Equity Finance 2024 Comparisons

The goal of early-stage and venture capital financing is to provide capital to businesses that have the potential for exponential growth while giving investors potential equity and influence over the future of the company. Investors in an early-stage and venture capital financing vary depending on the growth stage and industry of the business, and may include friends and family, angel or seed investors, family offices, venture capital funds, sovereign wealth funds or government-sponsored funds. Some investors may also provide grants to the business, subject to certain conditions and criteria.

The typical financing arrangement is in the form of equity financing or a combination of debt and equity financing.

Angels and pre-seed friends and family are usually issued ordinary shares. Investors would subscribe for shares or convertible loans/simple agreement for future equity (SAFE) notes of the company via a subscription agreement and typically also enter into a shareholders’ agreement to govern their rights and obligations, which would typically include investor protections such as the right to nominate directors, reserved matters and anti-dilution provisions.

Instead of subscribing for ordinary shares, investors may sometimes subscribe for hybrid securities that offer both debt-like and equity-like features, including preference shares that have certain preferential rights over ordinary shares, such as in terms of conversion, dividends and liquidation preference, or convertible loans/SAFE notes, which allow investors to lend money to the company and potentially convert their debt into equity in the company at a later stage, depending on certain conditions or events. Certain investors may prefer convertible securities over ordinary shares as it gives them flexibility on whether to exercise their conversion right depending on the performance of the company. Even if they choose not to exercise their conversion right, they may recover their principal investment amount either by requiring the company to redeem the convertible securities at maturity or by way of a put option. An early-stage venture capital financing may also feature options and warrants to meet the commercial objectives of the investment, which may include, for example, eventually obtaining a significant ownership stake in the company or control.

It is not uncommon for investors to provide venture debt to bridge the gap between equity financing rounds as well. Such debt financing often carries with it higher interest rates considering the risk profile of such companies.

The Singapore Academy of Law and the Singapore Venture and Private Capital Association have come up with a suite of standardised venture capital documentation known as the Venture Capital Investment Model Agreements. These agreements aim to narrow the scope of open issues and negotiation by the contracting parties to help them reach common ground more quickly, allowing them to focus their time on addressing and negotiating more bespoke and deal-specific issues for incorporation into the documentation.

Both growth and private equity financing differ from early-stage and venture capital financing in several areas, namely, investor profile, investment size, company maturity and risk profile, and exit strategies. Growth and private equity financing targets more mature companies compared to the less mature companies in early-stage and venture capital financing. Growth financing is targeted at companies that are looking to raise funds to enter a new market or to increase market share or compete more effectively in an existing market. Private equity financing is typically targeted at more mature companies that may be undergoing significant changes such as expansion, restructuring or acquisitions. Typical structures for growth or private equity financing include leveraged buyouts, mezzanine financing and management buyouts.

Growth and private equity financing deals would typically involve significantly larger amounts of capital being invested compared to early-stage and venture capital financing, with the latter typically featuring capital being raised in stages, with each round of financing corresponding to a new phase of growth or development.

Private equity investors may be involved in the management and operations of the company to improve performance and increase value before an eventual exit. On the other hand, while early-stage and venture capital investors may provide mentorship, strategic advice, connections and access to a support ecosystem, they are less likely to be involved in the day-to-day management and operations, and board control would usually remain with the founders of the company.

The Monetary Authority of Singapore (MAS) regulates the securities and futures markets in Singapore. The Securities and Futures Act 2001 of Singapore (SFA) is the primary legislation governing offers of securities and securities-based derivatives contracts in Singapore, together with the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 and the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 (collectively, the SFR). The SFA and SFR are administered by the MAS.

The Singapore Exchange Securities Trading Limited (SGX-ST) is the company that operates the main exchange for equity securities in Singapore. The top three sectors with the most equity listings are the industrial sector, the financial sector and the consumer goods sector. The top three sectors by market capitalisation are the financial sector, the consumer goods sector and the consumer services sector.

The SGX-ST maintains two boards: the Mainboard and the Catalist.

The Mainboard, which caters to the needs of established enterprises and requires at least one of the following quantitative entry criteria to be satisfied:

• having a minimum consolidated pre-tax profit (based on full-year consolidated audited accounts) of at least SGD30 million for the latest financial year and an operating track record of at least three years;
• being profitable in the latest financial year (pre-tax profit based on the latest full-year consolidated audited accounts), having an operating track record of at least three years and having a market capitalisation of not less than SGD150 million based on the issue price and post-invitation issued share capital; or
• having operating revenue (actual or pro forma) in the latest completed financial year and a market capitalisation of not less than SGD300 million based on the issue price and post-invitation issued share capital. Real estate investment trusts and business trusts that have met the SGD300 million market capitalisation test but do not have historical financial information may apply under this rule if they are able to demonstrate that they will generate operating revenue immediately upon listing.

