10 Powerful Shareholder Rights in Singapore Private Companies

shareholder rights

Are you a shareholder in a Singapore company? As a shareholder, you’re an owner of the company. You have rights that you can enforce legally. Learn about the 10 key rights of shareholders here.

No. Shareholder Right
1 Right to vote
2 Right to dividends
3 Right to protection of personal assets from company liability
4 Right to not be treated oppressively
5 Right to access company information
6 Right to call for and attend company meetings
7 Right to ensure company is in compliance with regulations
8 Right to pre-emptive share purchases
9 Right to sue company, or to sue another entity on behalf of the company
10 Right to wind company up and to company’s assets after winding up

 

Shareholder Right 1: Right to vote

Shareholders who own voting shares are entitled to vote on company decisions.

Shareholders who own ordinary shares are entitled to vote on company matters. For instance, shareholders can vote on company decisions like appointing and removing directors, appointing and removing company secretaries, or changing the company address.

Do all shareholders have voting rights?

No. Only shareholders who own ordinary shares (or shares with voting rights, whatever these shares may be called by the company), have voting rights.

A company may have different types of shares. For example, a company could have Class A, Class B, and Class C shares. The company could structure the share classes such that Class C shares do not have voting rights. Therefore, if you own Class C shares only, you would not have the right to vote on company decisions. It is quite common for startups to have multiple share classes, with different voting rights per share class.

Companies may also have super-voting shares, which provide the owners with multiple votes per share. Facebook is a good example of this. Facebook’s Class A shares get 1 vote per share. However, Facebook’s Class B shares have 10 votes per share. Mark Zuckerberg, Facebook’s CEO, controls the majority of Class B shares, giving him about 58% of the voting rights in the company.

Shareholder Right 2: Right to dividends

Shareholders have a right to receive dividends.

For a company to declare dividends, at least 50% of shareholders must vote for and approve a resolution to pay dividends. For instance, if you own 10% of a company’s shares, you cannot simply demand 10% of the company’s profits. You must get at least another 40% of the shareholders to agree with you before dividends can be paid out.

Companies usually declare final dividends after the financial year has been concluded. Once a final dividend has been declared and approved by shareholders, it must be paid out. A company cannot suddenly renege on its promise to pay dividends once it declares final dividends.

Shareholder Right 3: Right to protection of personal assets from company liability

Shareholders in a Private Limited company generally enjoy the right of limited liability. This means that each shareholder’s personal assets, like their house, car, and bank savings, are in most cases protected if the company owes money to others, or if the company is sued. For instance, if the company goes bankrupt, other people or companies cannot seize shareholders’ personal assets to pay off the company’s debts. Limited liability protections mean that the most a shareholder will lose is the amount they spent purchasing company shares, and the amount they loaned to the company (if the company has not paid back the shareholder loan).

There are important exceptions to this rule of limited liability, though.

If a shareholder is also a director of the company, they can be held  personally liable in some situations. For instance, if the shareholder-director continues running the business knowing that the company is already insolvent, or if they defraud others using the company, their personal assets can be exposed to legal claims. Read more about personal shareholder-director liability here.

Shareholder Right 4: Right to not be treated oppressively

This is most applicable for minority shareholders. Majority shareholders cannot take actions that would prejudice the rights of minority shareholders. An example would be majority shareholders paying themselves obscenely high salaries, so as to transfer company income from the minority shareholders to majority shareholders. In such cases, minority shareholders can exercise their rights to be treated fairly by suing the majority shareholders for shareholder oppression.

Shareholder Right 5: Right to access company information

Shareholders have the right to request access to:

  • Company financial statements (income statements, balance sheets, cash flow statements, etc.)
  • Conduct audit on financial statements
  • Directors’ compensation information
  • Auditors’ compensation information
  • List of all shareholders of the company (% owned does not need to be declared, but shareholders have a right to know who is a shareholder)
  • Minutes of shareholder meetings (shareholders generally do not need to be provided access to minutes of board meetings)

If an AGM is not held, then shareholders have the right to receive financial statements and related documents within 5 months after the end of the financial year.

Right to request for company to audit its financial statements

Most companies in Singapore are exempt from having audited accounts. However, if shareholders who own at least 5% of the company make a request, the company must audit its accounts and present it to shareholders.

Right to request for information on director’s compensation

Shareholders have the right to request for information on directors’ compensation. At least 10% of all shareholders, or shareholders who own at least 5% of the company’s shares, must make this request. The company must disclose this information within 14 days of the request being made.

This is to provide checks and balances on directors potentially being paid excessive amounts of compensation, which might sway their objectivity in representing shareholder interests. If shareholders feel directors are being too much or are not performing their job well, they can vote to remove the directors.

Right to request for information on auditors’ compensation

Shareholders have the right to request for information on auditors’ compensation. At least 5% of all shareholders, or shareholders who own at least 5% of the company’s shares, must make this request. The company must disclose this information immediately after the request is made, with some time allowed for preparation of the necessary information.

This is to provide checks and balances on auditors potentially being paid excessive amounts of compensation, which might sway their ability to properly audit the company’s finances. If shareholders are not happy with the auditor’s performance, and/or if they feel the auditor is being paid too much, they can vote to remove the company’s auditor.

Shareholder Right 6: Right to call for, and attend company meetings

Calling for an Annual General Meeting (AGM)

Shareholders have the right to call for an AGM. Even if companies have held a shareholder vote to dispense with holding AGMs, shareholders still can call for AGMs. As long as a shareholder calls for an AGM within 6 months after a company’s financial year ends, the company must hold an AGM. The shareholder must send written notice calling for the AGM, at least 14 days before this 6-month deadline.

Calling for an Extraordinary General Meeting (EGM)

Any shareholder(s) with at least 10% of the company’s shares can call for an EGM. Once the right to call the EGM is exercised, the company must hold the EGM within 2 months of the request being made.

Attending shareholder meetings

Shareholders have the right to attend all the company’s shareholder meetings. They can voice their opinions on any issues that are scheduled for discussion during the meeting.

Shareholder Right 7: Right to ensure company is in compliance with regulations

Right to ensure compliance with Company Constitution

All shareholders have the right to ensure that the company, along with all other shareholders, follow the clauses, roles, and responsibilities set out in the company’s constitution.

The company’s constitution will govern important functions of the firm, like share transfer procedures, directorship appointment procedures, and various rules on how to run the company and resolve potential disputes. If the company is flouting the procedures or rules in its constitution, shareholders have a right to demand that the company stop its errors and comply with the constitution’s wordings.

Right to ensure compliance with Companies Act

All shareholders have the right to ensure that the company, along with all other shareholders, follow the laws set out in the Companies Act. Any shareholder who believes the company or other shareholders are breaching the Companies Act can apply to the Courts to stop such illegal actions.

Shareholder Right 8: Right to pre-emptive purchase of shares

Most company constitutions/shareholder agreements will grant shareholders the right to be offered shares for purchase, before the shares are sold to any outsider. This is known as having “pre-emptive rights”. Pre-emptive rights are not a legal requirement, but most companies will offer them to shareholders.

It’s in the best interests of shareholders to agree to pre-emptive rights. You want to have the first say on purchasing shares from other shareholders, or from the company itself if new shares are issued. For rapidly growing companies, having first dibs on shares could dramatically increase your wealth if the value of your shares goes up. Also, you don’t want other shareholders selling ownership of your company to random outsiders willy-nilly. Outsiders may have less friendly motivations in acquiring shares of your company, so the ability to purchase shares first is important to limit the chance of introducing a Trojan horse into your company.

Shareholder Right 9: Right to sue company, or to sue someone else on behalf of the company

Right to sue the company

A shareholder can sue their own company. Usually, this is done in cases of shareholder oppression. If the company is unfairly impinging on a shareholder’s rights, they can sue the company to stop them from oppressing the shareholder’s rights. Also, shareholders can sue the company (and the company’s directors and officers) if it is not acting in the shareholders’ best interests. For instance, some directors may engage in conflicts of interests (e.g. using company money to fund their own outside business ventures). In such cases, shareholders can sue the firm to claim damages, and to stop the company from violating shareholder interests.

Right to sue someone else on behalf of the company

Shareholders have the right to sue another person or entity on behalf of the company. To do so, the shareholder must apply to the Singapore Courts for permission to begin the lawsuit. Suing someone else on behalf of the company is known as a “derivative lawsuit” or “derivative action”.  Usually, derivative lawsuits are initiated against company insiders, such as directors who have breached their duties. Shareholders can then sue these directors on behalf of the company, so that the company can claim compensation for the director’s breach of duties.

Shareholder Right 10: Right to wind company up, and right to own company assets after winding up

Shareholders have the right to apply to the Courts to wind up the company. Usually, a voluntary winding up is done in exceptional cases where relationships between shareholders have broken down completely, or the company is heavily indebted and cannot continue operations. The legal term for such voluntary shut downs are called “winding ups on just and equitable grounds”.

Some examples of this are:

  • 50:50 shareholders are at a deadlock. Shareholder Agreement does not contain a buy-out clause to resolve this deadlock. Either shareholder (or both) can apply to have the company wound up.
  • The company no longer wishes to, or is capable of, carrying out its business.
  • The company is insolvent/bankrupt.

Shareholders have a right to the company’s assets once the firm has been wound up. A shareholder’s claim on company assets is last in line. All creditors must be paid off first before shareholders can be paid. Also, amongst shareholders, preference share owners must be paid before ordinary share owners.

What happens if someone else holds my shares for me?

These 10 rights above normally only apply if your name is in the company’s list of shareholders. If your shares are being held for you via a nominee, then your nominee will have to exercise your rights for you.

Ready to protect your business?

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2 Easy Ways to Reduce Share Capital for Companies in Singapore

how to reduce share capital

Increasing share capital is easy – just invest more money and your company’s equity will increase. Reducing a company’s share capital, on the other hand, takes a little more work. We explain how to reduce your share capital in Singapore.

Types of company share capital that can be reduced

There are 2 types of share capital that can be reduced:

  • Paid-up share capital
  • Unpaid share capital

Paid-up share capital:

This refers to shares that have been fully paid for by the shareholder.

Unpaid share capital:

This refers to shares which has been partially paid for, not paid for at all. The shareholder is going to pay for the shares in the future.

Why would a company reduce its share capital?

A company may simply wish to return surplus capital to shareholders which it no longer requires.

A company which does not have distributable profits may be keen to reduce its capital if it cannot afford to pay any future dividends.

A company may also conduct a capital reduction in order to reorganise, simplify and improve its capital structure. Changing a company’s capital structure may allow a company to engage in greater debt financing, which in turn increases leverage and potentially the company’s growth rate.

Reducing share capital helps ensure the sufficiency of distributable funds to maintain sustainable dividend payments. This is because where there are less shares, less dividends are expected to be declared.

How do you reduce your company’s share capital?

There are 2 methods you can use to reduce share capital:

  • Method 1: Court-approved share reduction
  • Method 2: Non-court-approved share reduction

Under both methods, the Accounting and Corporate Regulatory Authority (ACRA) does not require any fees to be paid for the entire process.

Method 1: Court-approved share reduction

The first method involves passing a special resolution on reducing your share capital, and then sending it for approval by a judge. A special resolution is basically a shareholder vote where at least 75% of shareholders must agree.

Here’s the steps required:

Step 1:

Prepare a written special resolution outlining your intent to reduce your company’s share capital. Call for a shareholder’s meeting. The date for the shareholder’s meeting must be set at least 21 days in advance, since this is a special resolution. However, if at least 95% of shareholders agree, you don’t need to set the meeting 21 days in advance and you can hold the meeting earlier.

Step 2:

At the shareholder meeting, hold a vote. At least 75% of shareholders must agree with the special resolution for it to be passed.

Step 3:

Send ACRA a notice stating that the special resolution has been passed.

Step 4:

If your company has creditors (i.e. people or organisations that it owes money to), you must prepare evidence to show the Court that you’ve protected creditors’ interests. You can contact your creditors to give you their consent to reducing your share capital. Alternatively, you can take measures to secure creditors’ debts, like show the Court that you have sufficient assets to repay creditors even if the company was liquidated.

Step 5:

Send the special resolution and evidence of creditor security for confirmation by the Court.

Step 6:

Send ACRA the Court approval. Also, send ACRA the information on the share reduction within 90 days of the Court’s approval.

Method 2: Reducing capital without the approval of the Court

Step 1:

Have the Board of Directors prepare a solvency statement. The solvency statement is a declaration that the company is able to repay its debts in the next 12 months, even if it is liquidated. It is also a declaration that the company’s assets are not worth less than the company’s liabilities/debts. The solvency statement must be made at least 20 days before the date of the special resolution.

Also, prepare a written special resolution outlining your intent to reduce your company’s share capital.

The special resolution and the solvency statement must be uploaded to ACRA, so that it is disclosed to the public. Yes – the general public, not just shareholders.

The following documents must be filed with ACRA:

  • Copy of the written special resolution for reducing share capital
  • Date on which the special resolution was held
  • Details about the share reduction (e.g. amount of reduction)

Step 2:

Call for a shareholder’s meeting. The date for the shareholder’s meeting must be set at least 21 days in advance, since this is a special resolution. However, if at least 95% of shareholders agree, you don’t need to set the meeting 21 days in advance and you can hold the meeting earlier.

Step 3:

At the shareholder meeting, hold a vote. At least 75% of shareholders must agree with the special resolution for it to be passed.

Step 4:

Send ACRA a notice stating that the special resolution has been passed.

Things to note when preparing a solvency statement:

The Board Directors must be very diligent when preparing solvency statements. They should engage professional accountants and financial professionals (if they do not have the requisite skill set) to thoroughly evaluate the company’s financial position. Under Section 7(A) of the Companies Act, it is a criminal offence for a Board Director to issue a solvency statement without proper financial justification. Directors who flout this rule can be imprisoned up to 3 years, and/or fined up to $100,000. Those are might heavy penalties, so tread carefully!

Can creditors block a reduction of share capital?

Yes. If your company owes money to other parties, they can object to your reduction of capital. Creditors can apply to the Singapore Courts to challenge the company’s application for a non-court approved capital reduction. Creditors are allowed to do this within 6 weeks of the company passing the share reduction resolution.

The Court will step in to stop your share reduction if:

  • You owe money to another party and haven’t paid them in full, or you haven’t come to an agreement to a repayment plan, and
  • There is a reasonable case to secure the money that you owe as a company’s assets will decrease after a share capital reduction

What must I do if creditors object to my reduction of share capital?

If creditors raise objections to share reduction, companies must notify ACRA of the objections ASAP.

You must also apply to the Courts to dismiss the creditor’s objections. If the Court grants a dismissal, then you must file:

  • Solvency statement
  • Statement from the directors that all creditor objections have been dismissed
  • Court order dismissing the objection
  • Public notice containing the reduction information

You must do the above within 15 days of the Court dismissing the creditor’s objections.

