- Osome Blog SG
- Closing a Company in Singapore
Closing a Company in Singapore
- Modified: 14 November 2024
- 12 min read
- Incorporation
Heather Cameron
Business Writer
From expert guidance and helpful accounting tips to insights on the latest trends in fintech, Heather is here to empower entrepreneurs and small business owners in Singapore with great content. With a background in digital marketing spanning eight years, she has experience writing for various industries and audiences. As Osome’s copywriter, she’s here to inform and inspire our readers with great storytelling.
With inflation, war, and many other factors, it's inevitable that some businesses may have to close.
Whatever the case may be, there are two ways you can close your company in Singapore – by striking off or winding up your company. This depends on your company's tax status, state of its assets, as well as how in debt your business is.
No matter which way you use to close a company, you will still have to follow all necessary procedures to close the business properly, so as to avoid consequences that may arise from omission of required actions. Read on to find out the entire process of how to close a company in Singapore.
What You Need To Know About Closing a Company in Singapore
Assessing the state of your company
When it comes to closing a limited company or a private limited company in Singapore, you will first need to evaluate the company's financial state. If your company is insolvent, the only available option is to wind it up. However, if your company is debt-free and solvent, you can choose to either wind up or strike off your company.
Closing a limited or private limited company
Both limited liability companies (LLC) and private limited companies (Pte Ltd) in Singapore follow similar processes for closure. Striking off is a popular choice due to its simplicity and faster turnaround. This process usually takes about four months, provided all conditions are met and approvals are obtained.
Differences between striking off and winding up
Although striking off and winding up may seem similar, they differ significantly in complexity and duration. Striking off is a straightforward method suitable for companies that have no outstanding debts. Conversely, winding up is more complex and can extend over several years as it involves detailed handling of accounts and legal obligations.
Additionally, you can even engage Osome’s incorporation services to help you with striking off your company, ensuring the process is handled smoothly and in compliance with local regulations, saving you time and reducing potential stress.
Why Close Down a Company?
Not all plans go according to what you have in mind. While some businesses can survive and thrive over decades, there are also others that will have to come to an end.
There could be many reasons – lack of cash flow, not making enough profits, or the desire to concentrate on other projects instead. While it might be disappointing to close a company you painstakingly built, sometimes tough times call for tough measures.
Perhaps your company was born from an excellent business idea, and you drew up an elaborate business plan. You registered your own company, but it eventually failed. In fact, around 30% of new businesses in Singapore are projected to fail within their first three years. Hurdles include a lack of talent, funding, and market access.
Running a business is tough, and sometimes you have to know when to throw in the towel to avoid further heartbreak. Some telltale signs include:
- Not hitting annual revenue projections;
- Poor product-market fit;
- Your lack of passion for the company’s original mission;
- Personal health taking a toll.
Reasons To Shut Down a Company
Shutting down a company is a natural part of a business cycle. Business owners close down their companies for various reasons, either by their own choice or ordered by the Court. When a company fails to pay its debts when they are due, it is the duty of the company’s directors to wind up its business as it is insolvent. A creditor, too, could apply for the company to be wound up in the Court if it could not collect its debts from that insolvent company.
Striking off a company
According to Section 344 of the Singapore Companies Act, the Company Registrar in Singapore can strike off a company from its Register.
As a company director, you may apply to the Accounting and Corporate Regulatory Authority (ACRA) to strike off your company's name from the register. ACRA may approve the application if it has reasonable grounds to believe that the company is not conducting business. The company must also fulfil the following criteria for striking off:
- Did not commence business since incorporation or has ceased trading;
- No existing assets and liabilities as at the date of application and no contingent assets and liabilities that may arise in the future;
- No outstanding debts owed to the Inland Revenue Authority of Singapore (IRAS), Central Provident Fund (CPF) Board or any other government agency;
- Not subject to any ongoing or pending regulatory action or disciplinary proceeding;
- No outstanding charges in the charge register;
- Not involved in any legal proceedings (within or outside Singapore);
- All or majority of the director(s) authorises the applicant, to submit the online application for striking off on behalf of the company.
Before applying for striking off of your company, make sure that there is no outstanding tax credit owed to the company. When the company is dissolved, any tax credit due to the company will be paid over to the Insolvency and Public Trustee’s Office (IPTO) and not direct to the company. The shareholders of the now defunct company may approach IPTO if they wish to claim the tax credit. The IPTO might impose charges for the processing of the claim.
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Winding up your company
You might be wondering how to close down a company in Singapore.
To determine which winding up method to use, simply use the cash flow and balance sheet test. A company would be deemed insolvent if:
- It fails to meet a current debt demand through the Cash Flow test;
- The company presents a deficit after balancing its total liabilities against its total assets through the Balance Sheet test.
Under the Insolvency, Restructuring and Dissolution Act 2018 (IRDA), a company is also considered insolvent if:
- A company's creditor enforces against it, through a court judgment or order, for a sum of money. If the creditor does not receive the entire amount, the company will be declared insolvent.
- A company fails to pay or secure the sum of SGD $15,000 or more to the company creditors after 3 weeks since the demand was served.
