About Penalties of Directors
Global businesses are starting to centralize their functions in the financing department, wanting to improve their efficiency. They will do this by putting their finance and reporting functions in a shared service centre rather than replicating the whole functionality structure in each country. The change is because of the necessity to streamline, control data, and standardize from the hub and not the rim. Indeed, the cost efficiency and higher level of control by centralized business models make them very attractive. However, they do not have risks.
If they operate in different countries, it means complying with a lot of local regulations is like tax returns, payroll, and statutory filing are necessary. Compliance regimes could be complex or simple, but they must vary. In addition, a lot of territories frequently change their filing regulations. Having no contact in the country makes it hard to adapt to these changes.
Know more about it here.
Corporate compliance means sticking to rules, laws, regulations, and standards that must protect all your business aspects. From following the safety guidelines to abiding the standards for payroll, a company must follow the local state, and federal laws all the time.
Monitoring is about the continuous observance of possible compliance violations and also to predict its occurrence. Since the business process compliance is huge, approaches linked to process monitoring are difficult to find. Monitoring business process compliance with constraints, regulations, and rules on a run time has become a major concern.
The non-compliance cost and monetary fines have been increasing continuously in the past years. However, business owners are starting to become impatient because these consequences affect the organization in a lot of ways. There is an increase in complexity, business changes are enforced, and individuals being personally held accountable must continue because of compliance failures.
Annual Return Filing Breaches
The company director incorporated under the Companies Act must comply with the statutory obligations under the Act. Here are the statutory obligations directors must comply with:
- Section 175, it requires the company to have an Annual General Meeting (AGM). The listed companies are supposed to hold the AGM in not more than 4 months after the financial year ends. Other companies must hold their AGM within 6 months after the financial year. Private companies might not have to hold an AGM if they follow the criteria based on section 175A.
- Section 197 requires a company to file annual returns (AR) within 5 months after the financial year-end (FYE). All other companies are given 7 months. For companies to have a share capital and have a branch register outside Singapore, Annual Returns (AR) need to be filed before the end of 6 months after the FYE for a listed company or within 8 months after the FYE if the company is not in the list.
Importance of Statutory Compliance
- Mandated by law – All registered companies must abide by the law in following statutory regulations and follow them.
- Audits – Non-compliance also attracts unnecessary inspection and audits that lead to waste of money and time.
- Financial penalties – Not adhering to statutory compliance leads to the imposition of fines and the indirect losses of organizations.
- Market reputation – If the company has to pay fines and be imprisoned, it can ruin a company’s brand name in the market.
- Imprisonment – A bad case of non-compliance could lead to the imprisonment of the CEO/Board members/Directors.
- Company will be forced to shut down – If the company shows severe non-compliance, authorities can ask the company to shut down and stop operations.
Important Regulatory Compliance Information
1. The Company Needs a Registered Office
A Singapore company needs to have a registered office address where all government communications and notices could be sent.
The office must have a physical location within Singapore and must be open and accessible to the public for 3 hours or more during business hours on business days.
Companies that do not own or rent a property can choose to have a virtual office.
These services give a business address and mail-forwarding for a fee every month and are an affordable option instead of renting or buying a physical property in Singapore.
2. At Least 1 Resident Director
A Singapore company needs to have at least 1 director who is a Singapore resident.
A person can only become a director if:
- They are at least 18 years old
- They do not have a bankruptcy file
- Physically and mentally healthy
- The person is not currently disqualified as a director by the authorities of Singapore
3. The Company’s Secretary Must Be a Singapore Resident
The company should appoint at least 1 secretary to make sure that the company follows the reporting and regulatory requirements. The secretary’s office is not allowed to be vacant for over 6 months.
The secretary must be Singapore’s ordinary resident. However, a director can serve as company secretary if he is not the company’s sole director.
4. A Data Protection Officer Must Be Appointed
Based on the Personal Data Protection Act (PDPA), companies must appoint at least 1 Data Protection Officer to make sure that a company complies with the PDPA.
5. The Company Should Display Its Name and Unique Entity Number (UEN)
Once the company is already incorporated, the Accounting and Corporate Regulatory Authority (ACRA) will give the company its own UEN on the documents and communications. These documents are:
- Official notices
- Business letters
- Statement of accounts or invoices
- Official notices
- Exchange of bills, endorsements, promissory notes, orders, cheques, letters of credits, and receipts
The company name must also be on the seal if there are any.
6. Maintain Specific Company Registers
For better transparency and governance, the company should keep specific company registers. These are:
- Register of directors, secretaries and chief executive officers
- Registration of important shareholders
- Register of nominee directors
- Registration of controllers
7. Goods and Services Tax (GST)
The company is required to register for the GST if it expects to have a taxable turnover of more than $1 million
8. Disclosure Requirements
The company should follow disclosure requirements when it comes to conflicts.
9. Appropriate Licenses
The company should have the right licenses and business approvals if applicable
10. The Company Should Comply With the Accounting Laws of Singapore
During the company incorporation, they must designate a date as the financial year-end (FYE). This is in reference to when the company’s annual accounting ends, which does not always fall on December 31.
When it comes to determining the FYI, it might be better to consider the company’s business cycle in reporting and taxation periods.
For instance, companies might want to designate the FYE when the business cycle ends, when the majority of transactions are concluded and it will be easier to get the correct company performance overview.
Other Regulatory Compliances
- Annual Returns have to be filed with the ACRA
- The Company Must have a General Meeting Every Year
- Comply with Employment Regulations
The penalties depend on how late you are with the filing.
Before December 1, the default of every section incurs penalty/ composition sum from $60 to $350 depending on the default length. This method of penalty amount computation already has a flat penalty or composition sum of $300 for every breached section.
Stepped-Up Enforcement Actions
Authorities have 3 levels when it comes to enforcement actions. Stepped-Up Enforcement Actions causes additional composition sums that must be paid and they are on top of the sums.
To avoid any doubt, the ACRA has the discretion to not offer Composition to the company and its directors.
Before the Issuance of Summons, ACRA is going to contact the company and its directors to offer a composition that amounts to $600 for each section they breached. If the directors fail to pay the composition on time, they might have to attend court to pay an official fine after the court session ends.
Since 2016, any directors who are part of at least 3 companies that are struck off by ACRA within 5 years will be disqualified as a director or take part in any company management for 5 years, from the date when the third company had a strike. The 3-strike count off is not applicable to voluntary strike-off that the company initiates.
Duties of the Company Director
The company’s management is the board of directors’ responsibility. Therefore, these are their duties:
- To disclose any conflict of interest
- Act honestly and diligently
- To exercise power based on good faith and the company’s interests
- The duty of care, skill, and diligence