Is the court-approved or non-court-approved method better?

If your company has no creditors, is small and has few shareholders, then you can consider going the non-court-approved route. It’s cheaper and faster. This is usually done for one or two-man companies or small family businesses, with 0 debt.

However, generally speaking, most companies will choose the court-approved method for reducing their shares. This is because the Court’s judgement gives more legal assurance to the share reduction. A Court approval makes it more difficult for creditors to challenge a share reduction.

Also, since the Directors do not need to prepare a solvency statement, there is less risk of legal liability. With the preparation of a solvency statement, Directors may open themselves up to litigation from creditors, shareholders, or other parties. If you’re going the route of non-court-approved, strongly consider Directors & Officers Liability (D&O) Insurance. This will cover your company’s directors against lawsuits and the cost of damages/settlements if they get into legal trouble.

Ready to protect your business?

Provide is the easiest and quickest way for business owners to protect their companies. As an entrepreneur, you could face a severe business lawsuit which might cost you hundreds of thousands to defend. Or, one of your employees might get injured, leaving you liable under the law to compensate them for their injuries. Make sure you carry at least basic business insurance, so you don’t leave yourself exposed to such dangerous financial risks.

Click the links below to get your insurance online, in just 3 mins. Our premiums are amongst the lowest nationwide.

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

 

Home Office Scheme in Singapore: How to Apply?

home office scheme

The Home Office Scheme allows business owners to operate small businesses from the comfort of their home. If you want to run your own business from your house, this is an excellent scheme to consider. You don’t have to spend money renting an office, and you can easily make money without leaving your home.

Conditions for Home Office Scheme:

HDB flats and private residences are designed primarily for living in, and not for conducting industrial activity. Any business activities conducted should not impact your neighbour’s living conditions. The scheme was set up to allow admin-based businesses to be run from home (e.g. tech startups, consulting businesses, internet-based businesses). It’s not supposed to be used for labour-intensive businesses, or large-scale businesses, or any other business that will draw large amounts of foot traffic.

Here are the conditions for the Home Office Scheme:

  • You cannot hire more than 2 non-resident employees. This means that you can hire as many resident employees as you want (i.e. people in your household), but you can only hire up to 2 people who are not members of your household.
  • You cannot display any business signs or advertisements outside your house.
  • Your business activities should not make noise, smoke, odour, waste matter or dust.
  • Your business should not cause elevated levels of traffic into the neighbourhood.
  • Your business cannot consume high amounts of electricity that exceed standard residential use. That means no Bitcoin mining.
  • Your business cannot use dangerous chemicals or other hazardous substances/materials. You can’t run a real-life Breaking Bad lab, unfortunately.
  • Your business activities cannot be in the prohibited list of activities (see list below).

The rules above are meant to protect the residential nature of the neighbourhood. For instance, imaging if your neighbour ran a popular clothing shop from out of their home, and had customers coming in and out 12 hours a day, 7 days a week. That would be quite disruptive to the people living around them.

What types of businesses cannot be run under the Home Office Scheme?

  • Beauty, hair dressing or massage
  • Construction/renovation contractors
  • Car trading/sales
  • Card reading/palm reading, tarot reading, or fortune telling of all kinds
  • Catering/restaurants
  • Commercial schools (eg. Tuition centres, music centres, dance centres, yoga classes, language classes, etc.)
  • Courier services
  • Classes involving dress-making, sewing, embroidery
  • Employment agencies
  • Embalming, funeral chapels/homes
  • Maid agencies
  • Mausoleums
  • Manufacturing of any kind
  • Medical services (eg. dental, medical, veterinary)
  • Money lending
  • Opticians
  • Repair activities (eg. household appliances, electrical products, footwear, etc)
  • Any business that involves conducting in-person seminars for large numbers of people
  • Shops/Retail businesses – essentially the sale of any kind of goods it not allowed

What types of businesses are allowed under the Home Office Scheme?

  • Accounting and book-keeping businesses
  • Architecture/interior design business
  • Asset management business (e.g. hedge funds)
  • Consulting business (e.g. management consulting, engineering consulting, IT consulting, education consulting, HR consulting, financial consulting, etc.)
  • Graphic design, marketing, advertising business
  • Insurance and financial planning business
  • Real estate agencies
  • IT businesses (e.g. tech startups) Trading business

Essentially, admin-based businesses are suitable for the Home Office Scheme.

How to apply for the Home Office Scheme?

The application process differs depending on whether you live in an HDB or a private property.

If you live in an HDB:

Apply for the HDB Home Office Scheme.

If you live in a private residence (e.g. condo, landed property):

Apply for the URA Home Office Scheme.

You must be at least 18 years old to apply for the Home Office Scheme. If you’re the tenant of the unit, you have to seek permission from the owner first before you can get approval for the scheme.

How much does the application for the Home Office Scheme cost?

It costs a one-time fee of $20.

How long is the Home Office Scheme license valid for? Do I have to renew my Home Office license?

It’s valid for as long as you wish to run your business. It doesn’t expire. You only need to apply once and that’s it – no renewals are needed.

However, take note that your Home Office license can be revoked if you breach the conditions of the license. For instance, if your neighbours complain and it’s discovered that you’re actually running a prohibited business (e.g. massage parlour), your license can be taken away.

What’s the difference between the Home Office Scheme vs Home-Based Small Business Scheme?

Home Office Scheme vs Home-Based Small Business Scheme in Singapore

Difference Home Office Scheme Home-Based Small Business Scheme
Application required? Yes

 

 

No
Cost $20 one-time application fee Free
Maximum number of employees who are members of household No limit No limit
Maximum number of employees who are NOT members of household 2 Not allowed
Able to register HDB flat/private residential as business address with ACRA? Yes No

 

There are two schemes available for entrepreneurs who want to use their home to run their business. Sometimes people get confused between the two schemes. There are 2 main differences between the Home Office Scheme versus the Home Based Small Business Scheme.

The first primary difference is the number of employees that you can hire from outside your household. Applying for the Home Office Scheme allows you to hire 2 employees who aren’t members of your household. This can be useful if you need to have employees come over to have meetings and do work in a conducive environment. It saves you the hassle and cost of having to rent an office. With the Home Based Small Business Scheme, you can only hire people within your household (i.e. the people living with you). You can’t hire people who don’t live together with you.

The second difference is the ability to use your residential address as your registered business address with ACRA. Under the Home Based Small Business Scheme, you cannot use your residential address for your business. However, under the Home Office Scheme, you can do so. This provides you with an additional level of convenience. You don’t have to engage a corporate secretary to get you a virtual address to register with ACRA.

How should I protect my home-based company from business risks?

Provide is the easiest and quickest way for business owners to protect their companies. It’s important to cover your home-based business against liability. You could face a severe business lawsuit which might cost you hundreds of thousands to defend. Or, one of your employees might get injured, leaving you liable under the law to compensate them for their injuries. Make sure you carry at least basic business insurance, so you don’t leave yourself exposed to such dangerous financial risks.

Click the links below to get your insurance online, in just 3 mins. Our premiums are amongst the lowest nationwide.

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

 

Employee Death in Singapore: 7 Things Employers MUST Do

employee death

Suffering an employee death is one of the hardest things that an employer (to say nothing of the deceased’s family) will have to handle. If the employee passes on due to work-related causes, employers will face significant liability under Singapore law.

The 7 things businesses MUST do if faced with an employee death:

  1. Notify MOM
  2. File a Work Injury Compensation Claim (if you have Work Injury Compensation Insurance)
  3. Pay deceased employee’s family any salary owed
  4. If deceased employee is a foreigner, cancel Work Pass and repatriate body
  5. If death was work-related, pay mandatory compensation
  6. Return employee’s belongings to family
  7. How to protect your business against liability for work-related death

Step 1. Identify whether the employee’s death occurred due to work OR occurred at a workplace:

The responsibilities of the employer will vary depending on how OR where the employee died. Employers must act immediately to identify which the 2 scenarios below apply:

  • Scenario 1: The employee’s death was not related to work OR occurred outside the workplace.
  • Scenario 2: The employee’s death occurred due to work OR at the workplace

Scenario 1: Employee’s death occurred due to non-work-related causes OR outside the workplace

If an employee dies due to non-work-related causes, or dies outside the workplace, then employers don’t need to report the incident to MOM. Employers are not liable under the Work Injury Compensation Act for such deaths.

Examples:

  1. Employee slipped and fell outside the office, after knocking off work. Employers are not liable under the Work Injury Compensation Act for injuries while travelling to and from work, from home. Since the employee death occurred outside the workplace, and was not work-related, the employer does not need to report the incident.
  2. Employee was killed in a road accident while on public transportation, on the way to work. Same rationale and outcome as point (1). Employer does not need to report the incident.
  3. Employee has been battling stomach cancer for past 6 months. The cancer was not related to work. The employee eventually succumbs to the disease while hospitalised in ICU. Employer does not need to report the death to MOM. The employee death was not related to work, and the death occurred at the hospital which is outside the workplace.

Scenario 2: The employee’s death occurred due to work OR at the workplace

Employee’s death due to work:

If an employee dies from work-related causes, employers must notify MOM of the passing immediately. Examples of work-related causes would be falls at construction sites, being electrocuted while working on wires, or getting hit by vehicles while on the way to lunch.

Employee’s death at the workplace:

If an employee dies at the workplace, employers must notify MOM immediately. Workplaces would be any area where the employee is assigned to work. It could be the company office, a third-party project site the employee needs to visit, a client’s office, etc.

If there is doubt over whether the death was related to work or happened at the workplace, then employers should err on the side of caution and report the incident to MOM ASAP.

Step 2: Notify MOM/Commissioner for Workplace Safety and Health ASAP

You must notify the Commissioner for Workplace Safety and Health ASAP. To do this, employers can send an email to mom_oshd@mom.gov.sg

In the email to the Commissioner, employers should state the following:

  • Date and time of employee’s death
  • Place of death
  • Name and identification number of deceased employee
  • Your company name
  • Name of workplace occupier. This refers to the person or organisation who controls the premises the employee works in. For instance, if the deceased employee had died while working in a retail shop, the workplace occupier could be the shop owner or landlord. If the workplace occupier is a factory that is registered with MOM, the workplace occupier is the individual whose name is on the factory’s certificate of registration.
  • Description of accident that caused the death
  • Name and contact details of individual who sends the email to the Commissioner

Step 3: File a Work Injury Compensation Insurance claim ASAP

For employers who have a Work Injury Compensation Insurance policy, notify your insurance broker or insurance company immediately after you notify the Commissioner for Workplace Safety and Health. Do not delay notifying your broker or insurer, or your claim may not be accepted.

If MOM finds that the employee’s death really was due to a work-related cause, Work Injury Compensation Insurance will cover the mandatory compensation that you’ll need to pay to the deceased’s family. This can go up to $225,000 or more – more on that later in this article.

Step 4: Submit an incident report to MOM, within 10 days of the employee’s work-related death

To file the incident report, employers may use the WSH incident reporting online tool.

Employers who fail to make the necessary reports can be jailed up to 6 months, and or fined up to $10,000.

Employers must include the following in the incident report:

  • Description of accident/disease that caused employee death
  • Personal details of employer
  • Company details
  • Employee personal details
  • Details of Work Injury Compensation Insurance

Employers are required to keep all incident reports for at least 3 years, so it’s a good idea to save the report, and/or print it out and store it in a secure location.

Once employers submit the incident report, MOM will begin its investigation process.

Must employers report worker deaths while travelling?

It depends.

Employee death while travelling between work and home does not need to be reported.

Employee death while travelling from work to other work sites needs to be reported.

Must employers report deaths for workers who died on their lunch breaks?

Yes. Lunch breaks are counted as part of work and such deaths must be reported.

Travelling to and from lunch breaks is counted as part of work, and such deaths must also be reported.

Example: Tim is an employee of Company ABC (names fictitious). Tim was driving from his company’s office to a client’s office when he got into a road accident. Tim passed away. This was a work-related incident, so Company ABC must report the death to MOM.

Step 5: Pay any outstanding salary owed to deceased employee

A deceased employee may have salary, bonuses, overtime payment, and other sums that were owed to them before they passed on. These accrued sums belong to the employee’s personal representative, which is the person the employee legally nominated to manage their affairs upon death. Most often, the personal representative will be a member of the employee’s family, such as their spouse.

Before making any payments to the employee, it’s best to contact the employee’s next-of-kin, to determine who is managing the deceased’s affairs. Most employers will collect an “emergency contact” from their employees – this will work also. Employers should contact the employee’s emergency contact first, because the deceased employee’s bank account will usually be frozen when the bank is informed of their death. Contacting the next-of-kin first allows employers to arrange the logistics of which bank account to pay the sums owed.

The amount that employers must release to deceased employees will depend on how salary is calculated in the worker’s employment contract. For instance, employees who receive monthly payments should have their salary pro-rated to reflect the number of days worked before they passed away. For daily-wage workers, the daily wage should be pro-rated to reflect the number of hours worked before the worker passed away.

Payment of maternity leave pay, if employee dies while on maternity leave, before childbirth

If an employee dies while on maternity leave, but before childbirth, the employer must pay her remaining maternity leave pay in full. This is compulsory under Section 79 of the Employment Act.

Some key facts to note about paying maternity leave benefits for expecting employees who pass on:

  1. Maternity leave pay is the employee’s gross pay. (Gross pay = basic pay + allowances + overtime/bonuses/commissions/etc. Exclude CPF).
  2. Paid maternity leave varies from 12 to 16 weeks.

Employers must pay the remaining maternity leave pay to the person nominated by the worker to receive such payments. Often, it will be the deceased employee’s spouse. If no one has been nominated, the employer should pay the employee’s personal representative.

Step 6: Pay mandatory compensation for work-related deaths

By law, employers must pay compensation to the family of employees who die from work-related causes. This is mandated under the Work Injury Compensation Act (WICA).

Minimum amount employer must pay, for each work-related death: $76,000

Maximum amount employer must pay, for each work-related death: $225,000

The above amounts can be adjusted higher depending on the age of the employee. The families of younger employees will have to be paid more compensation for work-related deaths. The amount will be determined by MOM after they have conducted their investigation into the employee’s demise. MOM will issue employers a Notice of Assessment (NOA), which will inform employers of how much compensation they must pay.

Not paying required compensation under the Work Injury Compensation Act is punishable by jail and/or fine.

WICA covers all employees in Singapore, regardless of nationality. This means even if the worker is a foreigner worker, employers must pay the foreign worker’s family in their home country. Also, WICA operates on a no-fault basis. This means that even if the worker who died at (or from) work due to their own carelessness, the employer must compensate the worker’s family. Even if the employer had no responsibility for the employee’s death, it is irrelevant.

