution was first given to the company by way of a notice and the relevant documents (as stipulated in the Companies Act) were served on or made accessible to the members of the company. The Memorandum and Articles of Association of the Company must also not prohibit the passing of resolutions by written means. Further, if a company’s memorandum and articles of association permit the passing of resolutions by written means, all the conditions in the memorandum and articles of association relating to the passing of resolutions by written means must be met.

Under the Companies Act, all companies having a share capital must file an Annual Return, stating the particulars provided for in the Companies Act, together with copies of documents as may be prescribed.

The Annual Return should be made up to the date of the AGM or a date not later than one month after the AGM.

The contents of the Annual Return include the following:

• the name of the company and its registration number;
• a summary of the share capital of the company;
• particulars of the directors, managers, secretaries and auditors of the company; and
• particulars of the total amount of indebtedness of the company in respect of all charges which are required to be registered.

Under the Companies Act, a company must, within 30 days after the creation of any charge specified in the Companies Act, lodge with the Registrar a statement of the prescribed particulars of the charge.

The charges which will need to be registered include a charge to secure any issue of debentures, a charge on uncalled share capital of a company, a charge on land wherever situate or any interest therein, a charge on book debts of the company, a floating charge on the undertaking or property of a company and a charge on goodwill, on a patent or licence under a patent, on a trade mark, or on a copyright or licence under a copyright.

If a charge is not registered, the charge will be void against the liquidator and any creditor of the company, insofar as any security on the company’s property or undertaking is conferred. Non-registration of the charge may also render the company and its officers guilty of an offence, for which a penalty will be imposed.

Section 162 of the Companies prohibits loans from a company (other than an exempt private company) to a director of a company or a director of a company which is deemed related to the company. This would include holding companies and subsidiaries. A company is also prohibited from entering into any guarantee or providing any security in connection with a loan made to such a director by any other person.

There are, however, certain exceptions to this:-

1. A company may extend a loan to a director for the purposes of meeting the expenses incurred by the director for the purposes of the company, or for the purposes of enabling him to perform his duties as an officer of the company.
2. A loan may be provided to a director who is engaged in the full-time employment of the company for the purpose of purchasing or otherwise acquiring a residential property occupied or to be occupied by the director, except that not more than one such loan may be outstanding from the director at any time.
3. A loan may be provided to a director who is engaged in full-time employment of the company where the company has at a general meeting approved of a scheme for making of loans to employees of the company and the loan is in accordance to that scheme.
4. The company may make a loan to a director in the ordinary course of business of a company whose ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons if the activities of that company are regulated by any written law relating to banking, finance companies or insurance or are subject to supervision by the MAS.

In the event a company wishes to extend a loan to a director in accordance with the above, approval of the company must be obtained at a general meeting at which the purposes of the expenditure and the amount of the loan or the extent of the guarantee or security, as the case may be, are disclosed.

If approval of the company is not obtained at or before the next annual general meeting, the loan extended or security provided by the company will be subject to the condition that the loan shall be repaid, or the liability under the guarantee or security shall be discharged within 6 months from the conclusion of that meeting.

Under Section 156 of the Companies Act, directors of a company are under a general duty of disclosure and must disclose any interests which they may have in transactions with the Company, and in the holding of office or possession of property where the duties or interests created may be in conflict with their duties or interests as directors of the company.

Every director of the Company is under a duty to declare at a meeting of the directors of the Company the nature of his interest and the fact, nature, character and extent of the conflict respectively as the case may be, if the director:

• is in any way directly or indirectly interested in a transaction or proposed transaction with the Company (this is irrespective of whether there is any conflict of interests); or
• holds any office or possesses any property whereby, directly or indirectly, duties or interests may be created in conflict with his duties or interests as director.

An interest of a member of a director’s family is treated as an interest of the director himself.

The declaration must be made:

• in the case of an interest in transactions – as soon as practicable after he has knowledge of the relevant facts; or
• in the case of an interest in the holding of office or possession of property – at the first meeting of the directors held after he becomes a director, or (if already a director) after he commences to hold such office or to possess such property wherein a conflict may arise.

Directors should note that:

• being a shareholder or a creditor of another company does not constitute an interest;
• a director who has guaranteed or jointly guaranteed the repayment of a loan given to the company is not treated as being interested in the contract or proposed contract relating to the loan to the company; and
• a director who is also a director of a related company is not deemed to be interested in a transaction or proposed transaction made for the benefit or on behalf of that company.

