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Singapore Reforms Company Law

22 Oct 2002

1. Companies and businesses can look forward to lower compliance costs arising from reforms to the company law recently approved by the government. Singapore's securities legislation will also be updated and aligned to international practices to facilitate capital raising. These recommendations are part of initiatives to modernise Singapore's corporate regulatory framework and improve Singapore's international competitiveness.

2. Speaking at the Morgan Stanley Asia Pacific Summit on 22 October 2002 Deputy Prime Minister and Minister for Finance Lee Hsien Loong announced that the government has accepted all 77 recommendations from the Company Legislation and Regulatory Framework Committee ("CLRFC") set up to review company law and securities regulations. Some of the key recommendations in the final report are highlighted below.

Key Recommendations

Two New Business Structures Introduced - Limited Partnership and Limited Liability Partnership

3. Two additional business structures, namely limited partnerships and limited liability partnerships, will be introduced to widen the range of business vehicles in Singapore. The introduction of these structures in Singapore will give market players more options in deciding how they want to structure their businesses. The limited partnership structure accords passive investors with limited liability, privacy and tax transparency. It can be used for private equity and fund investment businesses. On the other hand, the limited liability partnership allows businesses and professionals to enjoy the benefits of incorporation and limited liability whilst organised as partnerships. It will be available to all businesses.

Incorporation and Maintenance Simplified for Private Companies

4. Several measures will be implemented to lower the costs of doing business in Singapore and to create a conducive business environment for entrepreneurs. Corporate maintenance requirements for private companies will be simplified. Some of the key recommendations include:

(a) One-director private companies: To encourage more entrepreneurs, the incorporation requirement for private companies will be relaxed. Currently, the law requires all companies to have a minimum of two directors and two shareholders. While there are good reasons to retain the requirement for public companies, the requirement for private companies may have an unintended effect of discouraging start-ups. Government will hence allow one-director private companies. The single director and shareholder can be the same person.

(b) Professionally qualified company secretaries: Currently, all companies are required by law to appoint professionally qualified company secretaries. This is not consistent with the practices in the other jurisdictions1 . Government will remove the statutory requirement for private companies to appoint professionally qualified company secretaries. All companies will continue to appoint company secretaries to ensure that corporate records are properly maintained. However, private companies have the flexibility to decide whether these responsibilities are to be undertaken internally or outsourced to professionally qualified company secretaries. This recommendation will help to reduce maintenance costs for private companies and align our practices to those in the UK, Australia and Hong Kong.

(c) Statutory audit requirement: The CLRFC has reviewed the statutory requirement for all companies to carry out an external audit. During the second public consultation in May this year, the CLRFC put forth its preliminary proposal to remove the statutory audit requirement for dormant companies2 and exempt private companies3 ("EPCs"), subject to appropriate safeguards. The CLRFC chose the concept of EPCs as the basis for audit exemption, as more than 80% of these companies are owner-managed. As the shareholdersare also the directors, the case for statutory audit as a means to protect shareholders' interest is less strong.

Most respondents agreed that statutory audit serves no public purpose and imposes unnecessary costs on dormant companies. In the UK and that they would continue to engage professionally qualified company secretaries, even if the law does not compel them to do so. As the law would still require all companies to prepare and maintain proper accounting records, 75% of the companies surveyed i

Threshold for Compulsory Acquisition

6. Currently, an offeror company with 90% of the shares (other than shares already held by the offeror company and its subsidiaries) of a target company can compulsorily acquire the remaining 10% shares. Th