Death compensation is a lump sum compensation. Given the size of the required compensation, companies that don’t have WICA Insurance may go bankrupt.

Exceptions for WICA compensation:

Employers are not liable to pay compensation under WICA if:

  • Employee commits suicide or deliberately injure themselves
  • Employee dies or gets injured while under the influence of alcohol or drugs
  • Employee’s death was not work-related

Step 7: Returning belongings

Employers should arrange for the employee’s personal belongings at the workplace to be packed and delivered to the family, depending on how the family wishes for their loved one’s belongings to be handled.

Protect your business from liability from employee deaths:

As established earlier, businesses in Singapore are liable for $76,000 to $225,000 (or more) for an employee passing away due to work-related causes. This is a massive amount of money, and could easily send most SMEs into serious financial trouble, or even bankruptcy. Work Injury Compensation Insurance will pay this amount for you. It also covers medical expenses for work-related injuries/sickness, including Covid-19 (up to $45,000), and also covers compensation for temporary/permanent disability.

Buy Work Injury Compensation Insurance from $5/month online

12 Best SME Credit Cards for Businesses in Singapore

sme credit card

Are you still paying your business expenses using cheques or bank transfers? If your answer is yes – stop! If you’re an SME owner in Singapore, then you should really make use of corporate credit cards for your business. These corporate credit cards help you rack up points that you can redeem for exclusive rewards. Some of these cards also come with cashback terms designed specifically for business expenses. Of course, there’s a ton of SME credit cards in the market to choose from. Most people get dizzy even thinking about comparing the different benefits each card offers. Don’t worry – with this article, we’ve done all the heavy lifting for you. Read on to find out which SME credit card is best for your needs!

The 12 best SME credit cards for businesses in Singapore, in no particular order:

  1. Aspire Corporate Credit Card
  2. Standard Chartered Unlimited Cashback Card
  3. OCBC Business Debit Card
  4. Citi Corporate Credit Card
  5. HSBC World Corporate Credit Card
  6. DBS World Business
  7. American Express SIA Business Card
  8. American Express Corporate Platinum Card
  9. UOB Regal Business Metal Card
  10. Maybank Platinum Card
  11. OCBC Debit Business Card
  12. Diners Club Business Card

Summary of popular SME credit cards, based on benefit/function:

Best For Key Benefits SME Credit Card
  • Startups
  • E-Commerce
  • IT companies
  • Frequent FX transactions
  • 1% cashback on marketing spend and SaaS software
  • Low fees (0.4%) on FX transactions
Aspire Corporate Card
  • Quick & affordable working capital
  • Business owners who will provide employees with credit cards
  • Access up to $100,000 interest-free loan for 55 days
  • Up to $1.65 million protection against employee card misuse
Citi Business Card
  • Highest cashback – good for business owners with moderate to high business spend
  • 1.5% cashback on all spend, no cashback cap
  • 5% cashback for all spend in first 3 months
Standard Chartered Unlimited Cashback
  • Business travelers
  • Up to 8.5 HighFlyer miles per $1 spent with SIA (1 HighFlyer mile is approx. 1.5 to 3 cents depending on flight booked. 8.5 miles would = approx. 12.75 to 25.5 cents)
  • 1.8 HighFlyer Miles per $1 spent on all other local and overseas spend
American Express SIA Business Card
  • High-rollers
  • Business owners who frequently entertain clients and partners
  • 2% cashback on overseas spend
  • 1.5% cashback on retail and dining spend
  • Free golf green access at 35 courses worldwide
  • Free hotel stays, free room upgrades at selected venues, early check-in, late check-out, free welcome amenities, available at more than 30,000 hotels worldwide
UOB Regal Business Metal Card

 

#1. Aspire Corporate Card

Click here to apply.

Aspire’s card is actually a debit card, but its benefits are fairly useful so it does deserve a mention amongst other SME credit cards.

Aspire is a digital FinTech startup that’s created a brand new virtual corporate card, designed specifically for business owners in Singapore. The company was founded in 2016 by Andrea Baronchelli. They were frustrated with how few good credit cards that were catered to business owners, so they built their statup to cater to the SME community. Aspire has raised over $30 million in venture capital funding, being part of the new wave of neo-bank startups disrupting the finance industry.

An Aspire corporate card comes with benefits that are very useful for businesses:

  • 1% cashback on marketing spend and SaaS software
  • 7% fees on foreign exchange
  • $0 minimum deposit
  • Rapid approval, with virtual credit card issued immediately once your account has been cleared by Aspire

Best for: Startups, E-Commerce businesses, Technology companies, companies that frequently transact foreign currencies

Annual fees: None

Payment processor: Visa

Eligibility: Sign up via Aspire to go through their proprietary checks

#2. Standard Chartered Unlimited Cashback Card

Click here to apply.

Even though the Standard Chartered Unlimited Cashback Card is not branded as a business card per se (it’s actually marketed as a personal card), there’s no stopping you from using it to fund your business activities. Especially with its high and unlimited cashback, the card is just too good to ignore if you’re going to be using credit cards for your business.

Standard Chartered’s Unlimited Cashback Card comes with the following benefits:

  • 1.5% cashback on all spend, with no caps
  • 5% cashback on all spend in first 3 months of signing up
  • Cash on demand (0% interest, one-time processing fee as % of loan from as low as 6%)

Best for: SME owners who have moderate to high business spend, and who need access to quick working capital

Annual fees: $192.60 (incl. GST), waived for first 3 years

Payment processor: Visa

Eligibility: Singaporeans/PRs: $30,000 minimum annual income

Foreigners: $60,000 minimum annual income

 

#3. OCBC Debit Business Card

Click here to apply.

OCBC’s debit business card comes with a range of useful feature for SME owners:

  • 0.5% rebate on all foreign currency spend
  • 0.2% rebate on all local currency spend
  • No minimum spend, no rebate cap
  • Lifetime waiver of card annual fees
  • Mobile payments via Apple Pay, Samsung Pay, Google pay, and more
  • Personalise your debit card, free of charge
  • Comfortdelgro fare discounts
  • Up to 10% off car rentals from Hertz
  • Discounts on STClassifieds
  • Up to 10% off Business and Economy class flights from Singapore with Emirates
  • Free premium membership for 2 years, and up to 30% shipping discounts at MyUS.com (shipping service)
  • 2% off non-promotional items at FairPrice online
  • 25% off annual insurance plans from Explorer Travel Insurance

Best for: Frequent business travelers

Annual fees: None

Payment processor: Mastercard

Eligibility: OCBC SGD Business Account holder

 

#4. Citi Business Card

Click here to apply.

OCBC’s debit business card comes with a range of useful feature for SME owners:

  • Access up to $100,000 credit line
  • Up to 55 days interest-free credit
  • Free fraud insurance of up to $1.65 million per company against misuse of corporate credit card by employees
  • Free travel insurance of up to $1 million per cardholder
  • Double rewards points via Citi Rewards, spend at participating merchants like Amazon, Harvey Norman, etc. ($1 spent = 2 Citi points)

Best for: SME owners who need access to quick and affordable working capital

Annual fees: $160.50 (incl. GST), 1 year fee waiver

Payment processor: Visa

Eligibility: Contact Citi for more information

#5. HSBC World Corporate Card

Click here to apply.

HSBC World Corporate Card key features:

  • Up to 3.33% cash rebate on all local and overseas spend (min. spend of $300 per quarter)
  • Up to 54 days of interest-free credit
  • Earn reward points across multiple cards and employees, consolidated into a single company-level account
  • Free travel insurance of up to $500,000 per cardholder
  • Up to 3% p.a. interest on the first $50,000 in your Maybank Save Up account

Best for: SME owners looking for good retail and dining rebates

Annual fees: $30 per quarter, waived for first 3 years

Payment processor: Amex

Eligibility: Singaporeans/PRs: $30,000 minimum annual income

Malaysians: $45,000 minimum annual income

Foreigners: $60,000 minimum annual income


#6. DBS World Business Card

Click here to apply.

DBS World Business Card’s key features:

  • 2% cash rebate on overseas spend
  • 1% cash rebate on local spend: dining, entertainment, and travel
  • 3% on other eligible transactions
  • Up to 14% discount on petrol at Esso, 15% discount on petrol at SPC
  • Free fraud insurance of up to $1.65 million per company against misuse of corporate credit card by employees
  • Free travel insurance of up to $1 million per cardholder
  • Up to 10 complimentary visits each year to >1,000 airport lounges worldwide

Best for: SME owners looking for good petrol savings and cashback schemes, frequent business travelers

Annual fees: $406.60, 1-year fee waiver

Payment processor: Mastercard

Eligibility: Minimum $80,000 annual income

 

#7. American Express SIA Business Card

Click here to apply.

Amex SIA Business Card’s key features:

  • Up to 8.5 HighFlyer miles per $1 spent with Singapore Airport Group (8.5 HighFlyer miles = approx. 12.75 to 25.5 cents, depending on the flight booked.)
  • 1.8 HighFlyer miles on all other local and overseas spend (1.8 HighFlyer miles = approx. 2.7 to 5.4 cents, depending on the flight booked)
  • One free night at a  hotel per year at Accor hotels, plus up to 50% off dining at Accor hotels throughout Asia
  • Up to $1 million complimentary travel insurance
  • 5,000 HighFlyer bonus points when you spend $500 with Singapore Airport Group in the first 12 months
  • 15,000 HighFlyer bonus points when you spend $10,000 with Singapore Airport Group annually

Best for: Frequent business travelers who enjoy flying SIA

Annual fees: $306

Payment processor: Amex

Eligibility: $60,000 minimum annual income

#8. American Express Platinum Card

Click here to apply.

Amex Platinum Card’s key features:

  • 25,000 Amex points when you sign up (worth est. $500)
  • Receive 75,000 bonus Amex points (worth est. $1,500) upon spending $20,000 in first 6 months
  • Free Omnidesk Pro (worth $840) when you sign up
  • $800 travel credits annually ($400 for air fare, $400 for hotels)
  • Complimentary access to over 1,200 airport lounges worldwide
  • Special rates at luxury hotels worldwide
  • Complimentary access to 67 Pall Mall (London) and Tower Club (Singapore)
  • Complimentary green fees at premium clubs in Singapore and multiple countries in SEA
  • Free all-day weekend parking at Great World City (Friday to Sunday)
  • Up to 50% off restaurant bills at selected restaurants in Singapore, including restaurants at 5-star hotels
  • Platinum concierge desk available 24/7, 365 days a year. Call for almost all kinds of requests – restaurant reservations, hotel bookings, travel emergency assistance, home assistance, roadside assistance, etc.

Best for: Business owners looking for a high level of luxury benefits, and will spend enough on dining, travel, and entertainment to make the annual fees worth it

Annual fees: $1,712 (GST inclusive) per year

First 2 supplementary cards are free forever

Payment processor: Amex

Eligibility: Minimum $200,000 annual income

 

#9. UOB Regal Business Metal Card

Click here to apply.

UOB Regal’s key features:

  • 2% cash rebate on overseas spend
  • 2% cash rebate on all local dining spend
  • 5% cash rebate on all local retail spend
  • Up to 50% off weekday lunches at Grand Hyatt Singapore
  • 4x complimentary green fees (worth $2,200) across 35 golf courses worldwide
  • Unlimited access to over 1,000 airport lounges worldwide
  • Complimentary Imperial Treasure Club membership (worth $491)
  • Complimentary Wyndham Hotels & Resorts Diamond tier membership, providing you access to over 30,000 hotels and vacation rentals worldwide. Comes with suite upgrade benefits and welcome amenities upon check in.
  • Complimentary Fraser World Diamond membership. Free hotel stays at selected venues. 25% birthday discount. Free suite upgrades, with early check-in and late check-out.
  • Free $500,000 travel insurance for cardholder and family members. Luggage protection of $3,000.

Best for: SME owners looking for solid retail and dining rebates, and attractive hotel discounts. UOB’s SME credit card is also excellent for business owners who travel overseas, whether for work or pleasure.

Annual fees: $680 (GST inclusive)

Payment processor: Mastercard

Eligibility: By invitation only, but you can register your interest.

 

#10. Maybank Business Platinum Visa Card

Click here to apply.

Maybank key features:

  • Complimentary business logo printing
  • Access to global concierge services
  • Earn Maybank points to redeem rewards
  • Worldwide cash withdrawal
  • Up to 51 days of interest-free credit
  • Credit limits based on company financials, unaffected by personal card limits
  • Free travel insurance, up to $1 million coverage. Up to $1,000 luggage loss cover, up to $400 luggage delay cover, up to $400 flight delay cover.
  • Free travel insurance of up to $500,000 per cardholder
  • Up to 3% p.a. interest on the first $50,000 in your Maybank Save Up account

Best for: SME owners who already have a relationship with Maybank

Annual fees: $180, waived for first 2 years

Payment processor: Visa

Eligibility: Company must be registered with ACRA, with at least one local director. Director must be between 21 and 60 years old. Company must have 2 years of operations, with minimum annual sales of $200,000.


#11. DBS Platinum Business Card

Click here to apply.

DBS Platinum Business Card’s key features:

  • Earn 1 DBS point for every $5 spent, and redeem attractive rewards
  • Up to 55 days of interest-free credit
  • Consolidate all supplier payments into a single company-level account
  • Free travel insurance of up to $1 million per cardholder when full airfare is charged to the card
  • Free annual coverage against employee misuse of credit card. Up to $25,000 per cardholder, and $1.65 million per company.

Best for: Business owners looking for an SME credit card to distribute to employees, that comes with built-in protection against employee theft/fraud

Annual fees: $192.60 (inclusive of GST), waived for first 1 year

Payment processor: Visa

Eligibility: Minimum income of $30,000 and above per year

 

#12. Diners Club Corporate Card

Click here to apply.

Diners Club key features:

  • Free access to selected members-only airport lounges
  • Up to 58 days of interest-free credit
  • Overseas cash withdrawal
  • Free travel insurance up to selected amount

Best for: SME owners looking for the longest duration of interest-free credit

Annual fees: Contact Diners Club for more information

Payment processor: Visa

Eligibility: Singaporeans/PRs: $30,000 minimum annual income

Provide past 2 years of audited company financial reports

Don’t forget to protect your business

Once you’ve got your credit card all set up, you can use it to purchase business insurance to protect your company. Make sure to protect your business comprehensively against major risks like business lawsuits, employee injuries, fire damage, and more.

Click the links below to get your insurance online, in just 3 mins. Our premiums are amongst the lowest nationwide.

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker

 

 

 

Issuing Company Shares in Singapore: 3 Easy Steps

how to issue shares in private company

Issuing company shares to investors is the primary way for companies to grow. Startups will often raise multiple rounds of equity funding from venture capitalists. Traditional SMEs often raise capital from private investors to expand their business. Providing a share option plan to your employees is also a great way to encourage an “owner’s” mindset by aligning incentives throughout the company.