The Mainboard allows for a wider range of listing entities and types of listings. For example, corporations, real estate investment trusts, business trusts, investment funds and special purpose acquisition companies may all list on the Mainboard. Besides a primary listing with an initial public offering (IPO) of new shares or existing shares to the public, the Mainboard also permits a secondary listing and a listing by way of introduction without any offer of securities being made. It should be noted that for entities seeking a secondary listing by introduction, a full prospectus is not required and such issuers will need to issue an introductory document that complies with the requirements of the SGX-ST and the Fifth Schedule of the SFR instead.

The Catalist, which caters to the needs of fast-growing enterprises and has no quantitative entry criteria. Companies seeking a listing on the Catalist must be brought to list by authorised full sponsors, which determine their suitability for listing.

An offer of securities in Singapore must be accompanied by a prospectus (in the case of the Mainboard) or an offer document (in the case of the Catalist), unless the offer falls under an exemption in the SFA. A prospectus and an offer document for an offer of securities must contain all information that investors and their professional advisers would reasonably require to make an informed assessment of the matters specified under the SFA. Prospectuses and offer documents should also contain the information specified under the SFR and the SGX-ST Listing Manual, as well as matters prescribed by the MAS and Singapore Exchange Regulation (“SGX RegCo”). For real estate investment trusts, information on the manager, the trustee, the property portfolio and the structure of the collective investment scheme and its objectives, focus and approach must also be disclosed. For business trusts, information on the trustee-manager and business trust must also be disclosed.

The prospectus must be reviewed and approved by the MAS and the SGX-ST, and an offer document must be reviewed and approved by the SGX-ST acting as agent on behalf of the MAS. The preliminary prospectus will be lodged on the MAS’s website for a period of at least seven days for public comment, and the preliminary offer document will be lodged on the SGX-ST’s website for a period of at least 14 days for public comment. This will then be followed by the registration of the final prospectus with the MAS (or the final offer document with the SGX-ST as agent on behalf of the MAS, as the case may be) and the launch of the public offer thereafter.

A Mainboard listing application is subject to review and approval by SGX RegCo, whereas for Catalist listings, the appointed full sponsor determines the suitability of a corporation for listing.

There are various factors and drivers for a corporation to list on the public equity markets. These include but are not limited to the need for capital, liquidity and exit for investors and shareholders, strategic objectives, and enhanced corporate governance and accountability. A listing may also facilitate the provision of employee incentives and talent retention, given that it allows companies to grant share awards or share options of publicly-traded shares to select employees as part of their employee compensation packages and retention initiatives.

In the context of a corporation that has decided to list on the public equity markets, pursuing a listing on the SGX-ST in particular would provide several strategic benefits. The SGX-ST has a global reach, allowing issuers to have access to capital from investors not just from Singapore but also from the rest of the world, thereby facilitating their equity story and expansion plans. Corporations that are interested in pursuing a listing on the SGX-ST can also tap into a broad ecosystem of grants and regulatory support from the Singapore government, including:

• grants for Singapore-incubated companies to defray listing costs and to fund equity research;
• a fund named Anchor Fund @ 65, which was launched with an initial tranche of SGD1.5 billion to invest in late-stage private funding and IPOs of high-growth companies, aimed at attracting fast-growing companies to list on the SGX-ST; and
• EDB Investments’ (the investing arm of the Economic Development Board (EDB)) Growth IPO Fund, which invests in later-stage, high-growth companies.

Companies listed on the SGX-ST can also utilise their listing platform to raise equity capital through secondary fundraising such as rights issues and private placements.

In August 2024, the MAS announced the establishment of a new review group with representatives from both the private and public sectors (including senior representatives from the Ministry of Finance, Enterprise Singapore and EDB) to propose measures to revitalise the Singapore stock market. A report with their findings and a set of proposed measures to revitalise the Singapore equities market is targeted to be completed within 12 months.

