Every company should abide by a corporate governance framework that goes beyond the submission of annual reports and tax returns. A strong corporate governance framework will align the interests of the company and its community to maintain high levels of trust and satisfaction among customers and stakeholders. Corporate governance would also encourage the efficient use of resources, as well as provide greater transparency and accountability. Here are the 6 signs that your company has good corporate governance.
- Registers of Members
Every incorporated private company in Singapore will have to keep an electronic register of members with the Accounting and Corporate Regulatory Authority (ACRA) with effect from their BizFile+ launch date. The register will contain company information, shareholders and shares information. This register is important as it has an impact on how your company is governed. Each time your company has new share owners, or makes changes to share ownership, you must update the register accordingly.
- Clearly Defined Roles
For your company to operate effectively and efficiently, you must have clearly defined the respective roles of both management and business owners. According to the Companies Act, the business of your company should be managed under the direction of its directors. Management must be able to perform its function without unnecessary intervention by the owners, though owners may wish to have in place control mechanisms to enable a check and balance.
If you are a business owner and you are unhappy with your management’s decisions, you cannot override them. Instead, your recourse would be to replace management through the process as provided for in the Companies Act, or in your company’s constitutional documents. Owners may also retain some power over matters pertaining to a company’s constitutional structure or conflicts of interest among directors.
- Appointment of Able Directors
While the law does not ask for any substantial qualifications for a person to be a director, other than the requirement for such a person to be of legal age and capacity, the law does disqualify some persons from being directors. For instance, undischarged bankrupts and directors who have gone into liquidation and were insolvent are disqualified from directorship – likely because they are unable to manage their finances well. Persons who have been convicted of any offence involving fraud or dishonesty are also not allowed. As such, ensure that your company is well-aware of the various criteria when appointing directors.
- Conflicts of Interest
Your company directors should not abuse their directorial power, for instance, by providing loans or financial assistance to their family members or other director-related companies, except under specific circumstances. Your company directors should also be required to disclose conflicts of interest, as well as potential ones, and allow shareholders to approve matters relating to such situations. For instance, if a director knows he will stand to benefit materially from a transaction that the company enters into, he will need to make a disclosure. If necessary, professional advice should be sought.
- Shareholders’ Protection
If a company’s board or controlling shareholders appear to be abusing its controlling power, aggrieved shareholders should be allowed to seek redress through the courts where they can show that the actions of the board or majority shareholders have been discriminatory or unfairly prejudicial, or that the company has been run in an oppressive manner with no regard for their interests. This will directly protect your shareholders, especially minority ones.
- Corporate reporting and audit
To provide stakeholders with access to accurate and relevant information for informed and timely decision making, companies should ensure the proper maintenance and audit of accounting information. Company directors must table financial statements at each annual general meeting to deliver a true and fair view of the financial position and performance of the company. These records should be kept for a period of at least 5 years.
Instil Greater Stakeholder Confidence
In summary, to maintain stakeholders and customers’ confidence in your company, encourage these key practices:
- Form an effective board that knows its roles and responsibilities
- The board should be able to function independently, with no concentration of power in any one person
- Set up formal and transparent processes for board appointments, board performance, and board and executive remuneration.
- Emphasise on the importance of accountability and audit – establish an audit committee and seek professional help
- Promote disclosure and communication with shareholders
Corporate governance is not about checking boxes. Companies must be guided by strong fundamentals and a robust corporate governance culture to ensure sustained performance. All levels of leadership in your company must walk the talk and take responsibility in adopting ethical business practices. Good corporate governance practices will go a long way in enhancing the overall value of your organisation. Consider investing in corporate governance as an opportunity to mitigate risk, improve your brand and generate returns.
Engage a Reliable Corporate Secretarial Services Provider
Every company in Singapore must appoint a company secretary. A corporate secretary’s role is not just about setting up meetings and preparing minutes, but rather, stay up-to-date on the latest corporate legislation and regulations to ensure compliance. They are also expected to guide the board on their legal responsibilities and offer advice on corporate governance.
If your company has only one director, he or she cannot act as a company secretary. If your company has more than one director, one of the directors can act as company secretary. If this is an overwhelming undertaking for your company directors, consider engaging a reliable corporate secretarial services provider who has extensive knowledge of legal and compliance requirements. Failure to perform these duties adequately can lead to severe business consequences.
A solid legal foundation greatly contributes to the success of your business. At Corporate Services Singapore, we provide full corporate secretarial services to help your company fulfil its statutory compliance requirements, while allowing you to focus your time and energy on developing your business. For outsourced corporate secretarial services and other value-added services, give us a call at 6602 8286 or email email@example.com.