The 3 steps to issue shares for your Singapore company are:

  • Deciding on the type of share to issue
  • Passing an Ordinary Resolution
  • Filing a Return of Allotment with ACRA

We’ll also discuss:

  • What is the maximum number of shareholders I can have?
  • Do I need to prepare a prospectus?
  • What are the legal risks when issuing shares?

Step 1. Decide on the type of share to issue:

There are multiple types of shares that you can issue in Singapore. These different classes of shares provide different rights and privileges to their owners.

Usually, most companies will only issue i) ordinary shares, and ii) preference shares.

Here are the various share classes you can have in Singapore:

Ordinary shares:

When you incorporate the company, you must issue at least one ordinary share. Usually, one ordinary share equals one vote. Ordinary shares give their owner the power to vote at general shareholder meetings, the right to claim dividends, and the right to claim assets when the company is voluntarily wound up.

Founders and management typically hold ordinary shares, and/or super-voting shares (discussed below).

Preference shares:

Preference shares are usually issued to Venture Capital investors, or other institutional investors. They provide special rights over ordinary shareholders when it comes to dividend payments. Companies with preference shareholders will pay dividends first to preference shareholders, with the remaining dividends going to ordinary shareholders. Also, preference shareholders will have a higher priority in claiming company assets if the firm is voluntarily wound up. Preference shares may also come with a “liquidation preference”, which can provide preferred shareholders with additional payments in the event the company is sold.

Typically, preference shares do not give their owner any ability to vote at shareholder meetings.

Super-voting/Management shares:

Super-voting shares are often given to the founders. For instance, one super-voting share could provide 5x, 10x or 20x the number of votes of ordinary shares. The amount of additional votes is up to the company to decide. Super-voting shares ensure founders remain in firm control of their companies.

Non-voting shares:

Non-voting shares are similar to ordinary shares, except they don’t provide voting power. Non-voting shares give their owner to right to claim dividends, and the right to claim assets when the company is voluntarily wound up. However, they do not give the shareholder any ability to vote at shareholder meetings. Usually, non-voting shares are issued to employees, or to the family members of large shareholders.

Alphabet shares:

You can create different classes of shares (e.g. Class A, Class B, Class C) with each offering varying levels of privileges.

Redeemable shares:

These are shares that come with a “buy back option” by the company. The company will either have the obligation (must buy) or option (may buy) to purchase the shares at a future date. This can be useful for shareholders who want to have liquidity in their private shares.

Deferred shares:

No dividend is paid to deferred shares until a minimum dividend has been paid to all other shareholders. classes of shares such as ordinary shares, alphabet shares, management shares and even preference shares.

Step 2. Pass an ordinary resolution:

Usually, the Board of Directors will be the one proposing to issue new shares. Issuing shares is also known as an “allotment of shares”. In order for you to go ahead with the share issue, you must pass an Ordinary Resolution. This is the law under Section 161 of the Companies Act.

An Ordinary Resolution is basically a shareholder vote.

Here are the steps to pass an Ordinary Resolution:

  1. Prepare a written resolution (this is usually done by the Board of Directors) proposing to issue new company shares
  2. Set up a date for a shareholder’s meeting. The date must be at least 14 days in advance. If at least 95% of shareholders agree, the meeting can be held earlier.
  3. Hold the vote. The resolution to issue new shares must receive at least 50% of votes to pass.
  4. If sufficient votes are received, the Ordinary Resolution is passed. You can now issue the shares.

Share certificates:

Don’t forget to send share certificates to your shareholders, after the new shares are issued. The company must send share certificates to the new shareholders within 60 days of the share issuance.

After you have passed the Ordinary Resolution, give yourself a congratulatory pat on the back. Proceed to step 3 and you’ll be all done.

Step 3: File a Return of Allotment

Once the shares have been issued, you’ll have to file a “Return of Allotment” with ACRA. This is basically updating ACRA with the latest information on how many shares were issued, who they were issued to, etc. You have to file the Return of Allotment with ACRA within 14 days of issuing the shares.

The Return of Allotment must state the following:

  • Number of the shares issued in the allotment
  • Amount paid for each share
  • Amount unpaid on each share (if applicable – e.g. employees typically don’t pay for stock awards)
  • Type of shares issued (e.g. ordinary shares, preference shares, etc.)
  • Name, NRIC/FIN/Passport number, nationality, and home address of each shareholder (for shareholders who are individuals)
  • Company name or UEN, and business address of each shareholder (for shareholders who are companies)
  • The number and class of shares owned by each shareholder

You can do this easily via BizFile+. Go to BizFile+ (log in using SingPass) > Return of Allotment of Shares > Change in particulars of shareholders.

Do you need a prospectus?

Most private companies will not require a prospectus. Section 272B of the Securities and Futures Act (SFA) allows companies to skip the step of preparing a prospectus, if certain conditions are met.

You don’t need to have a prospectus when issuing shares if you meet the conditions below:

  • You are making the share issue offer to 50 people or fewer within a 12-month period
  • You are not making public advertisements for this share issue offer

If you don’t meet the criteria above, then you’ll have to prepare a prospectus. This is governed under Section 240 of the Securities and Futures Act (SFA). A prospectus will cost a fair amount of time and money to prepare and takes a lot of time.

What is the maximum number of shareholders I can have?

For Private Limited companies:

For Private Limited entities, you can have a maximum of 50 shareholders. If you currently run a Private Limited company but want to have more than 50 shareholders, you will need to convert your company from a Private Limited into a Public Limited.

For Public Limited Companies:

For Public Limited entities, there is no limit to the number of shareholders.

Shareholders for both Private and Public Limited entities can either be private individuals or corporate entities. Shareholders can be 100% foreign.

What are the legal risks when issuing shares?

Share issuances can result in lawsuits against the company. For instance, shareholders can sue directors and officers of the company for approving new share issuances, which may prejudice the rights of existing shareholders. Minority shareholders can also sue for minority oppression, e.g. claiming that the issuance unfairly dilutes their shares. Such lawsuits are common.

Case examples:

  1. Two sons of late President Ong Teng Cheong in lawsuit over share transfer/minority oppression dispute
  2. Facebook sued over plan to issue new Class C shares
  3. Google settles lawsuit over share issuance plan

You should strongly consider Directors and Officers Liability Insurance to protect you from lawsuits related to share issuances, amongst other risks.

This type of insurance protects company directors and officers from many types of lawsuits, such as:

  • Minority oppression and other shareholder lawsuits
  • Unfair dismissal lawsuits
  • Employee harassment lawsuits
  • Negligence lawsuits
  • Defamation lawsuits
  • …and more

Directors and Officers Liability Insurance pays for your lawyer’s fees (which can be hundreds of thousands), plus court damages/settlements. Having a Directors & Officers Liability policy could save you huge sums of money – millions, even.

Get Directors & Officers Liability Insurance to protect you from shareholder lawsuits. From just $42/month!

How to Change Company Names in Singapore: 3 Easy Steps

change company name

Companies don’t change their names very often, because new names take getting used to and dilute whatever brand equity you’ve built with your previous name. However, if you do decide to change your company name in Singapore, it’s an easy process to do so. The country’s business-friendly policies make this a straightforward process.

Here’s a summary of the 3 steps to change your company name in Singapore:

  • Reserve a name with ACRA
  • Officially register your name with ACRA
  • Pass a Special Resolution

Step 1. Reserve a name with ACRA:

The first step is to reserve your name. This makes sure no one else can take your name while you’re getting the other steps in this process done.

ACRA has some guidelines on company names. Your chosen name should:

  • Not be sexually explicit, obscene, vulgar, or generally offensive
  • Not infringe on someone else’s trade mark, copyright, or intellectual property
  • Not be very similar or identical to a company name that’s already registered
  • Not be very similar or identical to a company name that’s already reserved
  • Not be prohibited by the Minister of Finance – e.g. “Temasek” cannot be used

Name reservation fees:

ACRA charges $15 to reserve a company name.

Names with controlled words:

Controlled words include terms like “bank”, “school”, “university”, etc. If you change your name to include these words, your application will take longer to approve.

Validity of reservation:

Once ACRA grants its approval, your chosen name will be reserved for 120 days. If you do not complete the whole name change process (i.e. finish step 2) within this timeframe, your reservation will be cancelled. You will need to spend another $15 to reserve the name again, if you still want to change your company name.

What if my name gets rejected?

You can appeal the rejection. An appeal will cost you $15. If your appeal is rejected, you’ll need to apply for a new name, and pay the $15 reservation fee again.

There are no refunds for rejected appeals or rejected names. Be wise about your chosen company name to save yourself money and time!

Step 2. Officially register your reserved name with ACRA:

After ACRA has approved the name reservation, you need to register your new company name with ACRA. This will be the 2nd last step to make the name change official.

Here’s the steps to register a name change with ACRA:

  1. Log in to BizFile+ (use your SingPass to log on)
  2. Go to “File e-Services”
  3. Go to “Local Company”
  4. Go to “Make Changes”
  5. Go to “Change in Company Information including Appointment/Cessation of Company Officers/Auditors”

Name change fee:

There’s a name change fee of $15.

Step 3. Pass a Special Resolution:

Changing a company name is a significant undertaking that requires the consent of most shareholders. You’ll need to pass a Special Resolution in order to have ACRA officially change your company’s name. See our guide on Special Resolutions for more details on what this is.

Here are the required steps to pass a Special Resolution:

  1. Prepare the written resolution to change your company name.
  2. Set a date for a shareholder’s meeting. The date must be at least 14 days in advance. Inform all shareholders. However, the meeting can be held earlier (e.g. 3 days in advance, 2 days in advance, etc.) if at least 95% of shareholders agree to it.
  3. Hold a vote. You must receive at least 75% of votes to pass the Special Resolution.

Make sure you submit a copy of the passed Special Resolution to ACRA within 14 days of the resolution being passed. You can submit this online via BizFile+ (go to File eServices > Local Company > Make Changes > Notice of Resolution). Late submissions can result in a penalty, so keep within this timeframe.

Your company profile will be officially updated after the Special Resolution is filed with ACRA. ACRA will send you a notice of incorporation with your company’s new name. The change of your company name will be effective once you receive this notice.

Change your name on all relevant business platforms and materials:

After you have changed your company name with ACRA, you should make sure to change your name on all your business platforms and materials used for communication.

Good areas to start updating your company name:

  • Website
  • Email address
  • Google business listing
  • Other business directories (e.g. YellowPages)
  • Social media accounts (e.g. Facebook, LinkedIn, Instagram, Twitter, etc.)
  • Name cards
  • Letterhead
  • Quotes
  • Invoices/Receipts
  • Signage
  • Brochures, fliers, and other advertisements
  • Company stamps
  • Uniforms
  • Company gifts (e.g. branded mugs, branded calendars, branded T-Shirts, etc.)
  • Other branded company material

Trade mark:

If you registered your previous company name as a trade mark, you should consider registering your new company name under a fresh trade mark.

Do I need to inform IRAS of my name change?

No. Changes that are made with ACRA will be automatically transferred to IRAS. You don’t need to specifically inform IRAS, which saves you effort.

However, if you have matters that you need to settle with IRAS within 2 weeks of changing your company name, it’s a good idea to let IRAS know. You can inform them online through MyTax.

Does changing my company name stop lawsuits filed against my company?

No. The name change is largely cosmetic. Remember, your UEN doesn’t change. If you were involved in business lawsuits before the name change, the lawsuit will simply be updated to reflect your new company name. Whatever debts or legal troubles you were previously in will still continue to haunt the entity with the revised name.

What’s the total cost of changing my company name?

It costs $30.

Name reservation with ACRA: $15

Name registration with ACRA: $15

It could cost more than $30 total if the name that you try to reserve gets rejected, and you have to appeal the rejection, or reserve a new name. Refer to step 1 of this guide for more details.

How should I protect my company from business risks?

Now that you’ve got your new name in place, you should think about protecting your rebranded business. You’ve invested lots of resources into rebranding, so don’t let your efforts go to waste. If your company gets struck by a massive business-related lawsuit, or if a fire or some other mishap damages your business assets, you’ll be left out in the cold. Provide offers business owners the quickest and easiest way to protect their companies.

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Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month – buy online now

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month- buy online now
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

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Company Resolutions: Special Resolutions and Ordinary Resolutions

company resolution

You might have come across the term “company resolutions” while running your business, and wondered what they’re used for. Company resolutions are official votes that are passed by a company’s shareholders. These votes are needed to make certain changes or perform certain actions for companies. For instance, company resolutions are needed to change a company’s address, appoint and remove directors, appoint and remove corporate secretaries, and more. You can think of resolutions like a general election, except for a company. Resolutions ensure that important decisions which will affect a company and its shareholders are made democratically.

In this guide, we’ll explain:

  • What is a company resolution?
  • Who can pass company resolutions?
  • What are the different types of company resolutions?
  • What are company resolutions used for?
  • How are company resolutions passed?
  • How should I protect my company from business risks?

What is a company resolution?

A company resolution is a formal decision made by either shareholders or the Board of Directors of a company. These decisions can range from relatively minor administrative functions, like changing the company’s official address, to major decisions, like replacing a Board Director. Company resolutions are passed at AGMs (Annual General Meetings) or EGMs (Extraordinary General Meetings).

Who can pass company resolutions?

Company resolutions can be passed by:

  • Shareholders, or
  • Board of Directors

When shareholders pass a resolution, it is known as a shareholder resolution. When the Board of Directors passes a resolution, it is known as a Board resolution. We talk about whether there are any differences between these two types of resolutions later on.

What are the different types of company resolutions?

There are two types of company resolutions:

  • Ordinary resolutions (requires at least 50% of votes to pass)
  • Special resolutions (requires at least 75% of votes to pass)

What are company resolutions used for?

Ordinary resolutions:

An ordinary resolution requires at least 50% of votes to pass. Ordinary resolutions can be passed either by shareholders, or the Board of Directors.

The 50% threshold for passing ordinary resolutions is the industry standard, and this standard is used by most companies. However, a company’s constitution can actually specify a higher voting threshold to pass an ordinary resolution. For instance, the company’s constitution can state that ordinary resolutions be passed with 60% of votes, 70% of votes, etc. It’s really up to the company’s shareholders to decide if they want to have a higher threshold.

Here is a list of common corporate decisions that require ordinary resolutions:

  • Issuing new shares
  • Appointing and removing Board Directors
  • Paying Board Directors a fee (instead of a salary)
  • Paying Board Directors a golden handshake when they leave the Board
  • Extending company loans to Board Directors
  • Declaring dividends
  • Appointing and removing company auditors
  • Company entering into a substantial property transaction with a Board Director

Special resolutions

A special resolution requires at least 75% of votes to pass. Special resolutions can be passed either by shareholders, or the Board of Directors. Special resolutions are used for decisions that will have a significant impact on a company’s future.