Some common types of equity restructuring that companies encountering financial difficulties may implement and/or undergo include the following:

• Issuance of new shares: Companies issue additional shares to raise capital, often through secondary offerings such as rights issues or private placements. A private placement of new shares to a new investor or an existing investor would result in dilution for the existing shareholders who do not participate in the private placement. In a rights issue, existing shareholders are granted the option to subscribe for further shares in the company, usually at a discounted price and pro rata to their shareholding proportion in the company. A rights issue can be dilutive to existing shareholders who choose not to participate in the offering.
• Debt-to-equity swaps:This is typically done in the course of a restructuring where a creditor converts debt into one or more classes of the company’s share capital. Debt-to-equity swaps can be done pursuant to a contractual arrangement between the investor and the company, for example where the loan agreement expressly provides for conversion upon the occurrence of prescribed events. Debt-to-equity swaps can also be done pursuant to judicial management or a scheme of arrangement, both of which are forms of debt restructuring statutorily provided for under the Insolvency, Restructuring and Dissolution Act 2018 of Singapore (IRDA).
• Down-round: A down-round refers to a fundraising event where the pre-money valuation of a company is lower than the post-money valuation from the previous round. In such cases, new securities are issued at a lower valuation as compared to that in the previous round, thereby decreasing the value of earlier investments. Down-rounds are highly undesirable for all parties involved as they can negatively affect the company’s market perception, impact the founders and harm existing investors. Investors in a down-round often demand changes to the company’s operations, which may involve making difficult and unpopular decisions. Due to these significant drawbacks, down-rounds may be seen as a last resort to keep the company viable.

Challenges include arriving at an agreed valuation for such restructurings. Shareholders may agree to commission an independent valuation of the fair market value of the company to determine the valuation and issue price of the additional shares.

Furthermore, these forms of restructuring will typically result in the dilution of existing shareholders, which may lead to dissatisfaction. It should be noted that under the Companies Act 1967 of Singapore (the “Companies Act”), the issuance of shares by a company requires the prior approval of shareholders at a general meeting.

Under the Companies Act, unless the constitution provides otherwise, a company may appoint a director by ordinary resolution passed at a general meeting (which can be passed via a simple majority of votes cast at a general meeting).

Under the Companies Act, subject to any provision to the contrary in the constitution, a private company may by ordinary resolution remove a director before the expiration of his or her period of office despite anything in any agreement between the private company and the director. A public company may by ordinary resolution (which requires special notice of not less than 28 days to be given to the company) remove a director before the expiration of his or her period of office, despite anything in its constitution or in any agreement between it and the director, but where any director so removed was appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove the director does not take effect until the director’s successor has been appointed.

This means that shareholders who possess majority voting rights will be able to have control over the composition of the board of directors.

For private companies in Singapore that have more than one shareholder, it is typical for the shareholders to enter into a shareholders’ agreement to govern their rights between themselves and vis-à-vis the company. Investor protection provisions are often built into these shareholders’ agreements and the company’s constitution. For example, such provisions may give investors a right to appoint one or more directors and/or observers to the company’s board to safeguard their interests or provide for a list of reserved matters, which may require the investors’ approval before being carried out. The shareholders’ agreement will also typically contain information rights such as allowing the investors to inspect the premises, documents and business operations of the company and its subsidiaries. Typically, such agreements would also provide for exit mechanisms for the investors as well. This may be by way of a put option that would be available for exercise after a certain prescribed time, or an agreement between the investors and the company that states that investors may be entitled to have their shares bought back should the company not consummate an IPO or a trade sale within a prescribed time limit.

The level of protection afforded to investors would be negotiated between the investors and the other shareholders of the company.

Corporate governance arrangements may vary depending on the type and size of the company, the nature and extent of the shareholders’ involvement, and the applicable regulatory framework. For example, private equity investors in private companies may have rights to appoint directors and/or observers, veto rights, information rights and exit mechanisms. Shareholders of public companies listed on the SGX-ST would be able to attend and vote at general meetings, requisition or call meetings, and approve or reject certain corporate actions which are put to a vote of the shareholders.

Outside of investor protections agreed between investors, Singapore law provides for certain shareholder protections. The Companies Act provides that members of a company, among other things, have:

• the right to inspect the company’s minute books and registers (ie, the register of members, register of directors and register of debentures);
• the right to receive copies of the financial statements of the company; and
• the right to requisition, attend and vote at general meetings of the company. This allows the members of the company to participate in the company’s decisions, subject to their shares carrying voting rights.

Section 158 of the Companies Act further provides that where a member has appointed a nominee director, such nominee director may disclose information obtained by virtue of his or her position as director to his or her appointer provided such disclosure (1) is not likely to prejudice the company and (2) is made with the board’s authorisation.

The Companies Act also provides for certain matters which would require approval of 75% of voting rights of shares held by shareholders present and voting at a general meeting. Such matters include the amendment of the company’s constitution or change in the name of the company. This is a form of investor protection as it effectively gives investors who hold a significant enough minority stake veto rights over such matters.

