With the rise in cash reserves of many companies worldwide, activist shareholders have increasingly put public pressure on the management of such companies to either actively fund growth, which can be tricky in the current economic climate, or in the alternative, to return excess cash to shareholders. This article illustrates some of the ways by which Singapore companies considering a return of cash to its shareholders may do so under the current Singapore Companies Act.

When a Singapore company is considering a return of excess cash to its shareholders, it may choose to do so by way of a dividend distribution, share buyback or capital reduction exercise under the Singapore Companies Act. The company should consider various factors, including the source of its excess cash whether it is excess share capital or cash generated from profitsthe tax impact on the company and its shareholders, as well as timing issues, in identifying the optimal manner of effecting such a return.

Returning excess cash to shareholders of Singapore companies — Financier Worldwide

A company with a substantial foreign shareholder base may also need to consider the foreign tax implications of the payout in the hands of its foreign shareholders. Companies may return cash to their shareholders via an outright distribution of dividends and this can be implemented by way of board or shareholder resolutions, or both. However, a company can only declare and pay final dividends from distributable profits and not share capital.

In terms of current year profits, a company is not required to apply its current year profits to offset any accumulated losses from past years and may distribute such profits as buyback of shares unlisted companies.

As for tax implications, all Singapore-resident companies are under a one-tier corporate tax system. As such, the tax on corporate profits is final and dividends received by the shareholder from the Singapore-resident company will be tax exempt, regardless of whether the shareholder is a company or an individual and whether or not the shareholder is a Singapore tax resident.

Buy Back of Shares

There are four methods of share buyback by listed and unlisted companies under the Singapore Companies Act. Share buybacks are fairly uncommon for unlisted companies as there is a 10 percent statutory limitation on the number of shares that may be bought back in yaga y mackie ft.

los money makers dejate llevar letra. A share buyback may be the most suitable method for returning cash to the shareholders of a company erfahrungen forex growth bot the company either does not have sufficient distributable profits to pay a dividend, or a capital reduction buyback of shares unlisted companies not desirable because its directors are unwilling to provide solvency statements and a court approval informedtrades bollinger bands the capital reduction is not an option.

A company may buy back its shares out of its share capital or profits as long as its directors are of the view that the company will remain solvent after the buyback. A company may opt to return cash to its shareholders by way of capital reduction if it does not have distributable profits and some companies may even take on additional debt to fund the cash distribution.

A company may, however, also opt for capital reduction even if it has distributable profits if it wishes to improve its capital structure or leave distributable reserves intact to maintain a sustainable dividend policy post-capital reduction.

Unlike a share buyback, which any shareholder may choose not to accept, a capital reduction will, once passed by the requisite 75 percent shareholder majority, be binding on all shareholders and ensure a more definitive outcome for companies which are doing so primarily to improve their capital structure.

Income-tax on buyback of shares by unlisted companies

Capital reductions are also not subject to the 10 percent statutory limit applicable to share buybacks. The Steering Committee for Review of the Companies Act has proposed changes to the Companies Act, including the regime in respect of share buybacks and capital reductions.

Among the changes currently being considered is the adoption of a uniform solvency test for all transactions in the capital maintenance regime. While the proposed changes are unlikely to result in companies rushing to return excess cash to their respective shareholders, they will go a long way towards facilitating the process.

Looking forward The Steering Committee for Review of the Companies Act has proposed changes to the Companies Act, including the regime in respect of share buybacks and capital reductions.