Just like with ordinary resolutions, a company’s constitution can be modified to specify a higher voting threshold to pass a special resolution. For instance, the company’s constitution can state that special resolutions require 80% of votes, 95% of votes, etc.

Here is a list of corporate decisions that require special resolutions:

  • Reducing company’s share capital
  • Changing company’s name
  • Winding up a company voluntarily
  • Modifying company constitution
  • Modifying company’s articles of association
  • Changing company from public to private, or private to public
  • Merging with another company
  • Negating pre-emptive share purchase rights by shareholders (“right of first refusal”)

What’s the difference between shareholder resolutions vs Board resolutions?

There is no difference in the authority of shareholder resolutions vs Board resolutions. The only reason why a certain resolution may be brought up for a shareholder vote vs a Board vote is for the type of decision being made. Since the Board members are typically chosen for their expertise and ability to oversee management, the Board will typically make decisions that require business acumen. Ultimately, the Board is there to represent shareholder interests, so it’s to the benefit of shareholders to allow Board members to make these technical and complex business decisions.

It’s also more efficient for the Board to make decisions related to managing the business, since it’s usually only a handful of people on the Board. Companies may have (potentially) hundreds or even hundreds of thousands of shareholders, and calling for all their votes can be administratively difficult.

Board resolutions are usually passed for:

  • Hiring and firing the CEO
  • Deciding compensation for the CEO and other members of management
  • Approving significant strategy plans, e.g. expanding into new markets, M&A deals, etc.
  • Approving annual budget proposals
  • Approving retrenchments
  • Opening a corporate bank account
  • Authorising certain members of management or other employees to make bank transactions
  • Appointing and dissolving an audit committee

Shareholder resolutions are usually passed for:

  • Appointing and removing Board Directors
  • Paying Board Directors a fee (instead of a salary)
  • Extending company loans to Board Directors
  • Company entering into a substantial property transaction with a Board Director
  • Declaring dividends
  • Appointing and removing company auditors
  • Reducing share capital
  • Company buying back its own shares from shareholders
  • Voluntary winding up

How are company resolutions passed?

Company resolutions can be passed either by voting in-person or via electronic votes. These days, many company resolutions are simply done electronically, since it’s much quicker and easier.

In-person votes:

Company resolutions can be passed at an in-person meeting of the company’s shareholders or Board of Directors. This is most common at say, an annual shareholder’s convention, or at regularly scheduled Board meetings.

Electronic votes:

Company resolutions can be passed by holding electronic votes. However, shareholders can demand for an in-person meeting to be held instead. This power is provided for by Section 184D of the Companies Act. Shareholders who collectively own at least 5% of the voting rights (yes – a rather low threshold) to demand that a physical meeting be held, instead of having an electronic vote.

Procedure to pass ordinary resolutions

Step 1: Prepare a written resolution for the decision you want to seek approval for (e.g. authorising an M&A transaction).

Step 2: Set up a date to vote on the proposed company resolution. Depending on whether it’s a Board or shareholder resolution, you must either all Board Directors or shareholders of this resolution. The resolution must be scheduled at least 14 days in advance, but if the Directors/shareholders who hold at least 95% of the voting rights agree, you can schedule it earlier.

Step 3: Hold the vote. You must receive at least 50% of the votes to pass the resolution.

Procedure to pass special resolutions

Step 1: Prepare a written resolution for the decision you want to seek approval for (e.g. removing a Board Director).

Step 2: Set up a date to vote on the proposed company resolution. Depending on whether it’s a Board or shareholder resolution, you must either all Board Directors or shareholders of this resolution. The resolution must be scheduled at least 21 days in advance, but if the Directors/shareholders who hold at least 95% of the voting rights agree, you can schedule it earlier.

Step 3: Hold the vote. You must receive at least 75% of the votes to pass the resolution.

How should I protect my company from business risks?

Running a business is no easy feat. You’ve probably sunk in lots of money and effort into getting your company to where it is today. That’s why it’s critical to protect your business comprehensively. Don’t let all your effort go to waste if you get hit by a massive business-related lawsuit, or if a fire or some other mishap damages your business assets. Provide offers business owners the quickest and easiest way to protect their companies.

Click the links below to get your insurance online, in just 3 mins. Premiums are amongst the lowest nationwide.

Coverage Explanation Premium
Professional Indemnity Insurance Covers business-related lawsuits From $42/month – buy online now
Commercial Property Insurance Covers property damage from fire, explosions, certain types of water damage, etc.

 

Covers building structure, renovations, fixtures & fittings, equipment, & more.

From $12/month – buy online now

 

Public Liability Insurance Covers lawsuits related to injuries or property damage to third-parties (e.g. members of the public). From $9/month- buy online now
Work Injury Compensation Insurance (WICA Insurance) Covers your employees from work-related injuries/sickness, including Covid-19.

 

Pays up to $45,000 medical expenses per worker.

From $5/month, per worker- buy online now

 

Cease and Desist Letters Singapore: Asserting Your Rights

Cease and desist letter

If you feel someone else is violating your rights, and you want them to stop, you should consider sending them a Cease and Desist Letter. Such letters can be an effective and affordable solution to get someone to quickly stop their offenses. If, on the other hand, you’ve received a Cease and Desist Letter, you need to know how to respond appropriately. We address both these topics – what to do to send someone else a Cease and Desist Letter, and how best to respond if you’re on the receiving end of such a letter.

In this guide, we’ll explain:

  • What is a Cease and Desist letter?
  • What scenarios are Cease and Desist Letters used in?
  • When to send a Cease and Desist letter?
  • What information should a Cease and Desist letter contain?
  • How should a Cease and Desist letter be delivered?
  • What happens after sending a Cease and Desist letter?
  • How should I respond if I receive a Cease and Desist letter?
  • How can I protect myself from Cease and Desist letters?

What is a Cease and Desist Letter?

A cease and desist letter is a legal demand for someone to stop doing something. For instance, if a business is using logos, or selling products that infringe on your copyright, you can send them a cease and desist letter. Your cease and desist letter will demand that they refrain from using branding and providing products whose copyright belongs to you only. The cease and desist letter will inform them that if they don’t stop doing this, you can take them to task in Court.

Cease and desist letters are very similar to a Letter of Demand. The main difference is that a cease and desist letter is a demand to stop doing something, whereas a letter of demand usually is a demand for the other party to pay you a sum of money that’s owed.

What scenarios are Cease and Desist Letters used in?

You can send cease and desist letters if another party is infringing upon your rights, and you need them to stop doing so.

Some common every day examples where Cease and Desist Letters are used:

Defamation:

A person or a business making negative remarks about another person or business, which may constitute defamation. Read our guide on whether you can sue someone for defaming your business.

Breach of contract:

Another party signs a contract with you, and is breaching certain terms of the contract. For instance, the other party is only allowed to work exclusively on your project, but you discover that they are actually taking on more jobs.

Copyright violation/IP infringement:

Companies selling products that potentially infringe upon your copyright.

Trespass:

A neighbour or someone else repeatedly trespassing onto your property (e.g. house, shop, office, etc.).

When do you send a Cease and Desist Letter?

Cease and desist letters are the first step in legal proceedings. Typically, you don’t want to just jump straight into a lawsuit. Lawsuits are very expensive and time-consuming. Sending a cease and desist letter first allows you the chance to settle disputes amicably. If you have a disagreement with another party and want them to stop pursuing a certain course of action, send them a cease and desist letter first. Monitor their response. If they agree with your terms and stop violating your rights, then you will have your dispute resolved fairly quickly and cost-efficiently. If they still persist in what they’re doing, then you can consider escalating the dispute into Court.

Another advantage you may have by sending a cease and desist letter is the chance to view the other party’s legal defence. This can provide you with valuable information about what facts and arguments they are relying on. This can allow you to better prepare for the lawsuit, if you decide to pursue one.

What information should a Cease and Desist Letter contain?

Generally, a Cease and Desist Letter should state at least the following:

  • Information of the person/organisation sending the cease and desist letter, so that the recipient or their lawyers can send their reply to the correct person
  • Recipient’s details – must have their correct name and address
  • Description of the offense: e.g. copyright violation, property trespass, defamation, etc.
  • Demand to stop (i.e. cease and desist) the offense
  • Evidence and legal grounds for this demand: e.g. copyright or patents filed by you, deed proving ownership of property and CCTV footage of trespass, screenshots of defamatory remarks, etc.
  • Description of legal consequences for not complying with the cease and desist demand – e.g. escalation to lawsuit.
  • Statement explicitly reserving your legal rights, e.g. your right to claim damages later on even if the offending party complies with the cease and desist demand.

How to send a Cease and Desist Letter?

You can either email the cease and desist letter, or send it by post. If you send it by post, it’s best to send it by courier as that requires a signature, which proves that the offending party has received your letter. If courier services are too expensive, a less ideal but still acceptable option is to send it by registered post.

What happens after sending a Cease and Desist letter?

Give the recipient a few days. If they ignore your letter and they continue to commit the offenses against you, then you’ll need to consider initiating a lawsuit. To initiate a lawsuit, you’ll have to file for a Writ of Summons with the Court. Call up a lawyer to advise you on this – they’ll be able to tell you the strength of your case, how much it will cost, and whether it’s worth suing someone (or pursuing another route, like mediation) to resolve your dispute.

If you have made specific threats in your letter, it is generally advisable to take steps towards carrying out those threats but you need not do so. Be aware however, that if you do not carry out any threats you have made, the offending party is likely to interpret this as either your surrender, a lack of credibility on your part or just weakness more generally, and the offending activity may well continue.

How should I respond if I receive a Cease and Desist letter?

If you run a business, and you have lawsuit insurance (e.g. Professional Indemnity Insurance), then call your insurance broker or insurance company immediately. They will assist you ASAP to initiate a legal defence. Legal costs for a valid claim will be covered by the insurance company, so you don’t pay anything.

If you run a business but don’t have lawsuit insurance, or you’re an individual, call up a lawyer. You’ll have to pay the lawyer out of your own pocket, of course.

You can also choose to comply with the demands of the cease and desist letter, if you feel it’s reasonable. Of course, such letters often may not make fair demands upon you, so simply bending over and complying may not be a feasible option. The one thing you should never do is simply ignore the letter. Make sure you get legal advice, or else you could face an expensive and stressful lawsuit. For more information about mounting a legal defense, read our comprehensive guide on 9 steps to defend a lawsuit in Singapore.

How can I protect myself from Cease and Desist letters?

As mentioned above, Professional Indemnity Insurance is the best way to protect your business if you were to receive a cease and desist letter. Business-related lawsuits are common in Singapore. Professional Indemnity Insurance covers a wide range of lawsuits, like negligence lawsuits, breach of confidentiality lawsuits, errors & omissions lawsuits, defamation lawsuits, and much more.

The best thing about Provide’s Professional Indemnity Insurance is that we are the first in Singapore to offer you a zero-deductible option. A deductible is the amount you have to pay first for a claim. The typical deductible is $10,000 to $20,000. If you choose the zero-deductible option, you won’t have to pay anything out-of-pocket!

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Categories Law

Contracts of Service vs Contracts for Service: 11 Differences in Singapore

contract of service vs contract for service

Whether someone is in a contract of service vs contract for service for your company has important consequences. For instance, you must pay workers in a contract of service CPF, and they are entitled to a whole host of other labour rights. For instance, contracts of service workers must have sick leave, maternity/paternity leave, non-working days, overtime and more. However, workers in a contract for service are not entitled to such rights.

We’ll explain:

  • What is a summary of contracts of service vs contracts for service?
  • What is a contract of service?
  • What is a contract for service?
  • What are the 11 legal differences between contracts of service vs contracts for service?
  • What’s a legal case demonstrating the difference between contracts of service vs contracts for service?
  • Why is it important to differentiate contacts of service from contracts for service?
  • How to protect your company from liability for workers under contracts of service?

What is a summary of Contracts of Service vs Contracts for Service?

Contracts of Service vs Contracts for Service in Singapore

Differentiating Factor Contracts of Service Contracts for Service
Independent Contractor Clause Not stated Most freelancer contracts will contain a clause titled “independent contractor” (or something to that effect) clearly stated in the contract.
Control Company has control over what, and how, the work is to be done Company has control over what work is to be done, but limited to no control over how the work is to be done
Importance of Work to Company Integral part of company’s business/work Not integral part of company’s business/work
Method of Payment Generally salary

 

May either be fixed salary + variable component, or completely variable (e.g. paid per number of products produced, paid per number of customers won, etc.)

Generally tips, commissions and/or ad-hoc payments (payments that are not fixed)

 

Usually paid according to amount of work completed

Restriction on External Employment Obligation to work for only employer No obligation to work for only one employer. Can work for multiple companies
Working Hours Generally have fixed working hours. May have overtime or shifts as part of their regular work, but ultimately the hours are usually planned and fixed. Generally do not have fixed working hours. Work hours can vary significantly from one period to the next period, e.g. depending on number of contracts taken up. Work hours are generally also self-determined (“Own Time, Own Target”).
Overtime Pay Employees are entitled by law to overtime pay Freelancers are not entitled by law to overtime pay. Any overtime pay, if granted, is on a goodwill basis
Annual Leave, Sick Leave, Maternity/Paternity leave Employees are entitled by law to minimum amounts of paid annual leave, paid sick leave, and paid maternity/paternity leave Freelancers are not entitled by law to paid leave, in whatever form. Any paid leave, if granted, is on a goodwill basis
Right to Terminate, Dismiss or Suspend Employment contracts will state the right to terminate, dismiss, or suspend worker Freelancer contracts will usually state terms of completion of contract, terms of breach of contract, and other clauses for ending the contract; usually the contract will make it apparent the person it is not an employee
Delegation authority Less likely to be able to delegate duties to a third-party outside the company More likely to be able to delegate duties to a third-party
Provision of Accommodation, Uniforms, Name Cards, Other Material with Company Logos, Access to Company Events, etc. Employees are more likely to be issued company accommodation, uniforms (e.g. for service industries), name cards, and other material with company branding/logos Freelancers are less likely to be issued these benefits since they are external contractors

 

What is a contract of service?

A contract of service is an agreement where one party agrees to hire another party as an employee. Contracts of service are the standard form of contracts for hiring employees. Contracts of service apply to both full-time and part-time employees.

A contract of service is usually provided in the form of an Employment Agreement. Such an agreement will list out the Key Employment Terms for the employee.

Employers must provide certain entitlements, and are responsible for certain liabilities, for workers under a contract of service. We cover these responsibilities towards the end of our guide, under the section titled “Why is it important to differentiate contacts of service from contracts for service?”.

