Are You Closing Your Singapore Business? Have You Settled All of the Following?
While certain businesses and companies survive over decades, or even centuries, the majority of businesses will meet its end someday.
Be it for retirement purposes, a lack of customers, or disagreeable management, one must complete all the necessary final procedures to properly close the business. Certain consequences will flow from the omission of these actions, and business owners must be prudent to ensure that no further liability arises.
However, what are the things that must be settled to tie up all loose ends? This article will aim to explain the various aspects of a business that require closure and the steps you should take if you are closing your Singapore business.
Applying to ACRA to Close Your Business
For sole proprietorships and partnerships
A sole proprietorship, or a partnership must notify the Accounting and Corporate Regulatory Authority (ACRA) that it has ceased business by filing the “Cessation of Business” transaction online via the BizFile+ website using CorpPass.
On the other hand, companies may apply to ACRA to be voluntarily liquidated (wound up). This is a process involving appointing a liquidator to oversee the realisation of the company’s assets, ceasing of operations, payment of debts, and distribution of residual assets among the company’s members. You may read more about winding up in our other article.
Alternatively, a company may apply to ACRA to strike its name off the register. Striking off is generally an easier, quicker, and less costly procedure as compared to winding up. However, ACRA would only approve the striking off application if the company is able to satisfy the criteria for striking off. For example, the company must not:
- Be carrying on business; and
- Have any existing or future assets and liabilities.
If your company is insolvent, you will not be able to apply for it to be struck off the register. Your company will have to be wound up instead.
Read our other article for more information on striking a company off the register.
Proper applications to ACRA are important, lest you and/or your business fall victim to others using your business’ bank account or name to run their own show. This would leave you liable for the taxes or potential penalties that flow.
After being wound up or struck off, the company is officially dissolved.
Letting Go of Your Employees
Employees should be given at least a few weeks’ notice of your business’ impending closure. This prepares them for the eventual end of the company and allows them to seek further employment elsewhere.
Although you are not legally obliged to, you can also help your employees look for new jobs in other companies, provide them with career advice, and/or write them an employee reference.
During the retrenchment exercise, you should pay all salaries, including unused annual leave and notice pay, to your employees on their last day of work. As employee retrenchment compensation amounts are not set by law, you should check the provisions in your employee’s employment contracts or collective agreements on the appropriate amounts of compensation to pay your employees.
Where no such provision exists, negotiate the amount with your employees.
Distributing Assets that Belong to the Business
For sole proprietorships
In a sole proprietorship, assets that belong to the owner before, during and after the business’s life are the personal property of the owner. However, sole proprietors have no limited liability and you will be liable for all extents of debt. This means that where there is a shortage of funds, the necessary assets must be sold to realise all valid tax and creditor claims.
Once you have settled all debts/have no debts owed, all assets leftover are rightfully yours.
Assets in a partnership are either partnership property or personal property. When a particular asset is considered partnership property, every partner shares an interest in that asset. Partnership property is usually that which is acquired with partnership funds.
Conversely, when the asset is purchased through an individual partner’s funds with intention to be personal property and the purchaser is not reimbursed by the partnership, the asset usually becomes the property of the purchaser. Where the property is considered personal property, the individual owner is exclusively entitled to the whole of its value.
Determining the status of the assets in a partnership is important, as section 44 of the Partnership Act provides that losses are first to be paid out of profits, then capital, and finally by the partner’s individually in proportion in which they were entitled to share profits.
Partnership assets are then paid rateably from the firm to the partners in terms of the amount they have contributed to the partnership.
Similarly, a company’s assets are collected, and where necessary, sold off to pay outstanding debts. You are not allowed to retrieve company assets prior to the proper liquidation procedures as they rightfully belong to the company, a separate legal entity, and not you.
It is only once all the company’s debts are settled will the owners of the company have a claim to the assets. However, if you have purchased assets with your personal funds without the intention for it to be company property, that asset rightfully belongs to you.
On another note, a company should collect any monies owed to them (accounts/note receivables), as these are part of the company’s assets. There is no obligation to inform your debtors that you are closing your business. However, try to collect the money as quickly as possible, as you may find it more difficult to collect the money once your business no longer exists.
