SINGAPORE Law and Practice Contributed by: David He, Benjamin Teo, Kinnari Sahita and Binh Vong, Gunderson Dettmer Singapore LLP
talent, enter into contracts and hold tangible and intangible assets through foreign subsidiar - ies. Because investors purchase and hold their equity in the Singapore entity, it is important to ensure that any value derived from downstream subsidiaries flows back to the parent with mini - mal leakage. Most subsidiaries are 100% whol - ly owned, though in certain countries (such as Indonesia and Vietnam) subsidiaries frequently enter into a nominee ownership structure with the parent. Capitalisation Issued and outstanding shares of Singapore companies are recorded by the Accounting and Corporate Regulatory Authority of Singa - pore (ACRA), including the Electronic Register of Members (EROM). Under the Companies Act 1967 of Singapore (the “Companies Act” ), certain entries in the EROM are prima facie evi - dence of their existence, so companies should ensure that their corporate secretary provides up-to-date and accurate lodgements of changes to the share capital. The requirement to maintain an EROM has only been in effect since 3 January 2016. As a result, corporate transactions prior to that date may not be completely reflected in a company’s EROM, and the correctness of the EROM (and all other records maintained on ACRA) is ultimately dependent on the corporate secretary’s efforts, and, as discussed below, may not reflect recent transactions. Although the accuracy of these registers ulti - mately depends on the underlying information provided to the corporate secretary, VC inves - tors generally rely on these registers to ascertain the share capital of the company, rather than undertaking an independent “tie-out” or chain- of-title review. However, in acquisitions and exit transactions, it is not unusual for a buyer to per - form a comprehensive review of the relevant cor -
porate approvals, share transfer or application forms, and subscription/transfer agreements. Ongoing system updates to the ACRA portal in December 2024 have resulted in delayed updates to the EROM for transactions affecting share capital (including issuances and transfers). Until ACRA returns to full functionality, investors should consider whether a comprehensive tie- out is appropriate, and should also ensure that contractually, they are treated as shareholders upon funding even if the EROM is only updated retroactively at a later date. Investors should note that the number of shares reserved for issuance under a company’s employee share option plan (ESOP) is not typi - cally recorded with ACRA, and must be veri - fied by a review of the relevant resolutions and underlying documents. Understanding the pre - cise number of shares reserved under the ESOP is an important part of the diligence exercise, as it directly impacts an investor’s fully diluted ownership stake. Material contracts Depending on the nature and complexity of material contracts, investors may either con - duct “red-flags” or in-depth review. This is true especially for the start-ups in the enterprise soft - ware, manufacturing and supply sectors, where several large customer contracts may account for a substantial portion of overall revenue. Key considerations include: • understanding monetary obligations, whether in the form of fees, contingencies, royalties or other payments; • termination provisions (including whether either party may terminate for convenience, and if so, whether a substitute counterparty is available on commercially similar terms);
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