This content was previously posted on the TMF Group’s website.
Many Singapore companies failed to fully address changes introduced to the Companies Act in 2015, overlooking constitutions as ‘never-changing’ documents and leaving companies badly exposed to non-compliance.
Singapore is a highly developed, sophisticated and stable business environment, continuing to attract companies wishing to enter or expand within the APAC region. While it remains a relatively easy location in which to establish and operate a business, you must understand and comply with its regulations and uphold the high standards expected by the government across the corporate governance landscape.
The Companies Act (CA) of Singapore is the primary legislation for corporate entities to comply with. With the aim of strengthening Singapore as a global business hub, the government introduced amendments to the CA in 2015 to provide additional safeguards for stakeholders. The changes were implemented in two phases – on 1 July 2015 and 3 January 2016 (Phase 1 and Phase 2 respectively).
Key objectives of the changes
Through the amendments, the government aimed to:
- reduce the regulatory burden on companies, simplifying doing business in Singapore
- promote greater business flexibility by accommodating different types of business and the ways they can raise capital
- improve the corporate governance landscape by introducing greater accountability and transparency.
‘Constitution’ as replacement for memorandum and articles of association – one of the changes in Phase 2
The constitution replaces the former memorandum and articles of association. Anyone wanting to incorporate a company must submit their constitution to the Accounting and Corporate Regulatory Authority of Singapore (ACRA). A newly incorporated company which chooses to adopt ACRA’s prescribed model constitution in its entirety, may choose to adopt the model constitution as it stands in force from time to time. This fits the government’s call to reduce the regulatory burden and save business costs.
Existing companies (older companies) were not required to take any steps or incur any costs to merge their memorandum and articles of association, as the law deemed these to have been merged to form the constitution of the company. Older companies that opted for this route remain exposed to have the statutory obligation to notify ACRA for any amendments made/to be made to their constitutions. This locks in the need to review the constitution, especially against any current or future regulatory or corporate changes. In so doing, these companies cannot capitalise on the government’s aim of reducing regulatory burden or reducing costs because, for good corporate governance, it is necessary to have their constitution - the merged memorandum and articles of association - updated to reflect the latest CA changes or any regulatory changes that take place from time to time.
All companies, especially older companies that were incorporated before 1 July 2015, which merged the former memorandum and articles of association to be their constitution, should undertake a professional review of their constitution to make sure their constitution is updated and reflects the latest changes in the CA and any regulatory changes that take place from time to time. The constitution is often overlooked as a ‘never-changing’ document, leaving companies badly exposed to outdated rules and regulations that form part of their governance practices. It is important to note that the constitution describes the key characteristics of the company, contains its internal rules and regulations, states the rights and responsibilities of the shareholders, directors and company secretary.
The Global Business Complexity Index (GBCI) ranks Singapore as one of the easier jurisdictions in which to set up and operate. However, it is not without some business challenges. With companies now considering moving some of their operations from Hong Kong to Singapore to avoid the disruption associated with civil unrest, staff recruitment is likely to become more challenging and costs may increase.
By utilising the model constitution provided by ACRA, companies can reduce some of the costs of doing business. Companies that merged their memorandum and articles of association should consider whether the ACRA model constitution can serve their long-term needs better. In all cases, companies need to perform a review of their constitution to ensure best fit and operational compliance.