What is a contract for service?

A contract for service is an agreement between where one party agrees to hire another party as a freelancer/ independent contractor. A freelancer is typically paid to carry out a particular job or project, with a set fee. Examples of freelancers/independent contractors include:

  • Individuals providing services like graphic design, house renovation, odd-job labourers, etc.
  • Vendors providing services like IT consulting, strategy consulting, printing services, shipping services, etc.
  • Vendors providing products like vending machine rentals, industrial machine wholesale, food wholesale, etc.

Sometimes, independent contractors are engaged on a long-term basis via retainer payments. Common examples include external lawyers kept on monthly retainers, or Public Relations firms paid a regular retainer to advise on marketing needs.

Freelancers are not allowed to claim various entitlements that are provided to employees, such as overtime, leave, and compensation for work-related injuries. We cover these differences under the section titled “Why is it important to differentiate contacts of service from contracts for service?”

What are the 11 legal differences between Contracts of Service vs Contracts for Service?

You have to look at the totality of the 11 criteria to decide. There is no single, one-size fits-all criteria. This is the same process that the Courts will apply, if a lawsuit is filed to decide whether a person is under a contract of service (or contract for service). Such lawsuits are typically filed because the person feels they have been mistakenly classified under a contract for service, and therefore been deprived of the various rights that workers under contracts of service enjoy.

Differentiating factor 1: Independent contractor clause

Most freelancer agreements will contain an “independent contractor” clause. This is a clause that clearly marks that person as a freelancer.

Here’s a sample independent contractor clause:

  1. The Service Provider is an independent contractor, and not an employee
  2. The Service Provider shall have control over the manner and form in which work is to be performed, in the best interests of the Hiring Company
  3. The Service Provider will supply their own equipment and manpower and resources to complete the Project”

If such a clause is absent, then the Courts will look at the other 10 factors to decide whether the person is under a contact for service or contract of service. In some rare cases, some employers may try to insert this independent contractor clause into their hiring agreement, but the degree of control they exercise over the person may actually tilt the person towards being an employee. In such scenarios, the Courts will also look at the other 10 factors to decide whether the worker is an employee or freelancer.

Differentiating factor 2: Control

The Courts will examine the level of control that the company exerts over its workers. For employees, the employer will have control over what work is to be done, and how it is to be done. For instance, an IT company can dictate to its employees what software to build, what programming language to use, what lines to code to insert, what functions to perform – the list goes on.

For freelancers, the level of control that the hiring company can exert will vary, depending on the nature of the project. Some freelancer arrangements may involve a high level of control by the hirer. For instance, a company hiring an IT vendor can specify what software it needs to build, what programming language/tech stack to use, what functions to perform, and more. However, other situations may see the hirer having significantly less control over freelancers. For instance, a company hiring a freelance graphic designer to design a corporate logo is unlikely to be able to tell the freelancer exactly how to draw the logo (if it could, then the hirer would just draw the logo themselves!). The hirer may provide generic ideas about the kinds of emotions they want to convey, the kinds of corporate colours that should apply, etc., but it’s unlikely to be able to control the freelance designer’s work with too much force.

Because of the level of variation in control, this is not a hugely important factor in differentiating contracts of service vs contracts for service. This will form merely one part of the overall analysis.

Differentiating factor 3: Importance of work to company

The Courts will consider the level of importance of the work completed by the worker. For instance, does the worker perform menial or peripheral tasks for the company? Business owners frequently outsource non-core functions like HR, accounting, and IT support to vendors or freelancers, via contracts for service. If the function is core to the business, then it usually only makes sense for companies to keep such workers as employees. Companies are unlikely to outsource their competitive advantages.

Differentiating factor 4: Method of payment

Generally, employees are paid a fixed salary each month. This salary may include other additional incentives like bonuses, annual wage supplements (AWS), allowances, overtime pay, etc. Whatever the case may be, the focus is on whether a salary is paid.

Freelancers, on the other hand, are more likely to not be paid a salary. The nature of hiring a freelancer is to avoid such fixed overhead costs. Therefore, freelancers are more likely to be paid via tips, commissions, or general ad-hoc payments. Examples would be a freelance graphic designer, who is paid $100 per icon that they design. This payment is not a regular monthly salary, but an ad-hoc payment done for a single job.

Differentiating factor 5: Restriction on external employment

Employees are almost always contractually bound to work for only one employer. They cannot have outside employment (i.e. moonlighting). If a contract states that there is an obligation to work for only one employer, it is likely that the Courts will find that the person is an employee.

Freelancers do not generally have this restriction, as they can work for multiple companies.

Differentiating factor 6: Working hours

Employees generally have fixed working hours. This can be your standard Monday to Friday, 9AM to 5PM hours. It could be delegated in shifts, or three-days-on-two-days-off schedules.

Freelancers tend to not have fixed working hours. Generally speaking, they have more control over their own schedules. For instance, an outsourced IT company will respond whenever the client contacts them to fix an IT bug or start a new project, but otherwise, the IT vendor won’t be working for the client from 9AM to 5PM every day, unlike an employee would.

In terms of importance in determining whether a contract is of service or for service, the Courts usually will not place a great importance on evaluating working hours. There is a great deal of variation in working hours, so this will just be one aspect of consideration.

Differentiating factor 7: Overtime pay

Only employees have a legal entitlement to overtime pay.

Freelance workers do not have a legal right to overtime pay. If a hiring company does pay freelancers for overtime, that is done purely out of goodwill.

If a worker receives overtime pay from their company regularly, that can be good evidence that an employer-employee relationship (i.e. a contract of service) exists. Otherwise, why would the company bother paying for overtime?

Differentiating factor 8: Annual Leave, Sick Leave, Maternity/Paternity leave

Only employees have a legal entitlement to annual leave, sick leave, and maternity/paternity leave.

Freelance workers do not have a legal right to these types of leave. If a hiring company does provide freelancers with leave, that is also done purely out of goodwill.

If a worker is able to apply for and claim leave from their company (especially if that leave was approved multiple times), that can point strongly to a contract of service, rather than a contract for service. Most hiring companies will not give their freelancers paid leave since it’s an extra expense.

Differentiating factor 9: Right to terminate, dismiss, or suspend

The majority of employment contracts will contain a clause stating that the employer has the right to terminate, dismiss, or suspend the employee. This is a key factor in contracts of service. Most contracts for service will not contain this clause.

Differentiating factor 10: Delegation authority

Generally, employees don’t have the ability to delegate tasks to a third-party. For instance, if a boss of a strategy consulting company tasks their subordinate to complete a consulting project, the subordinate is unlikely to be able to hire a sub-contractor to finish the project for them. Even if the subordinate were able to hire a sub-contractor, it’s likely that it would only be for specific parts of the project that required specialist knowledge which the subordinate doesn’t possess. It’s unlikely that the subordinate would have the authority to outsource all their work without seeking their boss’ approval.

On the other hand, independent contractors tend to have greater ability to delegate their work to a third-party. For instance, let’s take the same example of the corporate strategy consulting company mentioned above. In this case, let’s say the boss of the company was hired as an independent contractor to advise on an M&A deal. In this case, let’s say the boss needs to delegate his work to some external parties, like accountants and financial valuation experts to assist on the project. The boss is likely to be seen as an independent contractor because he has the power to delegate his work to other third-parties.

Differentiating factor 11: Provision of Accommodation, Uniforms, Name Cards, Other Material with Company Logos, Access to Company Events, etc.

Usually, only employees have access to these benefits. Company housing, company uniforms, company name cards with their position stated, etc. It is uncommon that independent contractors will receive such items.

What’s an example of a contact of service vs contract for service lawsuit?

A great example to illustrate the factors above is the 2019 case of Public Prosecutor v Jurong Country Club (JCC). In this case, JCC was facing potential legal penalties for not making CPF contributions to an alleged employee, known as Mr. Yusoff, from 2003 to 2016. Mr. Yusoff was hired by JCC as a fitness instructor for its gym. The Court of Appeal ruled that Jurong Country Club was not liable for CPF contributions to Mr. Yusoff, because Mr. Yusoff was not in fact an employee at all.

The Court of Appeal found that the following factors rendered Mr. Yusoff an independent contractor/freelancer, rather than an employee of JCC:

Factor 1: Control

The club’s level of control over Mr. Yusoff only extended to requiring him to be at the JCC gym daily. It exercised little control over the specific way Mr. Yusoff conducted his training sessions.

Factor 2: Delegation authority

Mr. Yusoff did not have delegation authority, as he was not allowed to find a replacement gym instructor if he could not be present to train members. However, the lone fact that Mr. Yusoff did not have delegation authority does not prove that he was an employee, rather than a freelancer. Since Mr. Yusoff was JCC’s sole gym trainer, it was reasonable for JCC to expect Mr. Yusoff to provide the training services himself. Also, Mr. Yusoff had decades of training experience. A replacement trainer may not have the same depth of skill and fitness knowledge that Mr. Yusoff would have had, providing for a poorer experience for JCC’s gym clients. It was therefore logical that JCC would not want a replacement of potentially inferior quality, and would instead insist on such a highly experienced trainer providing the services himself.

Factor 3: Method of payment

Mr. Yusoff’s compensation was weighted more heavily towards a commission. He also had a monthly retainer.

While a compensation scheme that has a larger commission component is not itself indicative of being a freelancer, it is part of a broader pattern of facts that points towards Mr. Yusoff being on a contract for service.

Factor 4: Work arrangements

Factor 4 proved to be critical in demonstrating that Mr. Yusoff was on a contract for service. Mr. Yusoff was not counted as an employee, and was therefore excluded from JCC’s internal manpower roster for budgeting purposes. Mr. Yusoff was not invited to staff-only events, such as JCC’s “Dinner and “Dance”. This Dinner and Dance was compulsory for all employees, with penalties for those who did not show up.

Furthermore, Mr. Yusoff:

  • Did not report to the HR department
  • Was not issued an HR manual for study
  • Was exempted from employee performance reviews
  • Did not have KPIs to meet

This was not the case for employees, who had to comply with the criteria set out above.

Mr. Yusoff was also not provided with an access card that would allow him to enter all areas of JCC. This was unlike employees, whose access cards permitted them to go to every (or almost every) part of JCC. His access card only permitted him access to the gym.

Mr. Yusoff’s JCC identification number was also different compared to all other employees.

Mr. Yusoff was also allowed to conduct training sessions for non-members for his own additional income. This was unlike employees, who were barred from engaging in activities at the club to earn extra income. JCC’s HR manual stated that employees who engaged in such activities were to be fired.

Factor 5: Benefits

Mr. Yusoff did not have Work Injury Compensation Insurance from 2003 onwards. This is because Work Injury Compensation Insurance only applies to employees, and does not cover independent contractors.

Mr. Yusoff was not provided with annual leave, sick leave, and hospitalisation benefits. This is unlike employees, who received these entitlements/benefits.

After evaluating this series of factors, the Court of Appeal ruled that Mr. Yusoff was actually an independent contractor, hired by JCC under a contract for service. This case illustrates are taken into consideration when evaluating whether a worker is under a contract of service, or a contract for service.

What should employers do if there is a legal dispute over Contracts of Service vs Contracts for Service?

Employee has dispute with employer (contract of service dispute)

Most contracts of service (i.e. employment agreements) will usually include a “dispute resolution” clause. This clause will usually specify that disputes must first be settled in mediation or arbitration, before lawsuits can be filed. Alternatively, such clauses may have the employee waive their right to take legal action against their employer, and compel employees to resolve matters strictly in arbitration.

It’s important for business owners draft your contract of service/employment agreement well, to limit the extent of your liability against disgruntled employees.

Freelancer/vendor has dispute with hiring company (contract for service dispute)

Most hiring contracts will include a “dispute resolution” clause also. This clause will state the methods of resolution available if there is a dispute or breach of contract. For instance, the clause may have the freelancer/vendor waive their right to pursue civil litigation, and instead only settle disputes via arbitration.

It is vital that business owners include a dispute resolution clause in their contracts with external vendors. This protects their company in case the freelancer/vendor makes allegations (e.g. breach of contract) and decides to sue you.

Another not-uncommon scenario is when workers who are under a contract for service (i.e. freelancers) argue that they are actually under a contract of service (i.e. employees). This is most commonly done when workers feel they have been deprived of certain benefits that employees are entitled to.

In such scenarios, speak with a lawyer who can advise you on the best course of action. Don’t engage the disgruntled worker in negotiations before you get advice from a lawyer. It’s also best to have a legal professional present during any negotiations you hold with the person in question.

How are Contracts of Service, and Contracts for Service, terminated?

Ending a Contract of Service

An employer can simply rely on their contractual right to the end the contract of service. This will be spelled out in the Employment Agreement. No other reason, other than this right to terminate the contract, needs to be given.

Employees can end their contracts of service by quitting. For employees on time-limited contracts, the Employment Agreement will end upon expiry of the contract.

Ending a Contract for Service

A contract for service may be terminated if the performance of the project or service is disrupted due to unforeseen circumstances, or it becomes impossible to continue on a project that is already in progress.

It is important for the independent contractor or freelancer to negotiate the terms of the contract for service carefully. This is so that the contracting counter-party or client is aware of the alternatives that might be available in the event of an unforeseen or sudden termination of a project or service.

It is also important for the independent contractor or freelancer to ensure that his or her interests are safeguarded in the event that the client chooses to prematurely terminate the freelancer’s services.

For example, the freelancer may negotiate for a clause that ensures that he or she is remunerated for the time and effort that has already been spent working on the project, as well as to prevent the client from using the freelancer’s work and/or ideas, in whole or in part, without adequate compensation.

Why is it important to differentiate Contracts of Service from Contracts for Service?

Business owners must provide for many labour rights for employees, since they under contracts of service. However, businesses do not have to provide these rights for freelancers, since they are under contracts for serivce. Knowing who is an employee and who is a freelancer will help ensure that businesses do not become liable for mistakenly classifying someone as a freelancer, and then incurring serious legal liability because they did not provide these various rights to them.

Rights that apply only to contracts of service (i.e. employees) include:

#1. CPF contributions:

Only employees are entitled to CPF contributions made by their employers. CPF contributions vary by age, and can make up a substantial amount of additional earnings over time. For instance, workers under 55 are entitled to 17% of their salary as CPF contributions, to be made by their employer.

Both part-time and full-time employees are entitled to CPF contributions by their employers. Freelancers are not entitled to CPF contributions by the companies who hire them.

#2. Rights under Employment Act:

Only employees are entitled to the various employment rights granted under the Employment Act. The Employment Act provides many protections for workers. This includes rules on maximum working hours, mandatory overtime pay, mandatory rest days, extra mandatory compensation if for being made to work on rest days or public holidays, and more.

