How to Change Your Company’s Principal Business Activity
Changing a company’s principal business activity is not an uncommon occurrence – in the wake of the pandemic, many companies have converted their business model to suit other business activities in order to stay afloat. But how is this actually done? This article explains this process in greater detail. It will discuss:
- What is a company’s principal business activity
- Why might companies wish to change their principal business activity
- The importance of correctly identifying your principal business activity
- How do companies change their principal business activity
- The penalties for not updating ACRA on time
A template resolution for change of business activity is provided below.
What is a Company’s “Principal Business Activity”?
As the label suggests, a company’s principal business activity (also known as “primary business activity”), is the business activity that contributes the most to the value of goods and services produced by the company, or the activity with the highest value among the activities of the company.
In more technical terms, a principal business activity accounts for more than 50% of a business’ total gross receipts, or in the event that the company is involved in more than two business activities, the activity which contributes to the largest percentage of gross receipts. For example, a fast-food chain’s principal business activity is likely to be the production of fast food. However, in a more complex example such as a Holding Company A with Subsidiary Company B and Subsidiary Company C, where:
- Holding Company operates retail outlets which contribute 20% of the total value of goods and services;
- Subsidiary Company A operates diamond mines which contribute 65% of the total value of goods and services; and
- Subsidiary Company B operates a delivery service which contributes 15% of the total value of goods and services,
The principal business activity will be that of Subsidiary Company A – mining.
Why Might Companies Wish to Change Their Principal Business Activity?
There exist many reasons why companies may wish to change their principal business activity. One such reason would be the outbreak of COVID-19, which has resulted in a complete upheaval not only in how businesses operate, but which businesses thrive.
Previously profitable businesses such as hawker stalls were operating at a loss during the pandemic amid a dining ban. Faced with such financial hardships, a business may decide to pivot to a different principal business activity to remain profitable. An example of such a business would be Zouk Singapore, which pivoted its business model in the wake of the pandemic from providing nightclub facilities to F&B.
The Importance of Correctly Identifying Your Principal Business Activity
Identifying your principal business activity is important as it is vital in applying for a Singapore Standard Industrial Classification (SSIC) code. The SSIC is the national standard for classifying economic activities undertaken by economic units and the source for business activities. It helps the government understand the particular type of economic activities taking place in the country. The SSIC is also used for reports, censuses, and other forecasting and planning documents.
Finally, it is a mandatory requirement for businesses to submit at least a primary SSIC code, so it is in your best interests to obtain an SSIC code for your corporation as early as possible. Notably, while you are required to submit at least 1 primary SSIC code, you may choose to submit up to 2 primary SSIC codes with a single-sentence description of the company’s business activity. However, a business can only hold a maximum of 2 SSIC codes at any given time, though you may request a different SSIC code at any time.
When a company changes its principal business activity, it is essentially indicating that it is shifting its focus to another industry, which will account for the largest percentage of its total gross receipts compared to its other activities in other industries. It is important, however, to note that the company can only be eligible to apply for licences and permits when the right SSIC code is applied and the change of business activity in Singapore is legalised. Without these licences and permits, you cannot operate and be eligible for government incentives specified for different business sectors.
For instance, in 2021, Singapore enhanced support through the Job Support Scheme (JSS), under which the government would co-fund a proportion of the first $4,600 of gross monthly wages paid to each local employee up to March 2021. Under this enhancement, JSS support for specific categories of businesses was increased to 60%. An example of such a business would be a food court, which would have the SSIC code 56122. However, if a business which is transitioning to a food court does not have this code, it would not be able to claim the enhanced JSS support. Ensuring that you have the correct SSIC code can therefore help you obtain benefits for your business.
How Do Companies Change Their Principal Business Activity?
A major decision such as the changing of a company’s principal business activity cannot be undertaken unilaterally. In large companies with many shareholders, such a proposal would have to be subject to a vote at a general meeting. Notably, the Singapore Companies Act does not specify the exact details of actions the directors of the company would need to undertake for a board resolution. As such, this would ultimately depend on the procedures regarding such a decision as provided for in the company’s constitution.
Aside from encapsulating the intention of the company’s shareholders to change the company’s principal business activity, the resolution also serves as a permanent record of confirmation for the decision, and helps auditors verify certain transactions and internal controls. However, the resolution must state the reason for the change of business activity.
Once a resolution has been successfully passed, you must notify the Accounting and Corporate Regulatory Authority (ACRA) of this change in principal business activity within 14 days of the resolution being passed. The steps to follow are listed below:
- Log in to www.bizfile.gov.sg
- Click on “Explore eServices”
- Click on “Local Company”
- Select “Change in Activity”. Tick the checkbox to indicate a change in this section
- Enter “New Principal Activity” and click on “Search Principal Activity”
- Select the relevant SSIC code and click “OK” to proceed
- Enter “New Principal User-Described Activity”, if applicable
- Select or enter “Effective Date of Change”
For a more detailed guide on notifying ACRA of the change in your company’s principal business activity, do visit the ACRA website.
Penalties For Not Updating ACRA On Time
Pursuant to section 14(1) of the Business Registration Act, you are required to update ACRA of the change in principal business activity within 14 days after the change. Failing to do so will result in late lodgement fees, depending on the length of default.
Template Resolution For Change of Business Activity
Need a template resolution for a director’s resignation and letter of resignation?
Find out what our template entails and you can get one here:
In summary, companies may change their principal business activity for various reasons.
While this article has outlined key considerations when changing your company’s principal business activity, do engage a professional corporate secretarial firm if you need assistance with respect to changing your principal business activity.
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