Guide to Closing a Business in Singapore
Deciding to close a company you’ve diligently built is a tough call, but sometimes, it’s necessary. Whether due to economic factors like inflation or business-specific reasons, shuttering a business in Singapore involves understanding the process thoroughly. Here’s an in-depth look at how to close a company in the Lion City.
Closing Methods in Singapore
In Singapore, there are two primary methods to close a company: striking off or winding up. The choice depends on tax status, assets, and debt levels.
Striking off is commonly preferred for its affordability and quicker timeline, approximately four months. Conversely, winding up is a more extended process, requiring years to handle accounts and debts.
Reasons to Close a Company
Closing a company is a natural part of the business cycle, driven by various factors—whether voluntary or mandated by the court due to insolvency. Insolvency occurs when a company can’t meet debt obligations, either by its directors’ decision or through a creditor’s application to the court.
Striking Off a Company
The Singapore Companies Act allows the Company Registrar to strike off a company from its Register.
Directors can apply to strike off a company’s name through ACRA if certain criteria are met, such as non-trading status, no assets or liabilities, no tax owed to government agencies, and absence of legal or regulatory issues.
Prior to striking off, ensure no outstanding tax credit remains; otherwise, the Insolvency and Public Trustee’s Office (IPTO) handles these credits after dissolution, possibly charging for processing claims.
Winding Up a Company
Winding up involves assessing a company’s solvency through cash flow and balance sheet tests. Insolvency arises when a company can’t meet current debts or displays a deficit after balancing liabilities and assets.
Under the Insolvency, Restructuring and Dissolution Act 2018, a company is deemed insolvent if a creditor enforces a court order for unpaid sums or if the company fails to pay a substantial amount within a stipulated time.
Voluntary Winding Up
Directors may opt for voluntary winding up if they believe the company can settle its debts within 12 months. Liquidators are appointed to manage affairs, liquidate assets, pay debts, and distribute remaining assets among creditors and shareholders.
Creditors’ Voluntary Winding Up
Despite the name, this decision lies with the directors rather than creditors. It’s chosen when a company faces insurmountable liabilities and can’t settle debts within a year. Creditors still have a say in appointing the liquidator and hold a creditors’ meeting.
Compulsory Winding Up
A compulsory winding up occurs through court action due to reasons like insolvency, failure to lodge reports or hold meetings, or engaging in illegal activities. The court appoints a liquidator to wind up affairs, and specific effects and procedures follow as mandated by law.
Closing a company involves a series of steps and compliance with legal requirements to ensure a proper and lawful cessation. Each method has its nuances and implications, demanding careful consideration before proceeding with closure.
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