10 Things to Know Before Closing Your Company in Singapore

In our previous article, we discussed the overall steps on how to close a company in Singapore, from striking off to winding up. But before you take that step, there are critical factors and considerations that could affect the closure process. Whether it’s dealing with directors’ disagreements, unpaid liabilities, or regulatory requirements, this article dives deeper into the 10 key things you should know before closing your company in Singapore.

These factors can make or break your ability to close your company smoothly. It’s not just about filing paperwork; there are crucial financial, legal, and operational aspects that need to be addressed first.

1. Assess the Financial Health of Your Company

One of the first things to evaluate is your company’s financial standing. Is your business solvent, meaning it can pay off its debts? Or is it struggling with insolvency, where liabilities exceed assets?

• Solvent Companies: These companies can choose to either strike off or voluntarily wind up, provided they can settle all liabilities within 12 months.
• Insolvent Companies: If your business is insolvent and unable to repay its debts, creditors might seek a court-mandated compulsory winding-up to liquidate assets and recover dues. Insolvency also means you won’t have the option to strike off the company and must follow the winding-up route.

Determining your company’s financial health will significantly influence your closure options, so it’s crucial to seek financial advice or work with a liquidator if needed.

2. Striking Off vs. Winding Up: Knowing Which One Applies

Both striking off and winding up are methods for closing a company, but understanding when to use each option is key to ensuring a smooth process.

• Striking Off: This is the more affordable option for companies that have ceased business activities, have no liabilities, and aren’t involved in legal disputes. The application is made through the Accounting and Corporate Regulatory Authority (ACRA), and the process can take about 4 to 6 months.
• Winding Up: Winding up is necessary for insolvent companies or when the company has complex assets and liabilities that need liquidation. The voluntary process may still take years, especially when asset distribution and creditor settlements are involved.

Tip: Many businesses in Singapore choose striking off as it’s a simpler and cheaper process compared to winding up, but it requires fulfilling stringent criteria.

3. Ensure All Debts and Liabilities Are Settled

You cannot proceed with closing your company if there are outstanding debts or liabilities. All unpaid debts, including taxes owed to the Inland Revenue Authority of Singapore (IRAS) and contributions to the Central Provident Fund (CPF), must be settled before you can strike off or wind up your company.

For a smooth closure, consider the following:

• Final Tax Return: Ensure all corporate tax filings are up-to-date and that the company has no pending tax assessments.
• Employee Compensation: CPF contributions, salaries, and other benefits should be paid off in full before closing.
• Outstanding Loans: Clear any outstanding business loans or debts with creditors to avoid legal complications later on.

If your company still has unpaid creditors and you attempt to close it, legal action may prevent the dissolution and could even lead to penalties.

4. Resolving Disagreements Among Directors or Shareholders

Disagreements among directors or shareholders can prevent a company from closing. While it’s relatively straightforward if everyone agrees, disputes can complicate the process, especially in cases of insolvency.

What Happens if Directors Don’t Agree?

Directors need to agree on the decision to close the company. Without consensus, the closure cannot move forward. Disputes between directors often require mediation or even court intervention to resolve. If the company is insolvent, creditors may step in and force a compulsory winding up.

What Happens if Shareholders Disagree?

For voluntary winding up, the approval of shareholders is essential. If shareholders are divided on the decision, the company cannot be closed until a resolution is reached. Dispute resolution strategies include:

• Holding a Formal Vote: Based on the company’s constitution, a majority vote can decide the outcome.
• Legal Arbitration: This is useful for deadlocks or disputes that cannot be resolved internally.
• Court Intervention: In cases of significant disagreements, shareholders can petition the court to force a decision.

Disagreements need to be addressed before the closure process begins, as they can result in delays or legal battles.

5. Regulatory Obligations: Compliance Is Crucial

Before closing your company, ensure you have fulfilled all regulatory obligations. Singapore is known for its strict compliance requirements, and missing any could result in penalties or delayed closure.

Key compliance obligations include:

• Filing Corporate Taxes: Ensure that all taxes are filed and any outstanding amounts paid to IRAS. You’ll also need to submit final tax returns and ensure GST accounts (if applicable) are closed.
• ACRA Filings: Submit final annual returns and notify ACRA of your intention to close.
• CPF and Employee Compensation: Ensure all contributions and payments are settled with CPF before proceeding with closure.
• Cancel Licenses and Permits: If your business holds any permits or licenses, these need to be canceled before the company can be dissolved.

These compliance steps are essential to avoid legal issues and ensure a smooth process.

6. Settling Employee Compensation and Final Payroll

When closing a company, employers must handle employee compensation properly. According to Singapore’s Employment Act, employees are entitled to:

• Full salary payments, including unused leave and bonuses.
• CPF contributions for the final salary period.
• Retrenchment benefits, if applicable.

Failure to pay your employees can result in legal consequences. It’s also important to give employees sufficient notice of the company’s closure and ensure they are properly informed of their rights.

7. Terminate Business Contracts and Agreements

Your company will likely have existing contracts with suppliers, service providers, and landlords. These agreements must be terminated in compliance with their terms before you can close the business. It’s important to:

• Settle all outstanding invoices with suppliers and service providers.
• Notify landlords or rental agreements and negotiate an early termination if necessary.
• End utility and service agreements, ensuring that final payments are made for internet, phone, or office supplies.

Terminating contracts can take time depending on the notice periods outlined in the agreements, so it’s advisable to start this process early.

8. Settle Capital and Shareholder Distributions

Once all debts are paid and assets liquidated, any remaining funds must be distributed to shareholders. This applies primarily to voluntary winding up, where shareholders have the right to receive a share of the company’s remaining assets.

Shareholders typically receive distributions based on their ownership stake in the company. You’ll need to ensure that all distributions comply with the company’s constitution and legal requirements to avoid disputes.

9. Finalising Tax Clearance with IRAS

One of the last steps before closing your company is obtaining tax clearance from IRAS. You’ll need to submit the company’s final tax return and ensure all tax liabilities are settled. Failure to obtain tax clearance can delay the closure process.

Once IRAS confirms that all taxes have been paid, you can proceed with closing the company. This tax clearance process is essential for a successful strike-off or winding-up.

10. Close Bank Accounts and Digital Assets

Finally, before you complete the closure process, you need to close the company’s bank accounts and terminate any digital services, such as:

• Business bank accounts.
• Social media accounts or online profiles.
• Email and web hosting services.

Be sure to communicate with clients and partners about the business closure and provide them with final details for any remaining payments or settlements. Digital assets should also be securely stored or backed up before the business is officially dissolved.

Close Your Company with Confidence

Closing a company in Singapore involves more than just ceasing operations. From financial settlements to regulatory compliance, understanding the full scope of the process is essential to avoid legal complications or penalties. By following these steps and resolving any disagreements or outstanding obligations, you can close your company with confidence and peace of mind.

If you’re feeling overwhelmed by the complexity of the process, consider working with Vero, a trusted partner in handling company closures efficiently in Singapore. Whether you’re looking to strike off or wind up your company, Vero can guide you through each step, ensuring a smooth and compliant closure.