Aside from the above, Section 216 of the Companies Act also allows investors, in their capacity as minority shareholders, to seek court-ordered remedies for oppression and injustice by the majority shareholders. The Singapore courts can order a broad range of remedies, such as directing or prohibiting any act or transaction, authorising civil proceedings to be brought in the name of or on behalf of the company by such investors or ordering for the minority to be bought out. In severe cases, the court can also order the company to be wound up.

It should be noted that issuers listed on the SGX-ST are additionally required to comply with the principles of the Code of Corporate Governance 2018 (CCG) and describe in its annual report its corporate governance practices with specific reference to the principles and the provisions of the CCG. Where an issuer’s practices vary from any provisions of the CCG, it must explicitly state, in its annual report, the provision from which it has varied, explain the reason for variation and explain how the practices it had adopted are consistent with the intent of the relevant principle. This serves to protect the interests of investors given that a well-governed company would be better placed to perform over the longer term, and would hence be in the interests of the investors.

For example, the CCG provides requirements for board composition, stating that:

• independent directors should make up a majority of the board where the chair of the board is not independent;
• non-executive directors should make up the majority of the board; and
• the board must be of an appropriate size, and comprise directors who as a group provide the appropriate balance and mix of skills, knowledge, experience and other aspects of diversity such as gender and age, so as to avoid groupthink and foster constructive debate.

It further provides that the chair of the board and CEO should be separate persons to ensure an appropriate balance of power, increased accountability, and greater capacity of the board for independent decision-making.

Separately, the CCG also requires SGX-ST listed issuers to establish an Audit Committee, a Nominating Committee and a Remuneration Committee. It further provides guidance on the roles and functions of each committee to ensure a high standard of corporate governance.

Investors may provide equity financing, debt financing or a mixture of both to the same company. Please refer to 1.1 Early-Stage and Venture Capital Financing on the different types of equity or hybrid financing that investors may provide to a company. Debt markets in Singapore are also robust, offering various options such as bank loans, corporate bonds and private credit. The MAS regulates the debt market to ensure transparency and stability. Ultimately, the choice between equity and debt financing depends on factors such as the company’s capital structure, growth prospects, risk profile, and cost of capital. Many companies in Singapore use a combination of both equity and debt financing to optimise their capital structure and meet their funding needs. It should be noted that in an insolvency scenario, debt-to-equity swaps can also be done pursuant to judicial management or a scheme of arrangement, both of which are forms of debt restructuring statutorily provided for under the IRDA.

Equity finance pertains to the practices of raising capital through sale of shares or other securities to investors. This could be used in several ways, namely for business growth, acquisitions or exits. Singapore’s equity finance market is well developed and diverse, with various sub-segments and options available to cater to different types of issuers and investors, which includes hybrid financing forms (for example, mezzanine capital) and venture capital financing, growth financing, private equity and IPOs.

For hybrid financing forms (for example, mezzanine capital) and venture capital financing, please refer to 1.1 Early-Stage and Venture Capital Financing.

For growth and private equity financing, please refer to 1.2 Growth and Private Equity Financing.

For public equity markets and IPOs, please refer to 1.3 Public Equity Markets and 2.7 Exit Considerations and Realisations respectively.

In Singapore, different financing providers would be involved at different stages of a company’s development, which also varies depending on the particular sector(s) or industry(ies) the company operates in.

Seed investors in early-stage financing typically include angel investors, family offices and venture capital financing. Government-sponsored funds may also be involved at early stages to co-invest alongside venture capital investors. For the typical investor profile in a growth and private equity financing, please refer to 1.2 Growth and Private Equity Financing.

The Significant Investment Review Act 2024 of Singapore (SIRA) provides for restrictions in relation to the persons who can provide equity financing or become shareholders of designated companies from certain sectors, including but not limited to the petrochemical, defence, construction and security solutions industries. Please see 3.1 Investment Restrictions for more details.

In Singapore, companies seeking capital may consider various factors such as size, age, shareholder composition, industry and regulatory requirements, which may influence their decisions on whether to raise debt or equity and by which structure or technique. For example, start-ups typically incorporate a private company limited by shares, which is suitable for fundraising from various sources, including friends and family, sovereign wealth funds and venture capital. Venture capital investors often receive preference shares, which have priority over ordinary shares in terms of dividends and liquidation proceeds. Start-ups may retain the same corporate form unless they exceed the shareholder limit of 50 (excluding, inter alia, employee shareholders), in which case they may convert to a public company.

For considerations on whether to seek equity and debt finance, please refer to 2.8 Equity Finance Versus Debt Finance.

The equity finance market in Singapore is well established, with a robust regulatory framework and a reputation as an international finance hub.

