A Complete Guide to Business Closure in Singapore: Striking Off vs Liquidation

Companies in Singapore needing to cease operations have two choices: a) striking off or b) liquidating the company. Both options have their specific procedures and implications that must be properly understood before initiating closure.

Striking off is the simpler and faster method typically used by smaller or dormant companies without major liabilities. It involves removing the company’s name from the register and dissolving its legal entity. Liquidation is a more formal process where the company’s assets are realised to pay off debts before distributing any surplus. It is overseen by a court-appointed liquidator and is often preferred for insolvent companies.

Read on to learn more about how to manage business cessation effectively and conveniently.

Striking Off a Company

Eligibility Criteria

It is important to make sure that the business meets the requisite eligibility criteria set by the Accounting and Corporate Regulatory Authority (ACRA) before applying to strike off a company in Singapore.

• The company must not have commenced any business activities since incorporation or have ceased operations for some time. If there are still ongoing business transactions and finances, striking off would not be approved.
• There should be no outstanding liabilities with creditors, lenders, shareholders, employees, and other entities. All debts and obligations must be settled prior to striking off.
• The company must not be involved in any ongoing or pending legal issues, disputes, lawsuits, or insolvency proceedings in Singapore or overseas.
• Written consent must be obtained from the majority of shareholders to dissolve the company’s legal entity via striking off. The shareholders should agree on ceasing operations.

The directors should evaluate if striking off is feasible based on these criteria. Other eligibility factors may include having no company assets, setting CPF contributions, obtaining tax clearance from IRAs, and cancelling GST registration if needed. Not meeting the requirements would mean the company has to consider liquidation instead.

Step-by-Step Procedure

Once eligibility is confirmed, the process of applying to strike off a company can be initiated.

1. The application should be submitted online via BizFile+ by the company director, company secretary, or a registered filing agent using SingPass or CorpPass. There is no filing fee for this transaction.
2. If the eligibility criteria are met satisfactorily, ACRA will send a striking off notice to the company officers at the registered office address. This is typically done within a month.
3. The overall striking off process takes about four to six months to completion. This includes the time for assessment, public notifications, and objections if any.
4. The company can choose to withdraw the striking off application at any time during this process by submitting the relevant forms. The application would then be cancelled.
5. If there are any objections raised by stakeholders to the striking off application, the company has two (2) months to resolve the matter with the objector. Failing which, the application will lapse.
6. After the two-month objection period, ACRA will publish the company name in the Government Gazette to notify the public. Two such Gazette notifications are issued before the company is legally struck off.

Implications After Approval

Once the striking off application has been approved and the process completed, there are some implications to note.

1. The company’s name will be removed from ACRA’s register and it will cease to exist as a legal entity. This means that the company can no longer conduct business or enter into transactions.
2. The company directors, shareholders, and officers will no longer have any legal connection to the dissolved company. Their duties and responsibilities associated with the company will be discontinued.
3. Company assets, if any remaining, will be transferred to the Singapore government. Liabilities will also be taken over by the government.
4. Legal proceedings by or against the company will be terminated and cannot be continued. Creditors cannot make any claims from the company after striking off.
5. Company documentation like certificates of incorporation, financial statements, and other records should be retained by the directors for five (5) years before disposal, as per accounting regulations.
6. The company’s bank account can be closed or kept open to settle any residual matters. Any remaining funds will have to be transferred to the government.

Striking off implies a clean break for the company and stakeholders from a legal perspective. All rights and obligations cease to exist post striking off.

Liquidating a Company

Unlike striking off, liquidation or winding up a company is a more complex and formal process in Singapore. There are two ways a company can be liquidated.

#1 – Initiated by Shareholders or Creditors

1. Members’ Voluntary Liquidation
   The shareholders of a company can pass a special resolution to voluntarily wind up the company and appoint a liquidator. They must file a declaration of solvency stating that the company can pay its debts in full within 12 months.
2. Creditors’ Voluntary Liquidation
   If the company directors determine that the company cannot continue trading and pay debts due to insolvency, the creditors can voluntarily initiate liquidation proceedings.

In both cases, the company’s assets are realised and liabilities settled before distributing any surplus funds to shareholders.

#2 – Overseen by Court-Appointed Liquidator

The court may pass a winding up order to compulsorily liquidate a company that is unable to pay its debts or has acted against the public interest.