After a company has closed (whether after being wound up or struck off), company officers must ensure that all books and papers of the company are retained for at least 5 years after the date of the company’s closure.
Verifying and Paying Off Outstanding Liabilities: Debts & Taxes
If you have any outstanding business loans, you must inform your lenders of your business’ impending closure and provide a date and method of payment.
Naturally, creditors will file claims against your business for outstanding debts. The responsibility is on your business to inspect these claims and you have to determine which claims are to be rejected or accepted.
In a company winding up scenario for example, a company’s assets are limited, and one must be prudent. Appointing a lawyer will be of significance assistance in determining which claims are valid/invalid.
A company must ensure that all outstanding tax obligations and liabilities are settled before closing. There are 2 methods to check whether your company has any outstanding tax issues:
- Accessing myTax Portal allows you to view your Account Summary, Corporate Tax & GST Filing Statuses and Corporate Tax & GST Notices; or
- Calling the IRAS 24-hour toll-free automated answering service. This service allows you to inquire about your tax assessment status, as well as the status of your accounts.
For Companies: Return of Company Capital to Shareholders
Unlike in a sole proprietorship or partnership, companies gather funds through shareholders, who in turn obtain an ownership stake in the company. In a company dissolution scenario, the company’s liabilities need to be properly settled first (as discussed above) before any cash or property can be distributed back to shareholders/owners.
Any surplus after settling the abovementioned, and subtracting liquidation costs, will then be returned to the shareholders.
For preference shareholders, their entitlements will be determined by the terms of their share issues, and priority given over ordinary shareholders. For ordinary shareholders, the residual assets will be divided equally in amounts proportionate to their share ownership.
On the other hand, if you wish to reduce your share capital prior to closing, certain procedures must be followed. For example, private companies are required to pass a special resolution and must also meet the requisite solvency and publicity requirements.
Determining the Tenancy Agreement of Your Office Space
With regard to the office space, notice should be given to your landlord regarding the ending of your tenancy agreement. The minimum notice period is usually 30 days but check what your tenancy agreement says on this.
Closing your business does not mean that your tenancy agreement automatically terminates. Consent must be obtained from your landlord before you can prematurely terminate your tenancy agreement, and your landlord might reject your surrender.
Also, if your tenancy agreement contains penalty fee clauses for early termination, you may likely be liable to pay them.
Alternatively, if permitted by your tenancy agreement, you may sub-lease your tenancy agreement to a sub-lessee to continue earning a rental income from your tenancy agreement.
Terminating Your Service Contracts with Your Suppliers, Internet & Phone Line Providers
If your business has outstanding supplier contracts, you should inform your suppliers by when they will need to deliver goods you have bought to you. If you do not do this, you will have to make payment for any unnecessary delivery of goods.
If your business has outstanding service providers, including Internet and phone line providers, they too must be informed of the final day where your business will require their services. The address of the final bill needs to be provided as well. Similar to supply contracts, you do not want to be charged for Internet and phone services that you are not utilising.
Closing of Your Website and/or Social Media Accounts and Dealing with Customers
Once your business is closed, it is best to be transparent with clients and customers through your business website and/or social media account(s).
Inform them about why the business is ending, how they can contact you in the future if the need arises, and whether there are prospects for a future rejuvenation of the business.
If customers have existing transactions with you, notify them about the status of their transactions, and complete them or offer refunds.
If you choose to close your website and/or social media accounts, inform visitors of your intentions to shut down these accounts down. Once your website/social media account(s) have been deleted, create a terminating message explaining that your website and business has ceased to exist, and you may wish to thank your customers for their support.
You might also wish to create a backup of the content, design and code of your website, and download all relevant information. If your website utilises third-party services, ensure that they are fully disabled, and any subscriptions associated with these services terminated.
Closing a business might be a saddening event for most owners, be it for temporary or permanent purposes. It too, may also be a joyous occasion, as one has accumulated sufficient wealth, or is given a breath of fresh air from a business that one has lost interest in.
Nonetheless, responsibilities still exist even when the business does not. These responsibilities must be properly settled, accounted for and resolved, so that there can be a clean and final closure.
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