Freelancers are not covered by the Employment Act, and therefore do not have these rights.

#3. Rights under Work Injury Compensation Act (WICA):

Only employees are entitled to the rights granted by the Work Injury Compensation Act. This Act makes it legally compulsory for companies to compensate workers for their work-related injuries/diseases, including Covid-19. Companies must pay for up to $45,000 in medical expenses for treatment of work-related injuries (e.g. fracture after falling at work), or work-related sickness (e.g. lung disease from breathing in sawdust at work).

The Work Injury Compensation Act also makes it compulsory for lump-sum compensation to be paid in case the worker dies or becomes temporarily/permanently disabled due to work. Compensation for work-related death can go up to $225,000 (can be higher in some cases). Compensation for work-related disability can be up to $289,000 (can also be higher in some cases).

Freelancers are not covered by the Work Injury Compensation Act, and therefore cannot claim compensation if they happen to suffer work-related injuries/sickness.

#4. Employer’s vicarious liability for employee’s mistakes/misdeeds:

Vicarious liability only applies to actions committed by employees, not independent contractors.

Vicarious liability means being legally liable for the actions of someone else. In the case of employers, this means that companies can be held legally liable (i.e. sued) for mistakes or misdeeds committed by their employees. For instance, a driver employed by a shipping company may get into a road accident, damaging someone else’s car and hurting them in the process. The driver of the damaged car can sue the company, holding them vicariously liable for the damage and injuries he’s suffered.

Vicarious liability can also apply to cases where employees use their company positions to cheat other people. For instance, a worker may send fake invoices to defraud customers of the company. Defrauded customers can then sue the company, claiming they are vicariously liable.

How to protect your company from liability for workers under contracts of service?

For employees (i.e. those under a contract of service), you should carry Work Injury Compensation Insurance to protect them. Employers in Singapore are legally liable for any work-related injury/disease contracted by employees, including Covid-19! Employers must pay the following costs:

  • Employer must pay up to $45,000 medical expenses for employee’s work-related injury/disease
  • Employer must pay up to $225,000 in case of employee’s work-related death
  • Employer must pay up to $289,000 in case of employee’s work-related temporary/permanent disability

Work Injury Compensation Insurance will cover all the costs above. Get Work Injury Compensation Insurance from $5/month now!

You should also strongly consider the following protections for your business:

Get Public Liability Insurance from $9/month

Get Commercial Property Insurance from $12/month

Get Professional Indemnity Insurance from $42/month

Get Directors & Officers Liability Insurance from $42/month

Terminating Employees (Legally) in Singapore: Ultimate Guide

terminating employee

Sometimes, an employee just isn’t right for the job. They might not have the necessary skills to do the jo properly. They might lose motivation, and their work quality might suffer. Other times, companies might not be in good financial shape, and be forced to cut manpower costs. There’s a million different reasons why companies may have to let their workers go.

Whatever the specific reason for ending an employee’s contract, it’s important to know how to do it legally. In Singapore, there are 4 legal reasons that employers can use to end an employment contract. If you don’t want to get sued by your employee for illegal dismissal, make sure that you know what these legal reasons for terminating employees are.

In this guide, we’ll explain:

  • Summary of legal vs illegal reasons for termination
  • What are the 4 legal reasons for terminating employees?
  • What are some important guidelines to follow when terminating employees?
  • What method of termination carries the least legal risk?
  • What are the 6 steps to terminating employees smoothly?
  • How should I protect myself from employee termination lawsuits?

Summary of legal vs illegal reasons for termination

Legal dismissal Illegal dismissal
Right to dismiss under employment contract Dismissal based on discriminatory grounds (e.g. age, disability, gender, ethnicity, etc.)
Misconduct

 

E.g. stealing, fighting in workplace

Dismissal for misconduct without holding inquiry
Performance

 

e.g. missing KPIs, lack of skills, poor attitude, etc.

Dismissal for performance without evidence of poor performance
Retrenchment Using the excuse of retrenchment to dismiss employee for illegal reasons
Forced resignation
Dismissal to punish employee for exercising employment rights
Dismissal to deprive employee from claiming entitlements

 

If you’d like to know more about the illegal reasons for dismissing employees, read our excellent guide on Unfair and Illegal Dismissals in Singapore.

What are the 4 legal reasons for terminating employees in Singapore?

The dismissal of employees is governed by the Employment Act. This is a piece of legislation first passed in 1968, and was most recently amended in 2019. The Employment Act stipulates 4 legal reasons for terminating employees from your company.

These 4 permissible reasons are:

#1. Right to dismiss under employment contract

Singapore is an at-will employment jurisdiction. This means that the employer-employee relationship can end at any time, for any reason (as long as it’s not a reason that’s considered illegal). Either the employer or employee has the power to terminate the relationship.

This means that employers can terminate employees by simply relying on their right to end the employment contract. No other reasons (e.g. “you’re not performing well”, “management doesn’t think you can make it”, etc.) have to be explicitly cited.

In such dismissals, notice must be given. The notice period should follow the period stated in the employment contract (e.g. 1 month notice, 2 months’ notice, etc.).

#2. Misconduct

Misconduct refers to behaviour that does not fulfill the terms of the employment contract.

Examples of misconduct include:

  • Lying or displaying unethical behaviour
  • Stealing
  • Absenteeism
  • Taking MCs by feigning illness
  • Fighting
  • Aggressive/threatening behaviour
  • Insubordination
  • Negatively affecting the company’s reputation
  • Disruptive behaviour
  • Sexual harassment

Misconduct is the only reason that does not require a notice before dismissal. However, a due inquiry must be conducted by your employer, on the alleged act of misconduct, prior to making a decision on dismissal.

#3. Performance

Employers can dismiss employees for performance-related reasons. For instance, if your employee is not meeting KPIs, is lazy, is not producing quality work, or is just generally not capable of meeting the demands of the job, you can dismiss them.

However, if you dismiss an employee for poor performance, you must provide evidence of their sub-par performance. This means that if you are preparing to dismiss someone for not meeting the demands of the job, start collecting evidence now.

Examples of evidence to prove lacklustre performance include:

  • Missed goals, missed sales targets, missed KPIs, etc.
  • Negative performance reviews
  • Feedback from superiors about poor performance
  • Cuts in bonuses or other performance-related pay
  • Lack of promotions compared to other employees

Have this evidence clearly documented in writing, because you will have to provide this evidence when you terminate the employee.

If the dismissed employee files an unfair dismissal claim against you later on, you must show this evidence to prove that the dismissal was fair. If you have properly document evidence of the employee’s poor performance, then your dismissal will be considered permissible and you won’t run into thorny legal issues.

#4. Retrenchment

If employers need to cut costs due to financial difficulties, they can perform retrenchments.

There are certain legal procedures that you must follow if you perform a retrenchment:

1. Notify MOM, if you have at least 10 workers, and you’re retrenching 5 or more workers:

Employers who meet the following criteria must notify MOM of retrenchments that they are undertaking/have undertaken:

  • Your company has at least 10 employees
  • You have retrenched 5 or more employees within a 6-month period

 

2. Provide your employees with notice

You must provide notice to your retrenched employees, in accordance with their employment contracts.

FAQs on Conducting Retrenchments:

Are retrenchment benefits compulsory?

No. Unless the employment contract you’ve issued to the employee contains a retrenchment benefit clause, there is no legal requirement to pay retrenchment benefits. Employers are encouraged to pay retrenchment benefits out of fairness and recognition for their employees’ contributions. However, this is not compulsory.

Retrenchment benefits are governed by Section 45 of the Employment Act. This section states:

“No employee who has been in continuous service with an employer for less than 2 years shall be entitled to any retrenchment benefit on his dismissal on the ground of redundancy or by reason of any reorganisation of the employer’s profession, business, trade or work.”

As you can see, it does not mandate employers to make payment of retrenchment benefits.

How much retrenchment benefit to pay:

If retrenchment benefit is stated in the employment contract:

If you’ve stated in the contract how much you will pay during a retrenchment exercise, then you must pay that amount. For instance, if the employment contract states that retrenched workers will be entitled to 1 months’ retrenchment benefit, and the retrenched worker’s salary is $4,000/month, then you owe the retrenched worker that $4,000 sum.

If retrenchment benefit is not stated in the employment contract:

If you choose to pay the benefit out of goodwill, then the market norms are between 2 weeks to 1 months’ salary, per year of service.

Are retrenchment benefits subject to CPF contributions?

No. Both the employer and employee do not have to make CPF contributions for retrenchment benefits.

The TADM has release guidelines on performing retrenchments. These guidelines are not legally binding, but employers should take heed of them:

What are important guidelines to follow when terminating employees?

If you want to avoid legal trouble when terminating employees, make sure you follow the guidelines below.

#1. Terminating foreign employees

Foreign workers on Employment Pass/S-Pass:

Employers must cancel the Employment Pass/S-Pass within seven days of firing the workers. The Employment Pass/S-Pass holder will receive a 30-day short term visit pass, after which they must leave Singapore. If the Employment Pass/S-Pass holder has other passes attached to it, e.g. a Dependent’s Pass, all such other passes will also be cancelled.

The employer must notify IRAS of the termination. The employer must withhold all payments due (e.g salary, bonus) to the foreign employee from the day the employee is notified of their termination. This is to perform the tax clearance proceducre. IRAS will make sure that all taxes have been paid by the foreign employee. Once IRAS completes their tax clearance procedure, they will issue a tax clearance certificate. The employer can then release the payments due to the employee.

#2. Provide the proper notice period

In most cases, the employment contract with the worker will state the required notice period. Most notice periods are usually 1 month, although some contracts will stipulate notice periods of 2 or 3 months.

The employee is still entitled to their salary during the notice period. This includes CPF contributions. Just treat notice period pay as regular pay.

When the decision to terminate the employee has been made, give notice to the employee that their employment is terminated in writing. Note that the notice period includes the day on which the notice is served onto the employee.

If the employment contract doesn’t state the notice period, then use the following notice periods:

Employment duration Minimum required notice period
Under 2 weeks 1 days’ notice
26 weeks – 2 years 1 weeks’ notice
2 – 5 years 2 weeks’ notice
5 years and more 4 weeks’ notice

 

#2. If you don’t serve the employee notice, you have to pay salary in-lieu

Sometimes, employers don’t want the terminated worker to serve their notice period. For instance, financial firms or technology companies may deal with highly sensitive information, and terminated workers must immediately be barred from receiving such information.

If you don’t allow the employee to serve their notice period, then you must pay them salary in-lieu. This is also commonly known as letting them take “gardening leave”. You will have to pay the salary that’s equal to the notice period. For instance, if a terminated employee earns $5,000/month, and their notice period is 1 month, you’ll have to pay $5,000 to them as salary in-lieu.

CPF contributions do not have to be made for salary in-lieu of notice. This means that if you don’t require the terminated employee to stick around to get work done, it is more cost-effective to pay them salary in-lieu, rather than have them serve the notice period.

#3. Offsetting notice period with annual leave

Employees can use their annual paid leave to offset (i.e. shorten) the notice period served.

#4. Offset notice period vs being on annual leave during notice

There is a difference between offsetting the notice period versus simply being on annual leave during the notice period.

Offsetting the notice period means to shorten the notice period. For instance, if a worker’s notice period is 1 month, and the worker has 15 days of annual leave, they can shorten the notice period by 15 days. The employer will only have to pay for 15 days’ of salary, since that is the notice period served. Offsetting is often used if the worker has gotten another job, and wants to start employment at the new company ASAP.

If the worker does not offset the notice period, they can simply choose to take annual leave. The employer must pay the salary for the full notice period. For instance, if the notice period is 1 month, a worker can choose to take 15 days of annual leave during the notice period. The employer will have to pay for 1 months’ salary.

For terminated workers who leave with unused annual leave, they can encash the unused leave. The employer must pay the terminated worker for each day of unused annual leave.

Type of leave that can be used to offset notice period Type of leave that cannot be used to offset notice period
Annual paid leave Maternity/paternity leave
Childcare leave
Sick leave

 

#6. Sick leave during notice period

Sick leave cannot be used to offset/shorten notice periods. However, sick leave that’s taken will be counted towards an employee’s notice period.

#7. Maternity Leave and termination

An employer cannot terminate an employee who is on maternity leave. This is illegal. Read more about this in our guide on unfair dismissals, or our maternity leave guide for employers.

Employees cannot use their maternity leave to offset their notice period. However, employees can still apply for maternity leave while they’re serving their notice period. Each day that the employee is on maternity leave will count as part of their notice period.

All maternity leave that is not consumed before the end of the notice period will be forfeited. Outstanding maternity leave cannot be transferred to the new company.

Example: Jane is a new mother who’s unfortunately been retrenched. Jane’ notice period is 1 month. Jane still has 2 months of maternity leave remaining. Jane can apply for 1 months’ maternity leave. This way, she can stay home to take care of her child, while still serving her notice period. The remaining 1 month of her maternity leave will be forfeited once she leaves her current company.

An employer must pay maternity benefits that his/her employee would otherwise be eligible for if a notice of dismissal is given without sufficient cause within 6 months of an employee’s confinement if the employee is retrenched within 3 months of her confinement. This payment is in addition to any retrenchment benefit which the employee is entitled to.

#8. Childcare/Infant care leave and notice period

Childcare leave to offset/shorten the notice period.

#9. Employee cannot start work with another company until the end of the notice period

When an employee is serving their notice period, the employment contract is still live. The employee cannot start working for their new company until the date of termination. The employee must continue to fulfill their responsibilities until the notice period ends.

What method of termination carries the least legal risk in Singapore?

Since Singapore is an at-will employment jurisdiction, you have a right to terminate the employment contract simply because you want to. So, if you need to dismiss an employee, an employer can simply say: “I’m exercising my right to terminate your employment contract.” That’s it. No long stories about not meeting expectations, or not doing this or that. End it there.

Simply exercising your right to end the employment contract is the legally safest method to terminate an employee. You do not have provide any other reasons. Remember, if you cite poor performance as a reason, you must provide evidence. If you don’t have proof of poor performance, your employee can sue you for illegal dismissal.

When you rely on your right to terminate the employment contract, and provide the proper notice period, it becomes much more difficult to build a legal case against you for unfair dismissal.

Some legal risks remain, which employers should be wary of:

  • Ensure that you are not terminating the employee for illegal reasons, such as discrimination or deprivation of entitlements (e.g. maternity leave). If you are in fact dismissing a worker for such reasons, and there is strong evidence to prove this, you can be sued. In our guide on whether you can terminate employees during medical leave, we explain how it is not difficult to sue employers for firing workers to deprive them of medical leave entitlements.
  • If you are conducting a retrenchment, state this openly. Do not disguise a retrenchment as individual terminations, as there is little benefit in doing so. It’s also illegal, and MOM will take enforcement action against errant employers.

