In certain conditions, the Singapore Registry of Companies allows for the reduction of registered capital for private limited companies in Singapore, a process known as capital reduction. Typically, companies opt for a reduction in registered capital for two main reasons:


Reasons for Reducing Registered Capital:

1.Excessive Registered Capital: When a company's registered capital is too high, maintaining it can lead to idle and wasted capital, hindering capital efficiency and adding to the burden of dividend distribution.

2.Significant Losses: In cases of severe financial losses after a period of operation, where the total capital is disproportionate to the actual assets, the capital amount loses its ability to reflect the company's strength, leaving shareholders without returns.

However, the procedures and regulations for capital reduction are more stringent than those for capital increase. One reason for this strictness is to prevent minority abuse of limited liability companies to evade debts.

According to Singapore company law, private limited companies must adhere to strict requirements and procedures for capital reduction. The company needs to issue a special resolution for capital reduction, which can be applied through two methods:


Methods for Applying for a Reduction in Registered Capital:

1. Seeking Approval from the Singapore Court: This involves court approval.

2. Meeting Singapore Company Law Procedures: This includes:

A. Convening an Extraordinary General Meeting (EGM) of shareholders.
B. Ensuring each director meets the solvency requirements as per Section 78B of the Singapore Companies Act.
C. Amending the company's constitution.
D. Retrieving old share certificates and issuing new ones.

It is crucial to note that the special resolution must be signed within 15 days of meeting the solvency requirements to prevent fluctuations in the company's ability to meet its obligations.

Solvency is the ability of a company to meet its debts when they fall due, while insolvency indicates a company's inability to repay its debts when due.

The capital reduction process is relatively complex and time-consuming, taking around 2-3 months. Therefore, for those without strict capital requirements at the time of company registration, setting a moderate registered capital aligned with the actual business needs is advisable. If necessary, capital increase can be processed later on. (Article by Singapore Sky Business)


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