However, the market has faced some challenges in the past year due to global and regional uncertainties, and the number and size of equity financing deals have been subdued. In the first eight months of 2024, Singapore only saw two listings, which raised about USD20 million in total. In 2023, Singapore only saw six listings, which raised about USD29 million in total, as compared to 14 listings in 2022, which raised about USD435 million in total. Notwithstanding this, as set out in 1.3 Public Equity Markets, corporations that are interested in pursuing a listing on the SGX-ST can also tap into a broad ecosystem of grants and regulatory support from the Singapore government, and a new review group with representatives from both the private and public sectors has been established to propose measures to revitalise the Singapore stock market.

Based on data from Bain & Company, private equity deal value in 2023 amounted to USD3.7 billion, down 50% from USD7.4 billion in 2022, with the total deal count of 62 in 2023 also down 37% from 99 in 2022. Nonetheless, there has been deal interest in sectors such as digitalisation, technology, data, cybersecurity, renewable energy, education and healthcare, as well as secondary listings from foreign companies. According to Ernst & Young, private equity activity in South-East Asia had a strong rebound in the second quarter of 2024 with a total of 28 deals deploying USD5.6 billion, up almost ten-fold in deal volume and 60% in deal volume, as compared with 17 deals deploying USD586 million the first quarter of 2024. Furthermore, Singapore and Malaysia contributed to the majority of deals, representing some 92% of the total deal value and about 57% in deal volume in the second quarter of 2024. For venture financing in the first quarter of 2024, data from KPMG shows that of the USD75.9 billion raised globally via venture financing, Singapore venture capital–backed companies raised approximately 998.5 million across 171 deals.

Recent trends in privately allocated equity in Singapore include an increase in private credit components and secondary activity, as well as a restructuring of businesses to include Singapore-incorporated holding entities through which capital is raised. Capital markets and treasury conditions remain challenging, and this has contributed to a marked increase in private credit funds and investment/acquisition transactions structured with private credit components.

Privately allocated equity is important for the growth and restructuring of high-growth companies in the region, as well as for providing a more streamlined and flexible approach for raising capital, particularly for institutional and accredited investors.

Public-raised equity in Singapore is expected to pick up, with anticipated interest rate cuts potentially leading to a more favourable stock market environment. Public-raised equity is an important avenue for listed issuers to raise capital to pursue growth or to weather uncertainties. For example, in 2020, Singapore Airlines engaged in a rights issue and the issue of mandatory convertible bonds to secure funding required to weather the COVID-19 pandemic and associated travel restrictions.

Both privately allocated equity and public-raised equity are integral to the financial ecosystem in Singapore, with each playing a role in the development and maturation of businesses within the jurisdiction. Privately allocated equity is more prevalent and accessible for early-stage financing, and may potentially offer more options and flexibility for investors and companies.

For information on private equity and public equity, please refer to 1.2 Growth and Private Equity Financing and 1.3 Public Equity Markets respectively.

Deals are typically sourced by market players including investment banks, private equity and venture capital firms. Investors and finance-seeking companies alike can benefit from a well-established and sophisticated base of investors and advisors in Singapore and Asia at large given Singapore’s position as a regional financial hub.

An investor in Singapore can realise the value that it might have created with its equity investments through various exit paths, depending on the nature and size of the company, the market conditions and the investor’s objectives. The exit paths that are most commonly considered are an IPO or a trade sale.

An IPO involves listing the company’s shares on a stock exchange, which enables investors to sell their shares to retail and institutional buyers, thereby facilitating an exit. However, an IPO also entails compliance with regulatory and disclosure obligations, as well as potential market volatility. Investors will usually seek the option to request an IPO after a predetermined time has elapsed since their initial investment. This option is usually contingent on meeting specified conditions, such as receiving a positive evaluation from an investment bank or financial adviser about the company’s readiness and market conditions, meeting a minimum company valuation, or carrying out the IPO on particular stock exchanges. These conditions are intended to ensure that the IPO request is made only when the company is sufficiently mature and ready to tap into the public equity markets, preventing the right from being exercised too early.

A trade sale involves selling the company or its assets to another business or investor, sometimes for strategic reasons. A trade sale can provide a return on investment and a clean exit for venture capital or private equity investors, who typically do not remain as shareholders post-sale. However, a trade sale also requires due diligence, negotiation and deal protection measures, such as break fees and non-solicitation provisions, to ensure deal certainty.

Both equity and debt financing are important to companies in Singapore, and the choice between equity and debt financing depends on various factors such as the stage of development, the industry sector, the company’s cash flow and the overall risk tolerance.