An official liquidator will be appointed by the court, usually the Official Receiver (a public officer appointed by the High Court to act as the liquidator), to oversee the liquidation process and dissolution of the company.

The liquidator takes custody of the company’s assets and investigates its affairs, finances, liabilities, contracts, etc.

Based on the assets, the liquidator executes the process of settling the company’s existing liabilities towards creditors, lenders, and employees as per the order of priority.

Any surplus assets remaining after payment of all debts will be distributed to the shareholders according to their rights and interests.

The liquidator hence facilitates the orderly winding up of the company and equitable settlement of its obligations.

Business Operations Cease

Once the liquidation process commences, the company must cease carrying on its business operations. However, the corporate entity will continue to exist until dissolution.

• The liquidator will take control of the company’s assets and realise them at the best value possible. This could involve selling property, recovering dues, valuating inventory, and more.
• The proceeds from realising assets will be utilised to pay off the company’s outstanding and current liabilities in order of priority. Secured creditors are paid before unsecured ones.
• After setting all liabilities, any surplus assets remaining will be distributed to the shareholders according to their rights and interests in the company.
• The company’s operations, trading activities, contracts, employment of staff, shares transfer, etc., must be restricted and wound up during liquidation.
• Once the winding up process is complete, the company can be dissolved and its corporate status can cease to exist.

Better Option for Insolvent Companies

Liquidation is often preferred over striking off when a company is insolvent or facing legal issues:

1. If a company is unable to pay its debts and liabilities, it can be wound up through a compulsory court order rather than a striking off application.
2. The formal liquidation mechanism allows equitable settlement of debts under the liquidator’s supervision.
3. Striking off is only possible if a company has zero liabilities and obligations. For indebted companies, liquidation is the viable option.
4. If the company is involved in lawsuits, disputes, or suspected malpractices that require investigation, liquidators can examine its affairs and contracts in detail.
5. The liquidation route provides more recourse for creditors and stakeholders than striking off in case of pending dues or disputes.

Hence, liquidation is the recommended and feasible option for insolvent companies or those facing legal issues and liabilities. The court-supervised process facilitates orderly winding up.

Tax and Regulatory Compliance

Closing a company in Singapore requires fulfilling certain tax and compliance obligations, including the following:

• All outstanding taxes, GST, and penalties must be paid before initiating striking off or liquidation. Tax clearance must be obtained from IRAS.
• For GST-registered companies, the GST registration needs to be cancelled and final GST returns filed before cessation.
• There should be no outstanding CPF contributions due to employees. Any pending dues must be settled.
• Companies need to file their outstanding corporate income tax returns and annual filings during the cessation process.
• Audited accounts may need to be prepared up to the last day of liquidation or striking off.
• Tax compliance documents and financial statements need to be retained for five (5) years as per regulations.

Ensuring all these obligations are fulfilled guarantees that you are up for a smooth business or company cessation.

Seeking Professional Assistance

Many legal and regulatory requirements are involved so you may find navigating the business cessation process to be complex. The following is what happens when you seek the help of a filing agent:

1. They provide guidance on how to register a new company in Singapore.
2. Professional corporate service providers can offer advice on whether striking off or liquidation is the best suitable option depending on the situation.
3. They provide guidance on meeting eligibility criteria, following procedures, fulfilling compliance, and managing issues, if there are any.
4. End-to-end support is offered for the full cessation process (preparing documentation, filings, and liaising with agencies).
5. Assistance is provided to settle outstanding dues, finalise accounts, distribute assets, and wind up operations smoothly.
6. Experts manage communications and engagement with stakeholders during the dissolution process.
7. Advisory is offered to retain adequate records and fulfil post-cessation tax obligations even after closure.

You reduce risks, avoid non-compliance penalties, and ensure seamless cessation if you engage reliable corporate services firms for business closure support.

Conclusion

Closing a business is often ridiculed with complexities. While striking off is faster for dormant companies, liquidation offers more structured mechanisms for insolvent entities. Navigating the documentation to compliance requirements may be really challenging without the expertise needed. If you do not seek professional help, business closure is just as hard when doing company registration.

Professional company registration service providers like Corporate Services Singapore not only assist companies to register and set up in Singapore but also help manage striking off or liquidation effortlessly.