Understanding Share Capital
In Singapore, share capital represents the amount of money a company receives from shareholders in exchange for shares of ownership. This capital forms the financial base upon which the company can operate and expand its business activities. The concept of share capital is governed by the Companies Act (Cap. 50), which provides a structured framework for companies to increase their share capital.
The Companies Act requires that any increase in share capital be approved by the company’s shareholders through a special resolution. This means that at least 75% of the votes cast by shareholders present at the meeting must be in favor of the increase. This ensures that the decision to increase share capital is made with the consensus of the company’s owners.
Legal Procedure
The legal procedure to increase share capital in Singapore involves several key steps. First, the company’s board of directors must propose the increase and call a general meeting of shareholders. During this meeting, the shareholders will vote on the special resolution to approve the increase.
Once the resolution is passed, the company must file a notice of the increase with the Accounting and Corporate Regulatory Authority (ACRA) using the BizFile+ portal. This must be done within 14 days of the resolution being passed. The notice must include details of the increase, such as the number of new shares to be issued and the price at which they will be issued.
The cost of filing the notice with ACRA is SGD 10, making it a relatively inexpensive process. However, failure to comply with the filing requirements can result in penalties, including fines of up to SGD 1,000 and additional fees for late filing.
Tax Implications
Increasing share capital can have significant tax implications for a company. In Singapore, the issuance of new shares is not subject to Goods and Services Tax (GST) as it is considered a financial transaction. However, the company may be liable for stamp duty if the new shares are issued at a premium.
The stamp duty is calculated at a rate of 0.2% on the excess of the issue price over the nominal value of the shares. For example, if a company issues 1,000 new shares with a nominal value of SGD 1 each at a premium of SGD 5 per share, the stamp duty payable would be SGD 1,000 (0.2% of the premium amount of SGD 5,000).
It’s important for companies to consult with tax professionals to ensure compliance with all relevant tax obligations and to explore any available tax incentives or exemptions.
Benefits of Increasing Share Capital
Increasing share capital can provide several benefits to a company. It can provide the company with the necessary funds to expand its operations, invest in new projects, or pay down existing debts. This can enhance the company’s financial stability and improve its ability to compete in the market.
In addition, increasing share capital can improve the company’s creditworthiness. A company with a larger share capital is generally viewed as being more financially stable, which can make it easier to obtain loans or other forms of financing at favorable interest rates. For example, DBS Bank offers business loans with interest rates starting at 3.5% per annum, while OCBC Bank offers similar loans at rates starting at 4.0% per annum. By increasing its share capital, a company may be able to negotiate even better rates.
Recommended Services
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In conclusion, increasing share capital in Singapore is a strategic move that can provide numerous benefits to a company. By understanding the legal requirements and utilizing the services of experienced professionals, companies can effectively manage the process and position themselves for future growth.