Event

Is The Registered Share Capital of a Singapore Company Required to be Paid in Real Me

  • April 10, 2020
  1. Paid-up capital vs Authorised capital

“Authorised capital” was a concept that once existed, but was abolished on January 30, 2006.

“Authorised capital” refers to the highest share capital (including paid-up share capital) authorized by the company. This amount is fixed when the company first established, and was stated in the company’s articles of association.

At that me, the amount of registered capital could only be changed in accordance with the procedures stipulated in Singapore ’s Company Acts (CA).

 

  1. Paid-up capital vs issued share capital

The issued share capital is the total consideration (ie currency and other assets) that the company issue to shareholders.

Unlike paid-up capital, these shares may not be fully paid up.

Neither paid-up capital nor issued share capital are indicators of a company ’s current wealth or value.

 

  1. Must paid-up capital be paid in cash?

The paid-up capital must be deposited in cash in the company’s company bank account.

If the shares are issued at a non-cash consideration (for example, in exchange for experse and services), the equivalent SGD value must all be deposited into the company ’s bank account.

 

  1. What if the capital is not paid in full?

The unpaid capital will continue to be owed to the company by shareholders. The company’s articles of association may speculate that the shareholder is prohibited from voting until the shareholder fully pays the shares.

According to the company’s articles of association, the company can also specify when, how and when the unpaid portion must be paid back.

 

  1. What are the uses of paid-up capital?

The paid-up capital can be used freely for the company’s business, but it is restricted by the company’s articles of association. This is because the funds injected into the company can be used immediately, and there is no requirement to deposit the funds into the company’s account within any specific period.

If the paid-up capital is not used in accordance with the company’s articles of association or is used improperly, the company may sue.

If the company goes bankrupt, the company’s paid-up capital will be used to repay creditors along with all the company’s remaining assets.

 

  1. Minimum paid-up capital requirement

The minimum paid-up capital for setting up a company in Singapore is S $ 1. This also applies to foreigners or institutions wishing to register a company in Singapore.

However, certain Singapore companies that are in regulated industries may have to comply with higher minimum paid-up capital requirements, which include:

⦁  Travel agency – If the travel agency provides travel services and provides accommodation within Singapore, it will be charged S$ 100,000, if it is only providing travel services and no accommodation, it will be charged S$ 50,000

⦁  Accounting firm -S$ 50,000

⦁  Insurance Intermediary Company – S$ 300,000

 

  1. Benefits of higher paid-in capital

 

  • Ensure that sufficient funds are available for the company’s daily business

Since the company’s daily operations usually require funds, it is recommended that the amount of paid-in capital must meet the company’s daily business.

For example, standard business functions may include paying suppliers, employees, and service providers.

The supplier may require advance payment, but if the new business has not yet included any revenue, then a buyer fund is required to pay the supplier. For this purpose, it can be paid out of paid-up capital.

 

  • Can obtain more favorable debt capital financing conditions

Another way to finance an enterprise through equity capital (that is, raising funds through the sale of shares) is to raise funds through debts (loans or debt instruments).

Companies with higher paid-in capital may receive more favorable debt capital financing conditions, such as lower interest rates, and avoid charging fees for their assets.

This is because compared to a company with paid-in capital of only S $ 1, if the company’s capital is insolvent, the creditor may be more assured of recovering the investment from the company’s paid-in capital.

All companies registered in Singapore with a paid-up capital of S $ 500,000 or above will automatically become Singapore Federation of Industry and Commerce (SBF). SBF members can obtain various network opportunities and participate in other activities.

 

  1. What should I do if the paid-in capital is insufficient?

Paid-up capital does not represent the company’s net worth.

When the company operates for a long time, any net income (beyond the original paid-in capital) is recorded as retained income. These can also be used to pay for ongoing business expenses and liabilities.

However, if there is not enough money to repay the debt (for example, if the business is not good, or the company wants to expand more aggressively), the company may need to raise funds by issuing new shares, accepting bank loans, or issuing debt instruments.

 

  1. Paid-up capital increase and decrease

 

  • Increase paid-up capital

In order to increase paid-up capital, the company first needs to issue new shares.

When it comes to sharing issues, there are many legal requirements to be aware of. These requirements include requirements related to notifications, shareholder approval and director responsibilities. Violang some of these rules may subject you to civil or even criminal responsibility.

 

  • Reduce paid-up capital

It is much more difficult to reduce the company ’s paid-up capital and return it to shareholders than to increase the company ’s paid-up capital. This is because people worry that if shareholders can freely recover their investment, creditors may be at a disadvantage.

Some rules related to capital reduction are also highly technical in nature, and may sometimes require court approval.

For example, share repurchases (that is, companies repurchasing their own shares from existing shareholders and then paying with their own capital, thereby reducing the company’s capital) are generally not allowed unless they are defined in the Singapore Companies Act but there are a few exceptions.

Currently, there are two ways to obtain reduction approval:

 

  • Court approval method:

To obtain court approval to successfully reduce capital, the following actions must be taken:

  • A special resolution on reductions must be adopted.
  • This reduction must be confirmed by the court.

The company must send a notice to the Singapore Accounting and Corporate Regulatory Authority (ACRA) stating that the special resolution has been passed. Before the court approves the resolution, each eligible creditor either agrees to reduce the debt, or assures the court that its debt is guaranteed or secured.

This is because when a company intends to reduce its share capital, the court must ensure that its creditors are not adversely affected by such reductions. As long as the company begins to wind up on a certain day prescribed by the court, the creditor’s debt or claim may be accepted as evidence. Once the court approves the reduction, the company must submit a copy of the court approval order and a noce containing the reduction information to ACRA through the BizFile + website within 90 days of approval.

On BizFile +, companies can edit their holdings based on approved capital reductions. Only when the Singapore Accounting Enterprise Regulatory Authority (ACRA) records the information submitted to it will the capital reduction be effective.

 

  • Non-court approved methods:

To successfully apply for a capital reduction not approved by the court, the following steps must be taken:

  • Must pass a special resolution of shareholders
  • The board of directors makes a solvency statement (if necessary)

The company must comply with publicity regulations:


Solvency Statement

The solvency statement confirms that the company is currently capable of repaying its debts within the next 12 months, even if the company begins to wind up and its asset value is not lower than its debt value.

Directors must conduct due diligence and properly consider the company’s financial situation when preparing solvency statements. The solvency statement provided by the directors has no sufficient reason and may have to bear criminal responsibility.

The solvency statement can be made as early as 20 days before the special resolution (reduction of share capital) is passed.

However, if reducing share capital does not involve the company’s reduction or allocation of assets, or does not involve the exemption of any liabilities to the company, no solvency statement is required.


The Need for Publicity

Special resolutions and solvency statements (if any) must be open for inspection. To meet the promotion requirements, the company must submit an application to ACRA through BizFile +, within 8 days from the resolution date:

–  A notice containing the full text of the special resolution to reduce share capital

–  The date of the resolution

–  Reduce information

The company can also publish layoff notices in the Singapore Daily.

If the capital reduction is successful, the relevant information will be available for inspection within 1 month after the capital reduction.


What happens if the company goes bankrupt?

If a company fails, a liquidator will be assigned to handle the company’s affairs. In this process, the liquidator distributes all the company’s assets (including paid-in capital) to creditors, and if there are remaining funds, it is distributed to shareholders.