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Singapore Completes Companies Act Review

by Mary Swire,, Hong Kong

09 October 2012

The Ministry of Finance (MOF) has completed its review of changes to the Companies Act that aim to maintain Singapore’s competitiveness as an international hub for both businesses and investors, reduce the regulatory burden for companies and improve the city’s corporate governance landscape.

From June to October 2011, the MOF had invited public feedback on the final report of the Steering Committee (SC), which it set up in October 2007 to review the Companies Act and which submitted its final report to the Minister for Finance in April last year.

Following the public consultation, the MOF has accepted 192 and modified 17 recommendations of the SC, with eight recommendations not being accepted at the moment. As the largest number of changes to the Act since it was enacted in 1967, the wide ranging changes are expected to bring benefits to various stakeholder groups such as companies, small-and-medium enterprises (SMEs), retail investors and company directors.

For example, companies will be allowed to issue non-voting shares and shares carrying multiple votes, if their Articles allow it and subject to certain safeguards. This will give companies greater flexibility in raising capital, and meet different investor preferences.

However, it is recognized that a dual class share structure may give rise to issues pertaining to entrenchment of control for public listed companies, and the Singapore Exchange will, in consultation with Monetary Authority of Singapore, have to evaluate carefully if it should be permitted for listed companies, and whether listed companies should be allowed to issue non-voting shares and shares with multiple votes.

In addition, the statutory duty to disclose conflict of interests in transactions, and shareholdings in the company and related corporations, will be extended from directors, also to CEOs. This is consistent with the approach adopted under the Securities and Futures Act.

A new small company concept will be introduced for determining the requirement for statutory audit, such that SMEs can look forward to lower compliance costs. A small company will be defined as a private company that fulfils two of the following three criteria: total annual revenue of not more than SGD10m (USD8.1m); total gross assets of not more than SGD10m; and not more than 50 employees. An additional 10% of companies, or about 25,000 more companies, will be able to enjoy exemption from audit.

For retail investors, a multiple-proxies regime will be introduced to allow indirect investors and retirement fund investors to attend and vote at shareholders’ meetings. This will provide for more active participation at general meetings by the beneficial owners of the company, and help strengthen the culture of corporate governance.

Deputy Prime Minister and Minister for Finance, Tharman Shanmugaratnam, announcing the government’s decision on the SC’s recommendations, said: “In evaluating views on each of the 217 recommendations, the MOF has adopted a principled, but pragmatic approach. We have sought to ensure that we keep a competitive business environment, but one that preserves investors’ rights and interests where they really matter.”

Professor Walter Woon, Chairman of the SC, has added that he “is happy that the government has accepted almost all of the SC’s recommendation. I believe that the changes introduced in this review will improve Singapore’s corporate regulatory framework and enhance our position as a business hub.”

The accepted recommendations will be implemented through amendments to the Companies Act. MOF will seek public feedback on a draft amendment bill early next year.

TAGS: investment | small business | business | law | accounting | equity investment | audit | Singapore | ministry of finance | offshore | corporate governance | small and medium-sized enterprises (SME) | stock exchanges

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