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CLRFC Media Release: Company Legislation And Regulatory Framework Committee Launches Public Consultation On Its Draft Report

10 May 2002

1. The Company Legislation and Regulatory Framework Committee (the 'CLRFC') issued a public Consultation Paper ('October 2001 Consultation Paper') on 22 October 2001 to gather comments on the areas that the Committee had identified for review. The CLRFC received comments from a total of 105 respondents to its October 2001 Consultation Paper, and would like to take this opportunity to express its appreciation to the respondents for their useful comments. The comments have been fully considered and some are reflected in the CLRFC's draft report.

2. Before submitting its final recommendations to the government, the CLRFC would like to issue its draft report for public consultation. The CLRFC's draft report comprises the following five chapters:

(a) Chapter 1: Business Vehicles and Small Business
(b) Chapter 2: Capital Raising, Capital Maintenance and Company Charges
(c) Chapter 3: Corporate Governance
(d) Chapter 4: Corporate Insolvency
(e) Chapter 5: Boundaries and Concluding Recommendations

Key Recommendations

3. Some of the key recommendations in the report are:

Chapter 1: Business Vehicles and Small Business

(a) Limited Partnerships and Limited Liability Partnerships: The CLRFC has reviewed the adequacy and comprehensiveness of the vehicles available under Singapore law for the conduct of domestic and international business. The CLRFC recommends that Limited Partnerships and Limited Liability Partnerships be introduced in Singapore. The Limited Liability Partnership structure would be available to all businesses. These additional business structures would widen the structures available for businesses and investments in Singapore.

(b) Simplification of incorporation and maintenance of private companies: The CLRFC recommends that the incorporation and maintenance requirements for private companies be simplified. These include:

(i) One shareholder/ one director companies: Currently, the Companies Act requires a minimum of two directors to form a company and at least one of them must be ordinarily resident in Singapore i.e. citizen, permanent resident or employment pass holder. To reduce incorporation and maintenance costs, the CLRFC recommends lowering the requirement for private companies in Singapore to incorporate with one shareholder and one director who is ordinarily resident in Singapore. Private companies in Australia, New Zealand and UK can incorporate with one shareholder and one director.

(ii) Professionally qualified company secretaries: The CLRFC has received many comments on this proposal during the October 2001 consultation. The Committee agrees with the respondents that it is essential that there be an appointed person whose responsibility is to ensure that the statutory registers and records are properly maintained. In this regard, the CLRFC proposes to retain the requirement for all companies to appoint company secretaries. However, having considered all views, the CLRFC recommends that private companies be allowed to decide whether these responsibilities are to be undertaken internally or outsourced to professionally qualified company secretaries. This will reduce the maintenance costs for such companies as they may appoint employees or directors to perform the company secretarial functions. Some private companies may still decide to retain professionally qualified company secretaries, but that would be a business decision as opposed to a legal requirement. Private companies in Australia, Hong Kong and UK are not required by law to appoint professionally qualified company secretaries.

(iii) Removal of statutory requirement of audit: The proposal to remove the statutory requirement of audit for exempt private companies has raised much interest from accountants, many of whom are against the idea. On the other hand, respondents from the business sector support the removal of the statutory requirement of audit for exempt private companies and leaving the decision on whether an audit is required to market forces. Several respondents, including accountants, suggested removing the statutory requirement for dormant companies to have their accounts audited. The CLRFC has studied the practices in the leading jurisdictions. UK and Hong Kong do not require dormant companies to have their accounts audited. Australia, UK and US do not require small companies to have their accounts audited, but leave such decisions to be determined by market demands.

The CLRFC believes there is a strong case to remove the statutory requirement of audit for dormant companies (defined in the UK as those who have not had any significant accounting transactions in a financial year) in Singapore. This requirement serves no public purpose and imposes unnecessary costs on dormant companies. Having considered the feedback to retain the statutory requirement for exempt private companies to have their accounts audited, the CLRFC maintains the view that such a requirement should not be prescribed by law. More than 80% of exempt private companies have shareholders who are also directors. In such companies, the case for statutory audit as a means to protect shareholders' interest is less strong, if the law provides that a certain percentage of shareholders can demand that an audit be conducted. Other parties who deal with such companies, such as banks and creditors, can continue to require audited accounts. As a safeguard, the CLRFC has taken on board the suggestion for all companies to maintain proper accounting records which will sufficiently explain their transactions and financial position. Hence, if an audit is required, the auditor would be able to conduct a proper audit based on the company's accounts.

The CLRFC recognises that a transition period would be required to implement the removal of the statutory requirement of audit for exempt private companies. The removal of the statutory requirement of audit for dormant companies can be implemented early.

Chapter 4: Corporate Insolvency

(f) Consolidation and refinement of insolvency legislation: The current legislative provisions are found in discrete portions of the Companies Act and the Bankruptcy Act. The CLRFC recommends the introduc