How to increase company capital in Singapore
There are many reasons why a company may wish to increase its capital during its life cycle, whether to expand its business, for acquisition purposes or to improve its creditworthiness. In all cases, this method of financing is generally preferred to traditional bank loans as the terms may be more favourable and suitable for the operation, but it also involves dealing with new shareholders or directors, which requires careful planning to ensure the viability of the business.
In this article, we will then take a look at the key points you need to know to increase the company capital of your private limited company in Singapore.
How to increase the capital of your company?
The most common way for companies to increase their capital is through issuing new shares. New shares can either be offered to the existing shareholders or sold to new shareholders who want to invest in your company.
However, it is important to note that there are a number of legal requirements which need to be followed in order to increase the capital of a company. These include but are not limited to giving notices to the existing shareholders, obtaining shareholders’ approval, and adhering to the directors’ duties.
What is the procedure for issuing new shares for my private limited company?
Private limited companies are limited liability companies (LLCs) whose shares are owned by fewer than 50 persons (legal or natural) and cannot be acquired by the general public, unlike public companies.
When seeking to increase capital, the most common way to do so is to issue new shares to existing or new shareholders who wish to invest in the company. In Singapore, this is generally known as a share allotment.
The process for achieving this is as follows:
Obtain directors approval
As the issuance of new shares is usually proposed by the board of directors, the first step in this process is to seek the approval of all the directors of the company (if there is more than one) at a extraordinary general meeting (EGM), which will result in a written directors’ resolution (DRIW) registering the share allotment.
Obtain shareholders approval
Note that the issuing of new shares is also subject to shareholder approval if the company isn’t a subsidiary of a parent company (Section 161 of the Companies Act). The board of directors will therefore need to obtain a mandate, either specific or general, mentioning the shareholders’ approval for the issuance of new shares.
Be aware that these steps may vary depending on the company’s articles of association and/or shareholders’ agreement, which may specify specific procedures and should be followed closely. Indeed, these two documents are the most important for the proper functioning of your company and to avoid disputes that may arise in the future.
Return of allotment through ACRA’s BizFile
One other important step in the share allotment process is “the return of allotment” through BizFile, the online business filing portal of the Accounting and Corporate Regulatory Authority (ACRA), which should be done within 14 days of issuing the shares.
According to the ACRA, the following documents will need to be prepared before filing the return of allotment:
- Number of shares granted.
- Amount paid (if any) or deemed paid on each share award.
- Amount (if any) not paid for each share.
- Class of shares issued. (i.e ordinary shares, management shares, preference shares etc.)
- Updated list of shareholders and their holdings. This list should include :
a. Personal data of each shareholder, such as full name, identification number, nationality and address.
b. Number and class of shares held by each member
Additional required information
While the above-mentioned documents are the most decisive and important ones to be obtained in order for the share allocation process to proceed, other formalities will have to be prepared, usually by the company secretary. These include the following documents:
- Application of the proposed shareholder to the company
- Written confirmation of no objection from existing members
- Preparation of new share certificates.
- Proof of capital injection (payment slip from the corporate bank account)
- Ordinary resolution authority
- Directors’ resolution
- Letter to the company secretary
- Application of shares
Do I need a prospectus for investors?
While Singapore law generally requires that securities offerings, of which the share issue is one, be accompanied by a comprehensive document called a prospectus in order to clearly inform investors, which is time-consuming and costly to put in place, the Securities Future Act (SFA) also provides for specific exemptions in the context of a ‘private placement’.
Share allotments that comply with this provision are therefore exempt from the prospectus requirements. Among the criteria are that the share offer must be made to fewer than 50 persons over a 12-month period and must not involve advertising or promotional expenditure.
How can our team of experts can help?
Increasing the share capital of your company in Singapore is subject to a number of legal instruments that must be interpreted in light of the company’s internal structuring regulations, such as its constitution and shareholders’ agreement.
Due to its highly technical nature, compliance with this process can be very challenging, time-consuming and costly without proper legal and corporate advice. Knowledge of the duties and responsibilities of all company members and future investors is the key to a smooth and sustainable capital increase.
To learn more about the procedures and regulations relating to share issues in Singapore, why not talk with one of our experts now.
Please note that this article is for information purposes only and does not constitute legal advice.
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