There are infinite rules involved in closing a company in Singapore, like paying off debts, ceasing operations, realizing assets, and the list goes on. Tackle this nightmare and get to know how to wind up or strike off a company through this comprehensive guide.
Closing a company is a normal process of any company’s life. There are a few reasons why a company might decide to shut down; It’s either because of the court’s order due to insolvency proceedings or by their own choice. Either way, there is a lengthy process involved in shutting down or liquidating a company.
Closing a Company in Singapore: Strike off or Wind up?
When a director decides to shut down a company, he has two options to follow.
- Strike off the company or…
- Wind up the company
Striking off is usually considered a much quicker, easier, and cheaper way to close a company. On the other hand, winding up a company includes many lengthy processes like realizing assets, paying off debts, company liquidation, ceasing operations, and distributing surplus assets among the members.
Striking off is seen as an easier method than the ever-lasting procedure of winding up a company because a company can apply for striking off only if it’s not involved in insolvency proceedings or any sort of a compromise.
Both of these methods are used for different situations, and we are going to explain to you both of them so you could better understand the process of closing down a company- from start to end.
Winding up a Company
If a company is unable to pay its debt when they are due, then it is considered to be insolvent. In such a case, the director of the company needs to liquidate the company as it is unable to meet its current debt demand. A creditor can also apply for the insolvent company to be wound up in court if it is unable to collect its debts.
There are three ways to wind up a company:
1. Member’s voluntary winding up
A company might voluntarily wind up when there is a disagreement between the shareholders or maybe the company is not producing enough profit to continue the business. In such a case, the director can liquidate a company if he believes that the company can pay off its debts within 12 months of the winding-up process.
A liquidator or provisional liquidator is hired to wind up the company’s affairs and the company assets are cashed to pay off debts. Other surplus cash is distributed among the creditors and shareholders.
2. Creditor’s voluntary wind up
Although this is termed as the creditor’s voluntary wind-up, the decision is not truly in the hands of the creditor. This is when the directors believe that the company will no longer be able to continue the business because of its liabilities. In this method, no declaration of solvency is filed.
The company’s creditors will decide who to appoint as liquidator to wind up the company affairs and file necessary notifications under the Companies Act or Insolvency, Restructuring and Dissolution Act 2018 (IRDA).
3. Winding up by court’s order
This is called the compulsory winding up when a company is shut down by somebody other than the owner. There are a few reasons for which a company might cause the court to wind it up.
Insolvency, unable to pay its debt is the biggest reason why a company might face a compulsory winding up. Other than this, there are some reasons like using the company for illegal purposes, not being able to commence business within a year of the corporation and failing to host statutory meetings.
Striking off a Company
Accounting and Corporate Regulatory Authority (ACRA) can strike a company’s name from the register if the company’s director wishes. It’s a quicker and cheaper method of closing down any dormant or small solvent company.
What you have to do as a director of the company is to apply to ACRA for striking off the company, if ACRA approves of your application and if they have a valid reason to believe that the company is not carrying out enough business, then your company’s name will strike off from the register.
Criteria for striking off a company:
Striking off a company is easier than the entire winding-up process. However, there are certain conditions that you need to keep in mind if you want to strike off your company.
- The company did not commence business since incorporation or the trading has ceased
- The company is not involved in any legal proceedings
- The company doesn’t owe any debts to IRAS, CPF, or any other government agency.
- The company doesn’t have any existing assets or liabilities at the time of application
- The majority of the directors of the company permits to apply for striking off of the company
Other than this, you have to take some other steps while shutting down a company such as
- Notifying official bodies like ACRA, CPF, IRAS, and other relevant licensing authorities
- Laying off employees and paying any due salaries and unused leaves
- Updating the landlord about terminating your office space tenancy
- Dealing with clients and closing all social media sites and other websites
- Ending dealerships with any kind of service providers
- Ensure that you have cleared up all the bills like phones and electricity
Shutting down a company can be a bit intimidating. There are a lot of legal procedures involved and you have a responsibility towards your existing clients and employees as well. So doing everything properly and without any unnecessary charges is a big task.
Contact Mi2U Business Support to avoid the hassle and risk involved in the process and save unnecessary costs.