Some considerations associated with taking equity financing are as follows:

• No repayment liability: Unlike debt financing, equity financing does not require the company to repay the invested capital or pay interest. Investors receive returns through dividends and capital appreciation.
• Risk sharing: Equity investors share the risks and rewards of the business. They may benefit greatly if the company performs well, but they also bear the losses if the company underperforms.
• Long-term capital: Equity financing is often suitable for businesses with high growth potential as it provides long-term capital without the pressure of immediate repayment.

Some considerations associated with taking of debt financing are as follows:

• Less dilution: Debt financing (to the extent it is not convertible debt) does not dilute ownership stakes in the company. Therefore, existing shareholders maintain full control over the business.
• Risk of default: Failure to meet debt obligations can lead to severe consequences such as penalties, increased interest rates or even bankruptcy if the company defaults on its loans.

Companies that may lean towards equity financing tend to be start-ups and growth-stage companies which may be loss-making and looking to achieve high growth without increasing their debt burden, while debt financing may be more suited to mature companies that are profitable and stable.

Notwithstanding this, an early-stage company might choose to issue convertible debt over equity financing in the following situations:

• When the company is expected to achieve a higher valuation in the future, issuing debt can help minimise dilution, as the debt can later be converted into equity.
• Founders can retain more control and avoid granting exclusive directors’ rights to bondholders.

The timeline to raise equity financing in Singapore can vary depending on several factors, including the readiness of the company, the extent of due diligence required, the complexity of the deal, and the investors involved. Later-stage fundraising rounds would generally take longer due to the larger amounts of capital involved, the increased complexity of the company’s operations and the more rigorous due diligence process typically conducted by investors. An uncomplicated IPO would typically take about six months to complete (with more complex deals extending to nine months or longer).

Singapore generally does not impose restrictions on foreign investors to invest in the equity of a company, except in certain regulated sectors where foreign control or share ownership may be limited or require prior regulatory approval. The SIRA was recently enacted with a view towards protecting the national security interests in Singapore and came into effect from 28 March 2024. It affects the designated companies from certain sectors including but not limited to the petrochemical, defence, construction and security solutions industries. Some features of the SIRA are:

• the requirement for certain sectors to notify or seek approval for certain specified changes in ownership and control;
• the requirement to seek approval for appointment of key officers; and
• restrictions on voluntarily winding up, dissolution or termination.

Investors who invest through financial institutions would also be subject to Know Your Customer (KYC), anti-money laundering (AML) and countering the financing of terrorism (CFT) checks. Please see 3.3 AML and Sanctions Regulation for more details. Furthermore, registered filing agents that assist in making filings with the Accounting and Corporate Regulatory Authority of Singapore on behalf of Singapore-incorporated companies and businesses are also required to perform due diligence and KYC checks on their clients and require documents such as identification documents and proof of residential address to be provided in respect of persons who are directors, individual shareholders or individual ultimate beneficial owners, as well as certificates of incorporation/incumbency and registers of members and directors to be provided in respect of entities that are corporate shareholders.

There are no exchange or capital control restrictions in Singapore specific to the payment of dividends or on repatriation of capital outside of Singapore. However, it should be noted that Section 403 of the Companies Act makes clear that Singapore companies can only pay dividends to shareholders out of profits.

Singapore takes a strong stance to prevent and detect money laundering, terrorism financing and proliferation financing. KYC requirements are regulated by the MAS. Financial institutions in Singapore are subject to AML and CFT obligations under MAS Notice 626 on the Prevention of Money Laundering and Countering the Financing of Terrorism – Banks, and are required to establish and maintain effective AML/CFT policies and procedures. The MAS in April 2024 launched a platform named Collaborative Sharing of Money Laundering/Terrorism Financing Information & Cases, which is the first centralised digital platform to facilitate sharing of customer information among financial institutions to combat money laundering, terrorism financing and proliferation financing globally and was co-developed by the MAS and six major commercial banks in Singapore, namely, DBS, OCBC, UOB, Citibank, HSBC and Standard Chartered Bank.

The MAS also provides guidance to key market players on AML and sanctions issues. For example, in July 2024, the MAS issued a circular titled “Circular on Establishing the Sources of Wealth of Customers”, which provides guidance to financial institutions in the wealth management sector on the establishment of the sources of wealth of their customers.

