- Improving transparency: new registers of "controllers" and "nominee" directors of entities
- Increasing ease of doing business and boosting competitiveness as a global business hub
On 10 March 2017, the Singapore Parliament passed the Companies (Amendment) Act 2017 and Limited Liability Partnerships (Amendment) Act 2017.
The latest legislative amendments are aimed at keeping Singapore's corporate regulatory regime robust, and reflect ongoing efforts by the government to support Singapore's growth as a global hub for businesses and investors.
Key changes that will be made pursuant to the amendments include the following:
a. Singapore-incorporated companies, Singapore-registered limited liability partnerships (LLPs) and Singapore-registered branches of foreign corporations will be required to maintain a register of controllers;
b. Nominee directors will be required to disclose their nominee status and nominators to their companies; and
c. Foreign corporate entities will be permitted to transfer their registration from their original jurisdiction to Singapore (i.e. inward re-domiciliation).
Please see our summary of these developments below, focusing on amendments made to the Companies Act.
For a summary of the changes previously proposed in relation to items (a) and (c), please see our Client Alerts "Proposed Disclosure of Beneficial Owners of Private Limited Companies, Limited Partnerships and Foreign Branches" and "Forthcoming Changes to the Regulatory Regime for Companies and LLPs".
Register of controllers
Following the amendments, Singapore-incorporated companies, Singapore-registered LLPs and Singapore-registered branches of foreign corporations will be required to maintain a register of controllers.
Who is a controller?
The new section 386AB of the Companies Act (Cap. 50 of Singapore) (CA) defines an individual or a corporation as a "controller" of a reporting entity based on either of two thresholds:
- Significant control: (a) the right to appoint or remove a majority of directors; (b) the right to exercise or the actual exercise of significant influence or control over the relevant entity; or (c) holding more than 25% of the voting rights (whether directly or indirectly) on matters to be decided at a meeting of the reporting entity; or
- Significant interest: having an interest in more than 25% of the shares or shares with more than 25% of the total voting power in the company. Where the entity has no share capital, holding the right to share in more than 25% of the capital or profits of the company.
The 25% threshold is consistent with the recommendations in the Financial Action Task Force (FATF) guidance documents, and thresholds used in the United Kingdom’s legislation on registers of people with significant control, and the European Union’s Fourth Anti-Money Laundering Directive.
Who has an “interest”?
Sections 7(1A) to (6A), (8), (9) and (10) of the CA will generally apply to determine whether a person has an “interest” (see paragraph 4 of the new Sixteenth Schedule). For instance, a person will be considered to have an interest in shares which he has authority to dispose of or to exercise control over the disposal of (section 7(1A) of the CA).
Under the amendments, a share or right held by a nominee on behalf of a person will be considered to be held by that person (instead of the nominee).
The new Sixteenth Schedule will also provide for the following in respect of joint interests and rights:
- A person who has an interest in or holds rights jointly with another person will be considered to have an interest in that share, or as holding that right (as the case may be).
- If shares in respect of which a person has an interest and the shares in respect of which another person has an interest are the subject of a joint arrangement between those persons, then each person will be considered as having an interest in the combined shares of both of them.
- If rights held by a person and the rights held by another person are the subject of a joint arrangement between those persons, then each person will be considered as holding the combined rights of both of them.
In this connection, a joint arrangement is defined broadly to be an arrangement to exercise all or substantially all rights (conferred by the shares or rights) jointly in a pre-determined way. It will include any scheme, agreement or understanding. Such joint arrangement need not be legally enforceable, but there must be at least some degree of stability about it, so one-off “arrangements” do not qualify.
Reporting up the chain
Where a reporting entity is a subsidiary or part of a group of companies, careful scrutiny up the chain of legal entities will be required to comply with reporting requirements.
All controllers of the reporting entity will generally be registrable, unless the controller's significant interest in or significant control over the reporting entity is through certain entities such as a Singapore-incorporated company required to maintain a register of controllers or other entities exempted from this regime (see new section 386AC). In this respect, foreign companies without a branch registered in Singapore do not come under the regime and tracing should continue up the chain.
