Perpetuity. What is perpetuity? A dictionary meaning would read “the state or quality of lasting forever”. Why is this applicable here? Because, once a Company is formed (registered with a unique identity number of its own) – its intended to last forever, until it is wound up (closed down). Every entrepreneur dreams of his/ her company to be active and running and giving great returns from the first day of launch.
But, in the life cycle of a Company – there may be a lull phase, which maybe be a result of a strategic business decision (to introspect and re-focus maybe). But during this slow phase, there is a running cost to keep the Company alive. When a Company’s normal business functions are suspended or slowed down for a period of time, it is said to be a ‘Dormant company’.
As a business owner, you may tend to neglect the related compliance matters. But this may cost you – as regulatory authorities expect annual filings to be completed on time. Unless this is done, they would take corrective actions of varying measures – even to the extent of closing an inactive company.
Here, we explore the basic compliance for a ‘Dormant Company’ in Singapore:
1. Preparation of Financial Statements?
For an active Company, where there is constant inflow and outflow of funds, there is a valid reason to track these movements and capture them in a financial statement.
But for a Dormant Company, there are no active transactions in the Company and preparing this Financial Statement will only add to the financial strain. Accounting and Corporate Regulatory Authority (ACRA) of Singapore, has provided an update on the amended Companies Act (New Section 201A).
The gist of the exemption reads:
Previously, a dormant company was exempted from the statutory audit requirements.
With the introduction of the new provisions via Section 201A, the new exemption from preparation reduces regulatory costs for dormant companies which have lower public impact.
A Dormant Company is exempt from preparing the Financial Statements, if it fulfils the following conditions:
(a) the company fulfils the substantial assets test*; and
(b) the company has been dormant from the time of formation or since the end of the previous financial year.
*The substantial assets test is that the total assets of the company at any time within the financial year must not exceed S$500,000. For a parent company, the consolidated total assets of group at any time within the financial year must not exceed S$500,000.
Dormant listed companies and their subsidiaries as well as dormant unlisted companies which do not fulfill the substantial asset test must prepare financial statements but are exempt from audit. This remains unchanged from the current position.
2. Annual compliance:
Each company, whether active or dormant is required to file the Annual return with ACRA indicating the change (if any) / status quo in the Company’s structure (the Directors, shareholders, share capital etc).
You Company Secretary should advise you on this important annual compliance each year.
To summarise, to keep a Dormant Company active in Singapore, the following compliance need to be completed:
Hold an Annual General Meeting (AGM) or apply for Exemption From Holding AGMs for Private Companies with Financial Year End (FYE) ending on or after 31 Aug 2018 (s175A Companies Act)
A Dormant Company may be exempt from preparing the Financial Statements for a particular financial year – if it satisfies the exempt condition
File the Annual return with ACRA to be compliant.
Please reach out to us in case you have further queries regarding this. We are a boutique company secretarial and accounting firm that help companies meet their compliance requirements as well as advice on required documentation while scaling up – if you are thinking of your next funding round, please feel free to reach out to us to discuss how to prepare your compliance registers and books of accounts.
1.More information about company closures and management can be found on ACRA's website
2. All pictures used in the article are from pexels.com and are allowed for commercial use.