Directors who fail to disclose such interests where necessary may expose themselves to civil and/or criminal liability.

Under Section 163 of the Companies Act, it is not lawful for a company (other than a private exempt company) ("Company A") to make a loan to another company ("Company B") or to enter into any guarantee or provide any security in connection with a loan made to another company by a person other than the Company A if a director or directors of the Company A is or are together interested in 20% or more of the shares in Company B.

However, this prohibition on inter-company loans and provision of security does not extend to companies in a holding company-subsidiary relationship, or a company whose ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons, to anything done by the company in the ordinary course of that business if the activities of that company are regulated by any written law relating to banking, finance companies or insurance or are subject to supervision by the Monetary Authority of Singapore ("MAS").

Under Section 76 of the Companies Act, a company may not lend money on the security of its shares or the shares of its holding company or on the security of units of shares in the company or its holding company. Any such contract is void, and any money lent would be immediately recoverable by the company.

A company is also prohibited from giving financial assistance, whether directly or indirectly, to any person for the acquisition of shares in the company or share in a holding company of the company. A company is also prohibited from acquiring or lending money on the security of any shares or units of shares in the company or holding company.

"Financial Assistance" is defined to include a reference to the giving of financial assistance by means of the making of a loan, the giving of a guarantee, the provision of security, the release of an obligation of or the release of the debt or otherwise.

Notwithstanding the above, several exceptions apply. A company may give financial assistance for the purpose of or in connection with the acquisition of shares where a special resolution approving the same is passed (such resolution must comply with the requirements of the Companies Act), or where the company is a subsidiary of a listed corporation, or the company is not a subsidiary of a listed corporation but is a subsidiary whose ultimate holding company is incorporated in Singapore., and the listed corporation or the ultimate holding company (as the case may be) has by special resolution approved the giving of the financial assistance.

A company is also permitted to purchase or otherwise acquire shares issued by it if it is expressly allowed to do so under its Articles of Association, provided such a share buy back exercise complies with the requirements set out under Section 76B to Section 76DA of the Companies Act, as the case may be.

The Securities Industry Act deals with the prohibition against insider trading in Singapore. Generally, a person who is currently (or was within the last six months) connected with a company and who is in possession (because of that connection) of non-public, price-sensitive information, must not deal in the securities of that company. This prohibition is extended to dealings in the securities by the company itself or those of any other corporation about which the person obtains price-sensitive information by reason of his connection with the first company.

This prohibition is also extended to persons who provide the non-public, price-sensitive information to the connected person, as well as to a corporation which has an officer who is connected with another corporation so as to prevent Corporation A from dealing in the securities of Corporation B, if the officer in question has non-public, price-sensitive information concerning Corporation B.

The statutory prohibition also prohibits insiders in possession of price-sensitive information from causing or procuring anyone else to deal in those securities. Insiders are also prohibited from communicating insider information to anyone else whom they know or ought to know will make use of that information.

If a person or corporation is convicted of insider trading, they will face heavy criminal penalties, as well as the possibility of civil penalties.

Apart from the above, you may a company may also wish to establish certain guidelines for your company’s its personnel. We set forth below some guidelines which you may be wish to considered:

Electronic mail ("E-mail"), internet and telephone facilities are a vital part of a company’s business and should only be used appropriately and in the best interests of the company. Improper use of these facilities can lead to a waste of company’s resources and can potentially expose the company to significant liabilities, e.g. breaches of copyright and defamation.

As such, it is important to impress upon the company’s personnel that there should be no expectation of privacy in connection with using the company’s e-mail.

Your A company may be privy to classified, confidential or proprietary information as a result of the entry into certain government or commercial contracts. The disclosure and/or improper use of this information may be limited and controlled by the terms of a non-disclosure agreement, or certain legislation relating to the confidentiality of official secrets in Singapore. A violation of such legislation may result in severe fines and penaltiesliability on the part of the company and its personnel.

As such, the obligation of confidentiality in such circumstances ought to be made clear to personnel who would come into contact with such confidential information. Personnel should not disclose information which they know, or ought to have known, was subject to confidence.

Confidential information used in the course of the company’s business and other such proprietary or internal information are valuable assets belonging to the company. As such, protection of these assets is vital.

In implementing company policy, you a company may also consider imposing general standards of conduct on the company’s personnel that relate to the safe custody and accuracy of documents, records, money and company property, confidentiality with regard to the affairs of the company, and avoiding any actual or potential conflicts of interest with the company.