- The court is confident that a company cannot pay its outstanding debts by taking into account the company's contingent and prospective liabilities.
Members' voluntary winding up
The company’s directors may decide to voluntarily wind up if they believe that the company will be able to pay its debts, in full, within 12 months after the start of the winding up.
The company will appoint a liquidator, or provisional liquidator, to wind up its affairs and file the necessary notifications required under the Companies Act/IRDA.
The company assets would be liquidated and converted into cash to pay off the company’s debts and liabilities. Any remaining assets or surplus cash would be distributed among the company’s creditors and shareholders, and this would mark the company’s closure.
A company might be voluntarily wound up in these cases:
- Not generating enough profit to continue the business;
- Disagreement among shareholders;
- The company or its members have breached their statutory duties.
Steps to take:
- Sign the Declaration of Solvency (with an attached statement of affairs) by the majority of directors.
- Convene an Extraordinary General Meeting of members (EGM) within 5 weeks to put into place the winding up of the company, appoint liquidators and approve their compensation.
- Pass a special resolution during EGM for winding up the company and receive assistance of a professional liquidator.
- Meet the requisite solvency and publicity requirements.
- File the special resolution with the Accounting and Corporate Regulatory Authority (ACRA) within 7 days and advertise the winding down in a Singapore newspaper within 10 days (one for each of the official languages English, Chinese, Tamil, and Malay).
- Notify the Inland Revenue Authority of Singapore (IRAS) for tax clearance by submitting a final set of management account and final set of tax computations until business cessation date.
- Decide the final meeting date and publish the final advertisement after receiving tax clearance from IRAS.
During the final meeting, the liquidator will tell the members about the winding up process and how the company's assets were disposed of.
Within 7 days after the final meeting, the liquidator is required by the Companies Act to submit a return to the Accounting and Corporate Regulatory Authority (ACRA) and Official Receiver showing that the meeting was held with a copy of the account attached.
The company will finally be dissolved 3 months after the return has been submitted. However, bear in mind that the court can declare the dissolution of a company to be void any time within 2 years after the date of the dissolution.
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Creditors' voluntary winding up
Although this option is called "Creditors' voluntary winding up", the decision to wind up the company is ultimately made by the company's directors instead of its creditors.
Typically, company directors would go for this method if they believe that the company is unable to keep the business going as a result of liabilities, and is not able to pay off its debts within 12 months of winding up, and no Declaration of Solvency is filed.
A liquidator, or provisional liquidator, would be appointed to wind up its affairs and file the necessary notifications required under the Companies Act and the Insolvency, Restructuring and Dissolution Act. However, the company’s creditors will still get to decide if the company should be wound up, and who they would appoint as the liquidator. Additionally, the creditors would be the ones holding a creditors meeting.
Steps to take:
- File a declaration with the Official Receiver;
- Convene an Extraordinary General Meeting (EGM) with the company’s creditors to establish the reason for winding up the company;
- Appoint a provisional liquidator in the next EGM;
- Pass a resolution for creditors’ winding up to be proposed by holding an EGM.
The directors must meet with creditors within a month of the declaration and file it with the Official Receiver. If approved, a provisional liquidator is appointed, and a notice of appointment must be advertised in 4 local newspapers within 14 days.
The provisional liquidator serves for one month or until a liquidator is appointed. Notices for the creditors’ meeting should be sent by post and announced in a local newspaper 7 days before.
Compulsory winding up
A compulsory winding up takes place when a company is closed by someone (e.g. a creditor, liquidator, or receiver) other than its owners (e.g. its directors). For the process to occur, an Originating Summons has to be filed in court.
These could be reasons leading to the compulsory winding up of a company:
- Insolvency (e.g. the company is unable to pay its debts);
- Failing to lodge statutory reports;
- Failing to hold statutory meetings;
- Not commencing business within a year of incorporation;
- Using the company for illegal purposes.
The Court may appoint a liquidator to wind up the affairs of the company. If the Court does not appoint any liquidators, the Official Receiver shall be the liquidator of the company. The liquidator will file the notice of appointment of a liquidator and advertise the winding up of the company within 14 days in at least 4 local daily newspapers (in English, Malay, Chinese and Tamil languages) required under the Companies Act and the IRDA.
These are some of the effects of a company’s compulsory winding up:
- Any disposition of company property, transfer of shares, or change of status of company members made after the start of the winding up process initiated by the court is void.
- A liquidator, creditor, or contributor of the company may apply to a court to make a person who was responsible for or took part in any fraudulent business activities of the company before winding up liable for the company's debts.
- In cases where a company and a creditor have mutual credits, debts, or dealings, these can be offset against one another, with a creditor or company claiming only the balance due on each side of the counterclaim.
Final Steps of Closing a Company
Shutting down a small business is not just a matter of closing the door and simply walking away. Closing your company might be a hard pill to swallow, but there are still necessary steps you have to take in order to successfully close your company.
To tie up loose ends, these are the practical and emotional steps that you will have to take:
Business closure announcement
As tough as it might be for you to accept your company closure, this could also be devastating news to your employees who have dedicated their all to building a business with you.