The choice of law and place of jurisdiction in equity financing transactions in Singapore depends on the type and stage of the investment, the preferences of the parties and the nature of the dispute. Generally, Singapore law and courts are preferred for domestic transactions, whereas foreign law may be chosen instead for cross-border transactions. The Singapore legal system offers a wide variety of robust avenues to resolve disputes. For example, the Singapore International Commercial Court (SICC), which is a division of the General Division of the High Court and part of the Supreme Court of Singapore, was set up in 2015 to hear transnational commercial disputes. The SICC presents an attractive option to foreign investors given that the SICC bench consists of judges from foreign jurisdictions and parties to SICC proceedings may, in certain cases, be represented by registered foreign counsel.

Arbitration or mediation in an international forum or body can be effectively agreed and enforced in Singapore, as the country is a signatory to the New York Convention and has a supportive legal framework and infrastructure for alternative dispute resolution. Arbitration or mediation may be preferred for confidentiality, neutrality, flexibility or expertise reasons, and may be more common for later-stage investments or exit transactions.

Please refer to the Singapore Trends & Developments chapter in this guide.

Payment of dividends, distributions or other form of payments to investors are generally not subject to withholding tax in Singapore.

Prior to 2024, capital gains of investors were not taxed in Singapore. However, for disposals after 1 January 2024, foreign-sourced disposal gains that are received in Singapore under certain circumstances may be liable to tax if the gains originate from the disposal of a foreign intellectual property right, or if the entity is a member of a relevant group and lacks adequate economic substance in Singapore.

Investors should be aware of other taxes, duties, charges or tax considerations that may apply depending on the type, structure and nature of the investment.

For example, stamp duty may be applicable on the transfer of shares in a Singapore-incorporated company and immovable properties in Singapore, and the rates may vary depending on the type and value of the asset, as well as the profile of the buyer.

Stamp duty is payable on certain electronic instruments executed in Singapore or executed outside Singapore and received in Singapore. An electronic instrument is considered received in Singapore if it is (1) retrieved or accessed by a person in Singapore, (2) an electronic copy of it stored on a device is brought into Singapore, and (3) an electronic copy of it is stored on a computer in Singapore.

Goods and services tax may also apply to fees and services related to investment activities in Singapore, unless an exception such as the exclusion of a transfer of a business as a going concern applies. However, supplies to persons belonging outside Singapore may be subject to GST at a rate of 0% if certain conditions are met.

Additionally, investors should consider their own tax residency status and that of the entities they invest in, as this may affect the tax treatment of investment income and the availability of double tax agreements that may provide relief from double taxation and reduced withholding tax rates on cross-border investment income.

There are various tax schemes and exemptions that may apply to investors in Singapore, such as the qualifying debt securities scheme, the enhanced-tier fund tax exemption scheme and the Singapore resident fund scheme, which may exempt or reduce the tax on specified income from designated investments. However, these schemes and exemptions may have specific eligibility requirements, such as minimum maturity periods, nationality requirements or designated fund managers, and investors should consult professional tax advisers for the latest tax rates, detailed conditions and any changes to tax policies.

Singapore has signed double taxation agreements (DTAs), limited DTAs and information exchange arrangements with around 100 jurisdictions.

The impact of insolvency processes on the rights of equity investors depends on the type and stage of the insolvency proceedings, the legal framework of the jurisdiction, and the terms of the equity instruments. Equity investors generally rank behind creditors in insolvency proceedings and may face significant dilution or loss of their investments. Their role and influence in such proceedings may vary depending on their voting rights, shareholding percentage, board representation and contractual arrangements.

In Singapore, there are different types of insolvency processes, such as judicial management, scheme of arrangement and winding up. Equity investors may have different rights and roles in each of these processes. For instance, in judicial management, equity investors may by passing a members’ resolution apply to the court to appoint a judicial manager to manage the affairs of the company, subject to certain conditions and thresholds. In winding up, equity investors may participate in the distribution of the company’s assets, but only after the claims of the creditors are satisfied.

Under the IRDA, creditors’ claims are prioritised over shareholders’ claims in their capacity as shareholders (eg, dividends). If a company is insolvent, the liquidator has the authority to call on uncalled capital if necessary to settle the company’s debts.

Under the Companies Act, shareholders may be required to pay up any uncalled capital if the company’s assets are insufficient to cover its debts. This provision ensures that uncalled capital can be utilised to meet creditors’ claims.

The priority ranking of debts during insolvency is crucial for understanding how different classes of creditors are treated. Creditors are classified into different tiers based on the security and seniority of their claims:

• Secured creditors: These creditors hold collateral and are prioritised above unsecured creditors. Their claims are settled first from the proceeds of the liquidation of secured assets.
• Preferential creditors: These include employees with outstanding wages and certain tax claims, which are paid after secured creditors but before unsecured creditors.
• Unsecured creditors: These creditors do not hold any specific security over the company’s assets and are paid after the secured and preferential creditors.
• Subordinated creditors: These are lower in the priority hierarchy and often include certain types of intercompany loans or convertible debentures. They are paid only after all other creditor claims have been satisfied.

