Closing a Company / Cessation of Business
Companies of all shapes and sizes go through constant change throughout their life cycle to ensure they remain competitive. Sometimes, change can lead to the closing down of a company, a subsidiary, or just a local branch. These changes could be driven by a wider clean-up and restructuring exercise or are measures to save on compliance and maintenance costs, or the business is simply no longer commercially viable in the operating county.
How do you know it is time to close down your company?
Deciding to close down a company is a difficult and important decision that should not be taken lightly. In Singapore, there are several reasons why a company may need to be closed down, including financial difficulties, strategic changes in the business, or a lack of profitability. Here are some signs that it might be time to close your company:
- Financial difficulties: If your company is experiencing persistent financial problems, such as cash flow issues, inability to pay debts, or mounting losses, it may be time to consider shutting down.
- Lack of profitability: If your company has been struggling to make a profit for an extended period of time, despite your best efforts, it may be time to cut your losses and close down.
- Changes in the market: If your company’s products or services are no longer in demand, or if there have been significant changes in the market that make it difficult for you to compete, it may be time to consider shutting down.
- Legal issues: If your company is facing legal issues, such as lawsuits, fines, or regulatory challenges that are difficult to resolve, it may be time to consider closing down.
- Strategic changes: If you have decided to pivot your business in a new direction that is fundamentally different from your current operations, it may make more sense to close down your current company and start fresh.
How to close a company in Singapore
There are three main options for closing a business entity in Singapore and we have set them out below to assist you with determining which is the most effective course of action for your business.
01 Striking Off a Company
Pursuant to Section 344 of the Companies Act (Cap. 50) (the “Companies Act”), a company may apply to the Accounting and Corporate Regulatory Authority (“ACRA”) to strike off in Singapore if it is not carrying on business or is not in operation and is able to satisfy the following conditions:
- The company has not commenced business since incorporation or has ceased trading.
- The company has no outstanding debts owed to Inland Revenue Authority of Singapore (“IRAS”), Central Provident Fund (“CPF”) Board and any other government agency including ACRA.
- There are no outstanding charges in the charge register.
- The company is not involved in any legal proceedings (within or outside Singapore).
- The company is not subject to any ongoing or pending regulatory action or disciplinary proceeding.
- The company has no existing assets and liabilities as at the date of application and no contingent asset and liabilities that may arise in the future.
- All/majority of the director(s) approve the submission of the online application for striking off on behalf of the company.
It is also important to ensure that there is no outstanding tax credit owing to the company before applying to strike off as and when the company is dissolved, any tax credit due to the company will be paid over to the Insolvency and Public Trustee’s Office.
An application to strike off a company in Singapore can be carried out directly by the company director. However, companies will usually engage their appointed company secretary or a registered filing agent to save time and hassle. Here are some for your company. Processing time once the application is submitted to the Accounting and Corporate Regulatory Authority is estimated to be approximately four months.
Any person aggrieved by the striking off can submit an objection against a striking-off application. If ACRA receives any objection, ACRA will inform the company of the objection, and the company is required by ACRA to resolve the matter within two months. Otherwise, the striking off application will lapse.
A company can be restored within six years after the company’s name has been struck off by a Court Order.
Closing down a company by striking it off is a straightforward and expeditious process relative to the procedures of winding-up a Singapore company, or liquidation of a business which is discussed below. However, this option is only viable mainly for local companies that are dormant and do not have any assets or liabilities.
02 Winding up a Company or Liquidation of a Business
When a Singapore company is wound up or liquidated, the debtor company’s assets are collected and sold off in order to pay its debts. Any monies remaining after all debts, expenses and costs have been paid off are then distributed amongst the shareholders of the company. Upon completion of the winding up process and all related business tractions, the company will then be formally dissolved and cease to exist.
A members’ voluntary winding up in Singapore may be carried out if the company directors believe that the company will be able to settle its debts in full within 12 months from the commencement of the winding-up. Where a company is unable to pay its debts and wishes to be wound up, it may do so by way of a creditors’ voluntary winding up. In both instances, a liquidator will need to be appointed to carry out all acts required to wind up the company.
We will only be addressing a members’ voluntary or self-imposed winding up in this article.
A solvent entity may consider closing down a company by embarking on a members’ voluntary winding up if the company has ceased its business activities, or if the company is not able to generate enough profit to sustain itself, or its existence is no longer required pursuant to a restructuring of the group which the company belongs.
In a members’ voluntary winding up, the directors of the Singapore company need to lodge a declaration with the Registrar of Companies that the company cannot by virtue of its liabilities continue its business (the “Declaration of Solvency”). An Extraordinary General Meeting (“EGM”) will then need to be convened to, among others, seek shareholder approval to wind up the company and appoint the liquidator.
A members’ voluntary winding up may commence upon the passing of a special resolution by the members of the company or on the day of lodgment of the Declaration of Solvency with ACRA (where a provisional liquidator has been appointed before the special resolution for voluntary winding up was passed), whichever is earlier.
Once the affairs of the company are fully wound up, the liquidator will draw up an account of how the winding up had been conducted, including, how the company’s assets had been disposed of and present this to the shareholders at an EGM. Thereafter, the liquidator will need to lodge with ACRA and the Official Receiver a return stating that the meeting has been held with a copy of the account attached.
The company will be dissolved three months after the lodgement. However, the court has the power to declare the dissolution of a company to be void at any time within two years after the date of dissolution if an application is made by the liquidator or any other interested person.
Even though closing down a company is a fairly long process, it will ensure a fair and equitable distribution of the company’s assets amongst its creditors and contributories.
03 Closing the local branch of a Foreign Company in Singapore
A foreign company’s local branch has to cease its operations in Singapore if the foreign company has been dissolved or is undergoing liquidation by filing the necessary notification with ACRA.
If a foreign company’s local branch in Singapore has ceased business, the foreign company may apply to ACRA for winding up a company if it is able to satisfy the following criteria:
- The sole authorised representative is unable to resign because the company has not appointed a replacement.
- The authorised representative has received no instructions from the company for at least 12 months after a request has been made regarding whether the foreign company intends to continue operations in Singapore.
- The foreign company has no authorised representative (can be filed only by registered filing agent).
If the foreign company’s local branch in Singapore is GST-registered, it has to apply for cancellation of the GST registration with IRAS.
Singapore provides a range of options for the closing of business entities and companies, from choosing to strike off or winding up. The option you choose would depend on the state of affairs of the business entity and your business strategy.
We hope this note is useful to you as a starting point for your discussions on the options to close a business entity in Singapore.
Looking For A Trusted Corporate Secretarial Firm In Singapore?
Boardroom has over 50 years of experience guiding companies of all shapes and sizes through the various options available within Singapore. Boardroom’s experienced team can not only advise you on the best course of action on how to close a company in Singapore but also take care of the formalities and ensure all statutory requirements are met. Should you require any further information or professional corporate secretarial services and advice, please do not hesitate to get in touch with your usual contact at BoardRoom or contact [email protected].
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