ACRA’s Naughty Corner

Last Updated 08 April 2024

Navigating Compliance: How NOT to End Up in ACRA’s Naughty Corner

Are you familiar with the laws when running a business in Singapore? You don’t want to be in ACRA’s naughty corner!

Breaches of the Companies Act by directors of Singapore Companies are, regrettably, commonplace. In response to this, the Accounting and Corporate Regulatory Authority (ACRA) has been monitoring breaches closely, with penalties being enforced more strictly from 2024 onwards.

While responses might vary, the penalties can be stiff - not just financially but in terms of the company’s reputation, including the reputation of its director. And in some cases directors are summoned to court!

If you’re a business owner in Singapore, you need to learn how to navigate compliance so you don’t end up in ACRA’s naughty corner. Let us show you how.

ACRA’s naughty corner

ACRA’s oversight involves a number of laws under the Companies Act. Here are some of the common missteps that you should be aware of:

  • Failure to have a registered office address [Act 142(1)] or to notify changes in your business’ registered address of office hours [Act 143(1)]

  • Failure to display the company’s name and registration number [Act 144].

  • Failure to have at least one resident director in Singapore [Act 145(1)].

  • Acting as director while disqualified [Acts 148(1), 154(1), and 155(1)].

  • Failure to inform the Registrar about changes in key personnel [Act 173A(1)].

  • Failure to hold an Annual General Meeting (AGM) within the financial year [Act 175].

  • Failure to do Annual Return filing within the financial year [Act 197].

  • Providing a false and misleading statement [Act 401].

  • Operating business without proper registration [Act 405].

Among these, failing to hold an AGM and failing to do your Annual Return Filing stand out due to potential heavy fines.

ACRA Annual Return rules

For sole proprietorships: Sole proprietorships enjoy a simpler system, with no requirement to do Annual Return filing. However, owners must remain aware of their business registration's expiration date, typically set for three years upon registration. Failing to renew can result in losing the ability to operate the business legally.

Limited Liability Companies (LLCs): LLCs require increased vigilance as with the renewal of registration. Ensuring validity and quick re-application, if expired, goes a long way in averting complications and disruptions.

Private Limited Companies: For private limited companies, the Annual Return filing process is complex. A sequence of events unfolds beginning with preparing the unaudited financial statements. From these statements, board resolutions and director declarations are prepared for the Annual General Meeting and Annual Return filing. Notably, face-to-face meetings for AGMs aren't necessary in Singapore, as they can be conducted through circular written resolutions.

Annual Return filing needs to occur within six months from the financial year-end (this is your individual business Annual Return filing deadline) to avoid penalties.

The ACRA penalty

ACRA's responses to such breaches range from education sessions, warnings, and imposition of a fee in lieu of prosecution, to company strikes off, director disqualifications or prosecutions. Penalties can go up to SGD 5,000 per charge, and three or more filing-related offences within five years can lead to a 5-year director disqualification or ban.

While the ACRA penalty can vary, what’s more evidently enforced and followed up is the ACRA Annual Return penalties.

The Annual Return filing deadline is the key here. The penalties progressively increase with the delay in filing:

  • Up to 3 months late: $300

  • Beyond 3 months: $600

  • Composite fee: $500 if you fail to hold an AGM within 5 months of the due date + $500 if you fail to do your Annual Return filing within 5 months of the due date (total: $1000)

  • Do note that the composite fee is charged ON TOP of the late Annual Return filing fee, and it accumulates year after year.

Beyond the financial aspect of the ACRA penalty, there’s also the impact on the company and its directors if and when ACRA summons them to court for this misbehaviour. If you keep ignoring reminders to do your annual fee filing or if you are a repeat offender, you may end up in court.

In recent times, ACRA has been seen to name and shame companies. As it stands, the current enforcement climate for the ACRA penalty is strict, with companies potentially needing to justify their late filings or failures to file in court. It’s not just a financial impact but an overall impact to the company reputation.

Addressing past breaches

Newly appointed directors might wonder if they are liable for past breaches. The answer is yes. New directors must rectify compliance issues from before their tenure, highlighting the importance of due diligence. If a company's Bizfile profile shows delays, these issues should be addressed before any new appointments.

Client case study

Client Background:

Our client, headquartered in North Asia, operated a business in the tech sector. The company was registered as an exempt private limited company with the Accounting and Corporate Regulatory Authority (ACRA) in Singapore. The company had a Singapore resident director and 3 foreign directors and shareholders of the company.

The Situation:

Despite being aware of the statutory requirement to file annual returns with ACRA and respond to reminders from the Singapore resident director, the foreign directors neglected this responsibility for consecutive years. Due to various operational challenges and a lack of oversight, the foreign directors failed to keep up with the company's compliance obligations. This negligence led to the accumulation of overdue annual returns, resulting in non-compliance with ACRA regulations.

Legal Consequences:

The penalties for breaches of:s.175(1) and (4), failing to hold an annual general meeting within 6 months or financial year end of the Company and s.197 (1) and (6), failing to file an annual return with ACRA within 7 months of the financial year end of the Company, can result in financial penalties of a maximum of SG$5000 plus late filing penalties and composite fees for each year. resulted in the directors receiving a summons to appear 

As a consequence of the persistent non-compliance, the Company received notices from ACRA and CSLB Asia, warning of the impending legal repercussions. 

However, the foreign directors continued to disregard these notifications, assuming that the matter could be resolved at a later date. Unfortunately, their inaction led to ACRA’s enforcement department initiating legal proceedings against the company.

Subsequently, the directors received a summons to appear in the State Court to address the reasons for failing to file annual returns and to answer for the non-compliance. The court also imposed composite fees for its prolonged failure to meet its obligations.

Failings by Directors:

The failure to file annual returns and comply with ACRA regulations primarily stemmed from the directors negligence and lack of awareness regarding his duties as a director. Their failure to maintain proper corporate governance practices, including timely filings and adherence to regulatory requirements, significantly compromised the company's reputation and operational continuity.

Furthermore, the absence of effective internal controls and oversight mechanisms within the Company. contributed to the perpetuation of non-compliance issues. 

Conclusion:

This case study serves as a cautionary tale highlighting the severe consequences of non-compliance with ACRA regulations in Singapore. Neglecting annual return filings and failing to fulfil statutory obligations can lead to legal proceedings, financial penalties, and reputational damage for companies and their directors.

To mitigate such risks, it is imperative for directors to prioritise compliance, establish robust internal controls, and stay abreast of regulatory changes. Proactive measures, such as responding to CSLB Asia’s communications and relying on its professional assistance for compliance matters and maintaining accurate records, are essential for safeguarding the interests of the company and its stakeholders.

Prioritising compliance

Ensuring timely annual return filing and compliance is of utmost importance due to potential financial penalties and legal issues. This clarity is even more important as director liability extends even to incidents predating their tenure.

ACRA’s new strict enforcement of the Companies Act can deeply impact not just your company’s finances but also its reputation. So if this is something that you have yet to sort out, clarify these details as soon as possible. Should your business be struggling with these areas of compliance, book a power-packed 30 or 60 minutes with one of our experts and we’ll sort out your needs so you don’t end up in ACRA’s naughty list.


Last Updated 08 April 2024

Katherine Chapman