How to terminate employees (relatively) smoothly?

Letting someone go is tough. Here’s how to get your dismissal right. Remember that it’s not personal – it’s just business.

Step 1: Inform HR

Let HR know that you need to terminate an employee. HR will be most familiar with the legal procedures for terminating someone. They’ll make the necessary arrangements for terminating workers. For instance, they’ll inform IT to cut the employee’s access to digital materials.

Step 2: Plan transitions

Have discussions with the relevant stakeholders if you want to terminate an employee. It’s good to get team buy-in if a worker needs to go, so that other stakeholders (e.g. team leaders) can make the necessary arrangements to find replacements.

Get started on finding a replacement once the decision has been made internally to terminate the employee. You don’t have to wait till after they’re gone to look for new candidates.

Step 3: Do it at the end of the work day

If you’re in the office, do it when most other employees have left. This minimises the amount of embarrassment for the employee.

Step 4: Get straight to the point

“Tim, it’s been a pleasure working with you. I need to let you know that you’ve been let go.”

Different managers will handle employee terminations differently. Some managers like to engage in small talk first to sooth nerves (usually, their own!) before dropping the inevitable bombshell. That isn’t technically wrong – everyone has their own style of handling delicate issues. However, there isn’t really a lot of meaning behind engaging someone in friendly banter, if at the end of it you’re going to fire them. Small talk makes them think that this is just going to be another nice “chat with the boss”, which heightens the disappointment later on. You’re going to make a decision that will significantly alter the course of their careers (at least temporarily). The sooner you let them know, the quicker you can both move on with your professional lives.

When informing an employee that they’re being let go, remember that you don’t need to provide explanations. If you cite poor performance, remember that you are legally required to provide evidence. If you cite misconduct, remember that you are legally required to have held an inquiry before the termination. If you don’t have the required evidence for either of these reasons, simply say that you’re letting them go and leave it at that.

Step 5: Cover specifically what happens next

Lay out specifically the employee’s notice period, their pay, consumption of any remaining company benefits, unused annual leave, employment references, explanations to clients and co-workers, handovers of projects, etc.

Step 6: Thank the employee and wrap up

Keep it cordial. Terminations are not personal, but professional. Let the employee know that their contributions are appreciated, and wish them the best for their next job.

How should I protect myself from employee lawsuits?

Workers who are terminated can respond in highly unpredictable ways. Disgruntled employees can launch employment-related lawsuits against you. Whether the case has merits or not is a separate matter – once the lawsuit hits your door, you’re going to have to spend money defending it!

A particularly damaging way for lawsuits to be launched is to personally target the company’s directors and officers. Directors include board directors, and officers include people inthe company with managerial authority (e.g. C-Suite down to junior HR managers who handle employees’ termination matters). When directors/officers are targeted personally in lawsuits, the limitation of liability offered by a “Private Limited” entity won’t protect them.

That’s why having a good Directors and Officers Liability Insurance policy is critical. This type of insurance protects you from many types of lawsuits, such as:

  • Unfair dismissal lawsuits
  • Employee harassment lawsuits
  • Oppression and other shareholder lawsuits
  • Negligence lawsuits
  • Defamation lawsuits
  • …and more

Directors and Officers Liability Insurance pays for your lawyer’s fees (which can be hundreds of thousands), plus court damages/settlements. Having a Directors & Officers Liability policy could save you huge sums of money – millions, even.

Get Directors & Officers Liability Insurance to protect you from employee lawsuits. From just $42/month!

5 Kinds of Unfair/Illegal Dismissals in Singapore That Will Get You Sued

unfair dismissal singapore

In this guide, we’ll walk you through the 5 key types of dismissals that are unfair, illegal, and wrongful in Singapore. Letting employees go is never easy. However, there are certain types of termination that are illegal in Singapore. For instance, firing an employee to stop them from taking maternity leave is illegal. If an employee files a report with MOM, the employer can be brought to Court and charged with a criminal offence.

We’ll explain:

  • Summary of legal vs illegal dismissals
  • What constitutes a legal dismissal?
  • What constitutes an unfair/illegal/wrongful dismissal?
  • What are the consequences for unfair/illegal/wrongful dismissal?
  • What is the least risky way to dismiss employees?
  • What is the time limit for claims for unfair dismissals?
  • How to protect your company from employment lawsuits?

Summary of legal vs illegal dismissals:

Legal dismissal Illegal dismissal
Right to dismiss under employment contract Dismissal based on discriminatory grounds (e.g. age, disability, gender, ethnicity, etc.)
Misconduct

 

E.g. stealing, fighting in workplace

Dismissal for misconduct without holding inquiry
Performance

 

e.g. missing KPIs, lack of skills, poor attitude, etc.

Dismissal for performance without evidence of poor performance
Retrenchment Using the excuse of retrenchment to dismiss employee for illegal reasons
Forced resignation
Dismissal to punish employee for exercising employment rights
Dismissal to deprive employee from claiming entitlements

 

What constitutes a legal dismissal?

In Singapore, a dismissal is valid for the following reasons:

Dismissal reason Proof required? Notice required?
Right to dismiss under employment contract No Yes.

 

Must provide employee with notice, in accordance with the employment contract

Misconduct

 

E.g. stealing, fighting in workplace

Employer must show proof of employee misconduct No, as long as an official inquiry is held
Poor performance

 

e.g. missing KPIs, lack of skills, poor attitude, etc.

Employer must show proof of poor performance Yes.

 

Must provide employee with notice, in accordance with the employment contract

Retrenchment No Yes.

 

Must provide employee with notice, in accordance with the employment contract

 

What constitutes an unfair/illegal/wrongful dismissal?

There are 5 main dismissal reasons that are against the law in Singapore:

  • Discrimination on age, disability, gender, ethnicity, family commitments, and more
  • Deprivation of benefits or entitlements
  • Dismissal for poor performance or misconduct without evidence
  • Forced resignation
  • Punishing employee for exercising employment rights

If you fire an employee for any of the above reasons, they have legal grounds to sue you. Government bodies like MOM may also take disciplinary action against your company.

Unfair Dismissal 1: Discrimination on age, disability, gender, ethnicity, family commitments, and more

Businesses are prohibited from terminating employee for the following reasons:

  • Age
  • Disability
  • Gender
  • Ethnicity
  • Religion
  • Family commitments
  • Marital status
  • Country of origin
  • Pregnancy

Most countries don’t allow employers to terminate employees for the reasons above, and for good reason. It is not good for society for businesses to terminate employees for having a disability, or needing to take care of their families.

Example: Marie is a 55-year old accountant working for an accounting & auditing firm. One day, Marie is told she’s being let go. When Marie probes the reason for her dismissal, the HR director tells her it’s because she’s “too old to do the job”. The HR director explains that, at 55, she’s too slow to get tasks done, and the company could hire younger employees who could work faster.

In such a situation, Marie can file a wrongful dismissal claim against her employer with the TADM (Tripartite Alliance for Dispute Management). If the case is not resolved at the TADM, it will be referred to the Employment Claims Tribunal, to be heard by a judge. The judge can then award Marie damages for discriminatory termination.

Unfair Dismissal 2: Depriving an employee of benefits or entitlements

Businesses cannot terminate an employee to stop them from claiming company benefits, or legal entitlements.

Examples of legal entitlements include:

  • Maternity leave
  • Paternity leave
  • Paid sick leave

It’s important to note that entitlements are legal rights. Employers cannot deny these rights to their employees. Preventing employees from accessing their entitlements is an offence. Employers who fire employees to deprive them of benefits can be jailed and/or fined.

Often, companies who fire employees to deprive them of entitlements do so to save money. For instance, maternity leave can be up to 16 weeks, and some unethical employers may want to save on paying for 4 months of salary for an employee who won’t be working. This is why some employees rightfully complain about being terminated shortly after informing their company that they are pregnant. Other employers may want to terminate employees who are hospitalised, so they won’t have to pay for hospitalisation leave for the injured/sick worker.

Example 1:

Cheryl is pregnant, and is just a few weeks away from her expected birth. She applies for 16 weeks of maternity leave, which she’s entitled to by law. Cheryl’s employer fires her within a few days of her maternity leave. Cheryl can file an unfair dismissal claim with the TADM. Cheryl may also file a civil lawsuit against her former employer.

Example:

Thomas was diagnosed with a kidney ailment and had to be hospitalised for 2 months. Singapore law provides for a minimum of 2 months (60 days) of paid hospitalisation leave, if the employee has worked at the company for at least 6 months. Shortly after Thomas informs his employer that’s been hospitalised, his employer fires him so they won’t have to pay Thomas’ salary while he’s in hospital. Thomas can file an unfair dismissal claim with TADM. Thomas can also file a civil lawsuit against his former employer.

Unfair Dismissal 3: Forced resignation

Employers cannot force employees to resign. This is usually done when the employer makes life so difficult for the employee that the worker feels they have no choice but to quit.

Example:

You run a wholesaling business. You decide you want to terminate one of your senior employees, named John. However, John has a 2-month notice period in his employment contract. You know that when you terminate John, you have to pay him 2 months’ worth of salary. You also know that John is unlikely to be productive once you tell him he’s being let go. In order to save on paying John his notice period pay, you decide to make life exceptionally difficult for him. You suddenly demote John by making him report to a junior employee. You task John with impossible deadlines, and overload him with work. Soon, John gets the message and quits.

John can file a complaint with the TADM, or sue you in court for forcing him into an involuntary resignation. John can argue that you placed him under immense distress, and had no choice but to quit. As a result, John was deprived of his entitlement to 2 months’ notice pay (remember: deprivation of entitlements is illegal!). John has a legal case against you for unfair dismissal. If you’re found guilty, you will have to pay John compensation, and you may even face jail time or fines.

Unfair Dismissal 4: Dismissal for poor performance or misconduct without evidence

Employers must remember that if you dismiss a worker for i) poor performance or ii) misconduct, you must provide evidence to support the dismissal. If you don’t provide any evidence, it is considered an illegal termination.

Dismissal for poor performance:  

If an employee is dismissed for not performing at work (e.g. missing KPIs, bad quality of work done, etc.), you have to provide evidence. If you’re intending to terminate an employee because they’re not performing, make sure you start collecting evidence ASAP. You’ll need to show this evidence when you terminate the employee. Also, if you get sued later on for this, you’ll need to rely on this evidence to defend your company.

Dismissal for misconduct:

You have to hold an official inquiry if you accuse an employee of misconduct. The employee must be given the opportunity to defend themselves. Only after holding an inquiry can you dismiss an employee for misconduct.

Unfair Dismissal 5: Punishing employee for exercising employment right

You cannot terminate an employee to punish them for exercising their employment rights.

Here’s a list of some key employment rights:

  • Right to request mediation if employer doesn’t pay salary
  • Right to overtime pay if work hours exceed hours stated in employment contract (only for non-managers/executives, or manual workers earning under $4,500/month, or office-based workers earning $2,600/month)
  • Right to report suspicious activities within the company to relevant authorities (e.g. police)
  • Right to have salary paid within 7 days from end of salary period (14 days for overtime pay)
  • Right to access legal entitlements for paid sick leave, paid maternity/paternity leave
  • Right to have an inquiry held, and to defend oneself, before being dismissed for alleged misconduct

Example:

Tim witnesses a senior executive in his company physically abusing workers. Assault is a criminal offence. Tim gathers evidence of the senior executive’s criminal acts, and reports the executive’s behaviour to HR, and also files a police report. Shortly after Tim reports the executive’s behaviour, he is fired. Tim can lodge an unfair dismissal claim against his former employer. Both Tim and the victims of the abuse can file lawsuits against their employer, for unfair dismissal and assault, respectively.

What are the consequences for unfair/illegal/wrongful dismissal?

When an employee files a claim against an employer with the TADM, the TADM will mediate the issue between the employee and employer.

The TADM and ECT can award the following:

  • Award for loss of income from unfair dismissal: Up to 3 months of employee’s salary (calculated using gross rate of pay, which is basic pay + overtime + bonuses)
  • Award for harm caused to the unfairly dismissed employee: Up to 3 months of employee’s salary (calculated using gross rate of pay, which is basic pay + overtime + bonuses)

The final award can be adjusted (increased or decreased) by up to 50%. The judge will consider if there have been aggravating factors. Examples include harsh employment conditions like abusive superiors, false statements made by the employer to justify the dismissal, or particularly egregious acts by the employer. The judge can also consider mitigating factors, like if the employee was dishonest or if there was poor work performance.

What is the time limit for claims for unfair dismissals?

It depends on who the employee wishes to file a claim with.

Filing an unfair dismissal claim with TADM or MOM:

The time limit to file an unfair dismissal claim is 1 month from the last day of employment. It’s a short timeline. Employees who feel they’ve been unfairly dismissed must do so quickly, if they want to lodge a complaint with TADM or MOM.

Women who face unfair dismissal due to pregnancy-related reasons have a longer window. They can file complaints with TADM or MOM within 2 months from their child’s birth.

Filing an unfair dismissal claim with the Courts (e.g. Magistrate’s Court):

The time limit is 6 years from the last day of employment.

Given the high level of awareness around employment rights, it’s not uncommon for workers to file complaints if they feel they’ve been unfairly dismissed. Given the high level of emotion associated with being fired, unfairly dismissed workers can gather evidence with great energy within 1 month for filing a complaint with MOM.

Also, there is a long deadline of 6 years for suing employers in civil court. This means that employers have to carry 6 years of liability for employees who’ve been dismissed. Even workers who were fairly dismissed, but feel they were unfairly terminated, can bring lawsuits against their employer. The

How to protect your company from employment lawsuits?

Employers can face significant liability from terminating their workers. If not done properly, you can face serious legal issues. Since employees have up to 6 years to sue you in court, you will carry potentially significant liability for a long time.

If employees feel they’ve been unfairly terminated, they can launch lawsuits against both the company, and against its directors and officers. Directors include board directors, and officers are anyone in the company with managerial authority (e.g. C-Suite down to junior HR managers who process the employee’s termination). Directors and officers can be sued personally, which means that the limitation of liability offered by a “Pte Ltd” entity won’t apply.

That’s why Directors and Officers Liability Insurance is critical. It covers a broad range of lawsuits, like:

  • Unfair dismissal lawsuits
  • Employee harassment lawsuits
  • Oppression and other shareholder lawsuits
  • Negligence lawsuits
  • Defamation lawsuits
  • …and more

Directors and Officers Liability Insurance pays for your lawyer’s fees (which can easily cost you hundreds of thousands of dollars), plus court damages/settlements. If you face a lawsuit from a disgruntled employee, having a Directors & Officers Liability policy could save you huge sums of money – millions, even.

Get Directors & Officers Liability Insurance to protect you from employee lawsuits. From just $42/month!

 

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