How to Reduce the Share Capital of Your Singapore Company
There are two main ways to reduce the share capital of your Singapore company:
1. With Shareholders' Approval (No Court Order): This is the simpler method if all shareholders agree and the company is solvent. Here's the general process:
Pass a Special Resolution: A vote at a general meeting needs to approve the reduction by a majority of at least 75% of the votes cast, representing at least 50% of the total voting rights.
Solvency Declaration: The directors must make a statutory declaration stating the company can pay its debts within the next 12 months. This is valid for 20 days for private companies and 30 days for public companies.
Public Notice: Notice of the proposed reduction needs to be published for creditors to object within 6 weeks.
ACRA Filing: If no creditor objects, you can file the reduction with ACRA (Accounting and Corporate Regulatory Authority) electronically.
2. Reducing Capital with Court Approval: This method is required if creditors object or the company is unsure of its solvency. The steps involve:
Pass a Special Resolution (as above)
Apply to Court: File an application with the court for approval of the reduction.
Court Order: If approved, the court will issue an order.
ACRA Filing: File a notice of the court order with ACRA within 90 days.
Important Considerations:
Creditor Protection: Creditors have the right to object if the reduction affects their ability to get repaid.
Here's a deeper dive into the details and specific requirements for reducing share capital in Singapore:
With Shareholders' Approval (No Court Order):
Special Resolution:
The notice convening the meeting must clearly state the intention to propose a reduction in share capital.
The resolution itself should specify the amount or proportion of the share capital to be reduced and how it will be achieved (e.g., buying back shares, canceling forfeited shares).
Solvency Declaration:
The declaration is a statutory document signed by the directors, confirming the company's ability to settle its debts within the next 12 months.
The directors are liable for any false or misleading statements in the declaration.
Public Notice:
The notice must be published in the Government Gazette and a local newspaper.
It should specify details like the proposed reduction amount, creditors' objection period (6 weeks), and contact information for inquiries.
ACRA Filing:
The e-form for filing the reduction requires supporting documents like the special resolution, solvency declaration, and proof of publication notice.
ACRA will typically process the filing within a few days.
Reducing Capital with Court Approval:
Application to Court:
The application needs to be filed with the Singapore High Court.
It should include details about the company, the proposed reduction, and a justification for seeking court approval (e.g., creditor objections).
Legal representation is recommended for this process.
Court Hearing:
The court may hold a hearing to consider the application and any objections from creditors.
The court can approve, modify, or reject the reduction proposal.
ACRA Filing:
If the court approves, you'll receive a court order.
File a "Notice of Court Order for Approval of Reduction of Share Capital by Special Resolution under section 78G" with ACRA within 90 days.
Additional Considerations:
Company Constitution:
The company's constitution may have specific procedures or limitations regarding share capital reduction. Ensure compliance with these provisions.
Tax Implications:
Depending on the method used, there may be tax implications for the company and shareholders. Consult a tax advisor for guidance.
Record Keeping:
Maintain proper records of all documents related to the share capital reduction process, including meeting minutes, resolutions, declarations, and court orders.
For further details and specific requirements, refer to the Bestar guide: Reduction of Share Capital
How Bestar can Help
When reducing your share capital in Singapore, Bestar can provide valuable assistance throughout the process:
Advises on Legal Aspects: We ensure compliance with the Companies Act, relevant regulations, and your company's constitution.
Drafts Resolutions and Notices: Bestar will draft the special resolutions for shareholder meetings and notices required for public announcements and creditor claims.
Represents in Court (if needed): If creditors object and court approval is necessary, Bestar's partnered lawyer will represent your company in court proceedings.
Solvency Assessment: Bestar will assess your company's financial health and prepare the solvency declaration, ensuring it accurately reflects your ability to pay debts.
Tax Implications Advice: We can advise on potential tax implications for the company and shareholders due to the share capital reduction.
Fair and Equitable Reduction: Bestar can help calculate a fair and equitable method of reduction to protect the rights of minority shareholders.
Overall Benefits of Using Bestar:
Reduced Risk of Errors: Our expertise helps avoid mistakes during the process, minimizing the risk of legal challenges or delays.
Efficient Process: Bestar can streamline the process, ensuring all steps are completed correctly and efficiently.
Peace of Mind: Having professional guidance provides peace of mind knowing your company is adhering to legal and financial requirements.
Remember, reducing share capital can be complex. Bestar is familiar with Singapore's corporate laws. Consulting us is highly recommended to ensure a smooth and successful process.
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