Take time to ponder over the things that matter to your staff, and develop a structured communication plan to minimise the impact on your employees and pave the way for a smooth transition. Here are some thinking points:
- Why you decided to close the company;
- When will the business be closing effectively;
- What changes should expected during the transition;
- What we should tell the customers;
- Whether your employees will be paid for unused benefits;
- Whether you will help your employees find a new job.
Settling debts and taxes
If a company owes its creditors and is unable to pay them, the company has to inform them of its closure plans. For unpaid loans, debtors may file claims against your company. In this instance, In this case, you will have to verify if the claims are accurate.
Additionally, you have to ensure that all outstanding tax obligations and liabilities are settled before closing.
There are two ways 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.
Return of capital to shareholders
As companies raise funds to start a business, shareholders obtain ownership stakes in the companies. When a company shuts down or is liquidated, the company’s liabilities need to be paid off first. In the event that there are surpluses, the cash or property will be distributed back to the shareholders or owners after consideration of liquidation costs.
Preference shareholders would be given priority over ordinary shareholders. The remaining assets will be divided among ordinary shareholders. All distribution would be proportionate to the shareholders’ share ownership.
Conversely, to reduce a stakeholder’s share capital prior to shutting down a company, certain procedures must be followed. For instance, private companies are required to pass a special resolution and must also meet the requisite solvency and publicity requirements.
Laying off your employees
You should give due notice to your employees of the impending company shutdown, and pay them all salaries owed, including unused annual leave and notice pay. If there is no mention of retrenchment compensation in the company’s employment contracts, you could also negotiate a compensation amount with your employees
If both parties come to a mutual agreement, the notice period can be waived upon. Employees who have fully served the required notice period, are entitled to Central Provident Fund (CPF) contributions for the notice period salary that they receive.
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Terminating office space tenancy
If you want to end the tenancy of your office space rent earlier than stated in your contract, notify your landlord early. A one month’s notice period would be reasonable if you pay monthly rent as the notice period may correspond with how frequently a tenant pays rent.
You should write to your landlord requesting the surrender of your lease – to return the leased premises before the expiration of the lease. However, it’s possible that the landlord might not give in to the request, and may request for monetary compensation from you as the tenant.
Ending contracts with suppliers and service providers
Never burn bridges – take note to communicate your intention well in terminating your existing contracts so as to maintain relationships with your existing suppliers during any notice period to serve your remaining clients. This notice period should be in your written contracts.
If your existing supplier is holding any stock, or any deliveries that are partly transferred, you need to come to an agreement with them. Provide them with a date for all of your stock to be delivered to you to avoid redundant delivery of goods after your company is shut down.
Ensure that you have paid all outstanding bills to your internet and phone line providers, and inform them of the last day of service that your business requires, to avoid being charged unnecessarily. The address of the final bill needs to be provided as well.
Dealing with clients and closing down website and social media accounts
Maintain open communication with your clients and customers, and let them know that your business is closing down through your company websites and social media accounts. Inform them why you are no longer in operation, or if you have any plans for a comeback, and provide them with contact details if they need to contact you post winding up or striking off. Notify customers on the status of their existing orders with you – you could either fulfill these or offer them refunds.
Bid your online followers and page visitors goodbye before shutting down your websites and closing your social media accounts. Pin a message explaining that your website and business has ceased to exist, and you could thank your customers for their support.
Create a backup of the content, design and code of your website, and download all necessary information if you want to. If your website uses third-party services, turn them off and end any subscriptions to them.
Notification of official bodies in Singapore
Lastly and most importantly, a company in Singapore must notify the following bodies as part of closing down its business:
- Accounting and Corporate Regulatory Authority (ACRA);
- Inland Revenue Authority of Singapore (IRAS);
- Central Provident Fund (CPF) Board;
- Relevant Licensing Authorities.
Consider Keeping Your Company Dormant
If you're closing a dormant company because of low business activity, why not keep it dormant instead? A dormant company in Singapore means that it does not exceed SGD $500,000 value in assets during the financial year, and is not a listed company, or a subsidiary of a listed company. The company should also have no revenue, expenses or staff except the few needed for the company’s maintenance.
However, should you ultimately decide on closing your business, don’t give up. As cliche as it sounds, failure is the mother of success. Perhaps you’ve already got a new business idea in mind, and thinking of how to scale your business.
Summary
Closing a company in Singapore requires choosing between striking off or winding up, depending on its financial status. Striking off is a quicker option for solvent businesses while winding up can take longer. Osome offers assistance in managing these complex steps, but this service is available only to clients who have purchased their incorporation package. With Osome, you benefit from expert support in filing declarations, appointing liquidators, and handling legal notifications, ensuring a compliant and efficient process while allowing you to focus on other business matters.
From expert guidance and helpful accounting tips to insights on the latest trends in fintech, Heather is here to empower entrepreneurs and small business owners in Singapore with great content. With a background in digital marketing spanning eight years, she has experience writing for various industries and audiences. As Osome’s copywriter, she’s here to inform and inspire our readers with great storytelling.