The duration of the insolvency process in Singapore varies depending on several factors, including the complexity of the company’s assets and liabilities, the type of insolvency process carried out and the financial condition of the company. The winding up of a company could either be done voluntarily or be compulsory in nature pursuant to a court order. For voluntary liquidation, it can range from six to 18 months. For compulsory liquidation, this typically takes longer than voluntary liquidation and may range from one to three years, with complex cases taking longer.

In liquidation, shareholders are the last in line to receive any distributions after secured creditors, preferential creditors and unsecured creditors. In most cases, recoveries for shareholders are rare unless the company has significant assets that exceed its liabilities.

Companies in Singapore in financial distress have several options to restructure their debts and operations to avoid liquidation and afford the company an opportunity to rehabilitate its financial health.

Some of the key rescue or reorganisation procedures available are set out below.

Judicial Management

Purpose: Judicial management allows a financially distressed company to be placed under court supervision, where an independent judicial manager takes control of the company’s affairs, business and property.

Objective: To rehabilitate the company or achieve a better outcome for creditors than in a liquidation scenario.

Process: Under the IRDA, there are two main ways to put a company under judicial management:

• 1. Applying to court:The company or any of its creditors can apply to court for a judicial management order and nominate a judicial manager (who must be a licensed insolvency practitioner who is not the auditor of the company), which the court may grant if it is satisfied that the company is or is likely to become unable to pay its debts and considers that placing the company under judicial management would be likely to achieve at least one of the following purposes:
1. the company’s survival, or its undertaking as a going concern (whether in whole or in part);
2. the approval of a scheme of arrangement (see below); or
3. the more effective use of the company’s assets to satisfy creditors’ claims, compared to if the company was wound up.
• 2. Passing a creditors’ resolution:A creditors’ resolution to place the company in judicial management is passed by a majority in value (of the total amount of the creditors’ claims) and in number of creditors present and voting at the meeting. An interim judicial manager is appointed before the creditors meet to vote on the resolution for a formal judicial manager.

The judicial manager would take control of the company’s operations by stepping into the shoes of its directors and will formulate a plan to rescue the company, usually by restructuring its debts or business operations.

Moratorium: During judicial management, the company benefits from an automatic moratorium (stay of legal proceedings), preventing creditors from taking action against the company while the plan is developed and implemented.

Scheme of Arrangement

Purpose: A scheme of arrangement is a court-approved compromise or arrangement between a company and its creditors or shareholders.

Objective: To allow the company to reorganise its debts while continuing to operate.

Process:

• The company proposes a restructuring plan to its creditors.
• The plan must be approved by a majority in number representing 75% in value of the creditors or shareholders present and voting at the meeting.
• Once approved, the plan is submitted to the court for sanction.

Moratorium: Companies can apply for a moratorium to prevent legal actions by creditors while negotiating the scheme. The IRDA provides for an automatic moratorium following such application.

Pre-packaged Scheme of Arrangement (Pre-pack)

Purpose: This is a variant of the scheme of arrangement, where the company and its creditors agree on a restructuring plan before seeking court approval.

Objective: The aim is to streamline the restructuring process and reduce the time and costs involved in a traditional scheme of arrangement.

Process:

• The company negotiates and secures agreement from creditors on a restructuring plan.
• The plan is then submitted directly to the court for approval without the need for a formal meeting of creditors.

Advantages: This process is faster and can be less disruptive to the company’s operations compared to a full scheme of arrangement.

Rescue Financing

Purpose: Rescue financing involves obtaining new financing to help the distressed company continue operations and restructure its debts.

Objective: To provide the necessary liquidity for the company to stay afloat during the restructuring process.

Priority: Under the IRDA, companies can seek court approval for rescue financing to be granted “super-priority” status, meaning the rescue financing will be repaid before other unsecured debts if the company is subsequently liquidated. Subject to satisfaction of requirements and thresholds, it is also possible for rescue financing to enjoy the same priority or priority over existing security interests.

Some other risk areas for equity finance providers if a company becomes insolvent may include loss of control and exposure to creditors’ claims under certain narrow circumstances. While a company is regarded as a separate legal entity under Singapore law and investors and shareholders will not typically be held liable for the debts or actions of the company, investors may nonetheless face legal risks if they are found to have breached their fiduciary duties, engaged in fraudulent or preferential transactions, or exerted undue influence or control over an insolvent company.