07 January 2025
Editor: ET
In Singapore’s corporate ecosystem, businesses often secure loans by granting charges over their assets. Understanding the types of charges, specifically fixed and floating charges, is crucial for both companies and creditors.
Further Reading: Why Accurate Financial Records Are Crucial for ACRA Compliance
Proper registration of these charges ensures compliance with the Companies Act and provides legal protection for all parties involved.
1. Fixed Charge
A fixed charge is tied to specific, identifiable assets that remain constant in form and value. These assets are usually critical to a company’s operations and are less likely to change over time.
Examples of Fixed Assets Include:
Land and buildings
Machinery
Ships
Intellectual property, such as copyrights, patents, and trademarks
Key Features of a Fixed Charge:
Provides strong security to lenders.
Borrowers cannot sell or dispose of the secured asset without prior consent from the lender.
2. Floating Charge
A floating charge is secured against assets that are not fixed in nature and may change frequently. This type of charge is particularly suited for businesses with fluctuating inventories or assets used in daily operations.
Examples of Floating Assets Include:
Inventory
Cash
Accounts receivable
Stocks
Key Features of a Floating Charge:
Allows businesses flexibility to use or sell assets in the normal course of business.
"Crystallizes" into a fixed charge upon a triggering event, such as loan default or insolvency, at which point the lender gains control over the assets.
3. Why Understanding Charge Types is Important
Knowing the differences between fixed and floating charges helps businesses secure funding while protecting their assets. Additionally, proper registration ensures that these charges are legally enforceable, providing security for both the lender and borrower.
4. Steps to Register a Charge in Singapore
Prepare Documents: Clearly detail the charge and the secured assets.
Submit to ACRA: File the required information via the BizFile+ portal within 30 days of the charge's creation.
Consult Experts: Engage corporate secretarial services or legal advisors to ensure compliance.
Further Reading: 2025 Accounting Trends Every Singapore Business Should Know
Businesses in Singapore must understand and adhere to these requirements to protect their financial interests and maintain good standing with regulatory authorities.
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