Regulatory Legal for Corporate Reorganization in Singapore
Existing Opportunities for Corporate Reorganization in Singapore
It is no secret that Singapore’s legislation is aimed at the attractiveness of business development. In particular, a number of measures and rules were provided for the implementation of corporate reorganization. The reasons for this were: reducing state control over companies, increasing business flexibility and economic mobility, increasing the attractiveness of Singapore as a business hub for companies from all over the world, which actually stimulated the growth in demand for corporate reorganization. One of the frequent cases of application of this procedure are companies with variable capital (VCC). This type of firm is a new form of corporate structure of a company for working with investment funds, which is regulated by the “Variable Capital Companies Law of 2018”. Because VCC companies are inherently flexible business models, they are successfully integrated into the current pool of investment funds available in Singapore. In addition, the number of investment funds due to the emergence of this economic model is constantly growing.
An Increase in the Number of Corporate Reorganizations Compared to Previous Years
Many companies from Singapore, however, as foreign firms in recent years have dramatically increased their tax optimization activities to generate greater profits. This situation has developed due to the ever-increasing level of competition around the world.
This has mainly affected companies that are trying to repatriate their capital. This is manifested by the reduction of working capital, the closure of non-operating firms, as well as the merger of capital.
It is worth noting separately the situation that was expressed with a constant trend of pre-sale corporate reorganization. In this segment, there is a clear tendency for companies to reorganize and abolish their departments and structures in order to subsequently sell one of their business lines.
What Is Meant by the Term Corporate Reorganization
The term can refer to a wide range of solvent Singaporean business situations, such as:
- return of funds when using a reduction in capital, repurchase of shares or purchase of securities subject to redemption;
- transfer of shares, capital, business or any assets in whole or in part within one company;
- the merger of two or more companies registered in Singapore and continuing to operate as one large company, and any of these companies can be the main person continuing operations;
- issuance of loans within the company, which can be both in kind and in the form of promissory notes, even without the actual movement of these bills;
- payment of dividends in cash or other securities; and etc.
As a separate important point, it is necessary to mention that the closure of an enterprise can also be considered a corporate reorganization. This can be achieved under Singapore law through voluntary liquidation of the board of directors or exclusion from the board of directors or a merger of companies.
How Is the Corporate Reorganization Procedure Arranged
At the moment, Singapore law provides for various ways of corporate reorganization of companies. We have already mentioned some of them above, namely: the sale of shares, the transfer of a business, the sale of assets or the business itself, the merger of firms, the reduction of capital, the issuance, redemption and repurchase of shares, the distribution of dividends, loans within the company and the liquidation of companies.
But before starting this or that type of corporate reorganization, it is necessary to carefully weigh all the steps of this event, regarding temporary, regulatory and legal restrictions. This is especially true for firms that are located in cross-border jurisdictions where the interests of several countries may intersect.
Now, actually, what needs to be considered during corporate reorganization:
- The capital cannot be returned to the members of the company, except in those cases described in the Companies Law – the redemption or redemption of shares, the payment of dividends and the reduction of capital. For dividends, payments are provided only at the expense of the company’s profit for the reporting period;
- all transactions within the company must be concluded only at the market rate and the companies involved in these transactions must be absolutely independent of each other;
- Must pass an audit affecting all current agreements and encumbrances, the presence or absence of licenses, contracts. And also the statutory documents of all participants in the reorganization should be studied in order to identify any obstacle or prohibition that can be used within the framework of this corporate reorganization. Such an audit will make it clear any encumbrances, as well as the company’s dependence on third parties or permission from regulatory authorities;
- this reorganization should be aimed solely at creating an improvement in tax efficiency;
Main Laws and Regulations Affecting Corporate Reorganization in Singapore
The main legislative document regulating almost all issues of reorganization is the Companies Act. It provides rules and restrictions for such organizational actions as mergers, capital reductions, duties and rights of directors stipulated by the charters of their companies, financial assistance and dividends. Individual organizational cases not included in the general list are stipulated by the general legislation of Singapore.
It should also take into account and take into account other regulations related to a particular issue during the reorganization, such as the Tax Law, the Labor Law, the Law on Personal Data and a number of other documents. All these points are considered exclusively in private and are discussed in the course of specifically designated conditions, especially if they involve the transfer of material values or any assets.
For example, the Singapore Takeovers and Mergers Code (Code) should be considered for corporate reorganizations involving corporations and business trusts with a primary listing of their equity securities in Singapore, public companies and registered business trusts with a primary listing abroad, or unregistered public companies. companies with more than 50 shareholders and net tangible assets of S$5 million or more. In addition, listed companies will have to comply with the listing rules of the respective stock exchanges on which they are listed.
In addition, listed companies should be aware of the rules of the stock exchanges they are listed on.
Bodies Controlling and Supervising the Proper Execution of a Corporate Reorganization in Singapore
In Singapore, there is no single supervisory body that controls the execution of a corporate reorganization, so you should keep in mind the need to interact in each case with the following bodies and organizations:
Singapore Accounting and Corporate Regulatory Authority (ACRA)
(ACRA) is the national regulatory authority for businesses, accountants and corporate service providers in Singapore. Depending on the need to perform inspections and audits related to corporate reorganization, the following issues may need to be interacted with:
- transfer of shares, issuance of shares, reduction of capital, buyback of shares or buyback of shares of a private company, which does not take effect until the electronic register of participants in the private company involved is updated by ACRA when applying for a transaction;
- mergers that do not come into effect until the required documents, along with payment of the prescribed fees, are filed with ACRA. Upon receipt of the relevant documents and fees, ACRA issues a merger notice stating the effective date of the merger.
Singapore Inland Revenue Ministry
The Singapore Revenue Ministry is the chief tax administrator of the Government of Singapore and will be responsible for all Singapore tax matters arising from a corporate reorganization. This includes the payment of stamp duty arising from share transfers, transfers of ownership or certain redevelopments and mergers, corporate income tax issues, and stamp duty exemption applications (if any).
Ministry of Labor
If a company participating in a corporate reorganization has foreign employees or a company intends to lay off employees as a result of the reorganization, then it is necessary to contact the Ministry of Labor.
Other organizations
Corporate reorganizations involving companies in highly regulated industries (such as the banking and insurance sectors) or companies holding licenses or permits issued by government agencies may require the consent or approval of the government, and consultation with the relevant government authorities will be required. New applications for licenses and permits may also be required.
In addition, companies undertaking corporate reorganizations governed by the Code should check with the Securities Industry Council, which administers the application of the Code.