Inspection of register - Not available for general public inspection
Under the new section 386AF(11), the register of controllers must not be disclosed or made available for inspection, except upon request by Accounting and Corporate Regulatory Authority (ACRA) or other public agencies.
The new section 386AA of the CA exempts certain entities from the requirement to maintain the register of controllers.
The exempted entities include public companies listed in Singapore, Singapore financial institutions, and companies listed outside Singapore and which are subject to regulatory disclosure requirements and adequate transparency requirements in respect of their beneficial owners.
Duties on officers and controllers
A reporting entity will have certain duties, including
- Duty to investigate and obtain information (new section 386AG)
- Duty to keep information up-to-date (new section 386AH)
- Duty to correct information (new section 386AI)
Individuals and corporations who know or believe that they are registrable controllers are also under the duty to provide information and change of information (see new sections 386AJ and 386AK).
In prosecuting a corporation or partnership for a breach of any of these duties, ACRA will consider the state of mind of any officer, employee or agent of that corporation or partnership as evidence that the corporation or partnership had that state of mind (new section 386AD).
Effective date - 31 March 2017
ACRA has indicated that the requirements to maintain a register of controllers will take effect from 31 March 2017.
To help relevant entities prepare to comply with these new requirements, existing entities will be given a transitional period of 60 days from 31 March to set up the register of controllers, after which they must have and continue to maintain the required registers. New companies incorporated on or after 31 March must put such registers into place within 30 days of incorporation.
Requirement of nominee directors to disclose nominee status
Duty to disclose
The new section 386AL requires a nominee director of a Singapore-incorporated company to:
- Inform the company of that fact;
- Provide prescribed particulars of the person for whom the director is a nominee; and
- Inform the company of changes in the director’s particulars or status as nominee.
Meaning of nominee director
For the purposes of these reporting requirements, a nominee director is a director accustomed or under an obligation whether formal or informal to act in accordance with the directions, instructions or wishes of any other person (new section 386AL(8)).
Register of nominee directors - Not available for general public Inspection
A Singapore-incorporated company will also be required to keep a register of its directors who are nominees. The register of nominee directors or any particulars contained in the register of nominee directors must not be disclosed or made available for inspection, except upon request by ACRA or other public agencies (new section 386AL(5)).
Effective date - 31 March 2017
ACRA has indicated that the requirements relating to the disclosure of a director's status as nominee will take effect from 31 March 2017. Existing nominee directors will be given a transitional period of 60 days from 31 March. The disclosure requirements will apply within 30 days for nominee directors of companies incorporated on or after 31 March.
Inward re-domiciliation for foreign entities
An inward re-domiciliation regime will be introduced in Singapore to allow foreign corporate entities to transfer their registration to Singapore instead of setting up subsidiaries ( e.g. foreign corporate entities that may want to relocate their regional and worldwide headquarters to Singapore and still retain their corporate history and branding).
Such foreign corporate entities must meet certain requirements, including the requirement to be bodies corporate (new section 356) that can adapt their legal structure to the companies limited by shares structure under the CA (new section 358) and other qualifying criteria (new section 360).
A foreign corporate entity that is re-domiciled to Singapore will be required to comply with the CA like any other Singapore-incorporated company (new section 361(1)). Re-domiciliation will not affect the obligations, liabilities, properties or rights of the foreign corporate entities (new section 361(2)).
Please see our Client Alert "Forthcoming Changes to the Regulatory Regime for Companies and LLPs" for a summary of our observations on the inward re-domiciliation regime.
Effective date - first half of 2017
ACRA has indicated that the inward re-domiciliation regime introduced by the amendments will be implemented within the first half of 2017.
The transparency-related amendments discussed above are further examples of the Singapore government's objective of making ownership and control of business entities more transparent, and continue to strengthen Singapore as a leading financial centre that follows international best practices.
The new inward re-domiciliation regime will also enhance Singapore's reputation for flexibility and attract multinational companies looking for a hub to springboard their growth in the Asian markets.