Stronger Penalties for Company Directors in 2026: What SME Owners Need to Know About Their Duties

Running an SME through a private limited company provides important advantages, but becoming a company director also comes with legal responsibilities.

Those responsibilities became more important in 2026 after Singapore increased the maximum penalties for breaches of directors’ duties under the Companies Act.

From 6 May 2026, a breach of the duties under section 157 can result in a fine of up to S$20,000, imprisonment for up to 12 months, or both. The previous maximum fine was S$5,000.

For SME owners who are also directors of their companies, this is a useful reminder that being a director is not simply an administrative title attached to business ownership.

Directors are responsible for how the company is managed, how financial information is reviewed, how records are maintained and whether important decisions are made honestly and with reasonable diligence.

1. What changed for company directors in 2026?

Selected provisions of the Corporate and Accounting Laws (Amendment) Act 2025 came into effect on 6 May 2026.

One of the key changes was a significant increase in the maximum fine for breaches of directors’ duties under section 157 of the Companies Act 1967.

Previously, a person convicted of a breach under section 157 could face a maximum fine of S$5,000 or imprisonment for up to 12 months.

From 6 May 2026, the maximum penalty became:

• a fine of up to S$20,000;
• imprisonment for up to 12 months; or
• both a fine and imprisonment.

The increase strengthens the consequences for directors who fail to meet important legal duties.

However, the S$20,000 maximum should not be confused with the penalties for every possible company filing or administrative offence. It specifically relates to breaches of the duties covered by section 157.

2. What does section 157 require directors to do?

Section 157 of the Companies Act states that a director must at all times act honestly and use reasonable diligence when carrying out the duties of the office.

The law also prohibits improper use of a person’s position or information obtained through that position to gain an advantage for themselves or another person, or to cause detriment to the company.

In practical terms, directors should not treat the company as though its assets, money and information can be used without regard for the company’s interests.

Directors need to exercise judgement, understand important decisions and take reasonable steps to protect the business they are responsible for managing.

3. A breach can create more than a criminal penalty

The consequences of a breach under section 157 are not limited to a fine or imprisonment.

The Companies Act also provides that an officer or agent who breaches the relevant provisions can be liable to the company for:

• any profit made as a result of the breach; or
• any damage suffered by the company because of the breach.

This means a director should not evaluate the risk of misconduct by looking only at the maximum criminal fine.

Poor conduct can potentially expose the individual to liability to the company as well as regulatory or criminal consequences.

4. Owner-directors are still directors

Many Singapore SMEs have directors who are also founders, shareholders and day-to-day managers.

This can make the distinction between “my business” and “the company” feel less obvious in everyday operations.

However, incorporating a company creates a separate legal entity.

A founder who owns most or even all of the shares does not stop having directors’ duties simply because the company is closely held.

The director should still consider whether decisions are being made honestly, with reasonable diligence and in the company’s interests.

This is particularly important where personal and company finances, contracts or assets could become mixed together.

5. Company money should not be treated as personal money

One practical area where SME directors should exercise care is the use of company funds.

A director should be able to explain why significant payments were made and whether they were properly authorised and recorded.

Good practices can include:

• keeping company and personal bank accounts separate;
• recording reimbursements and director-related transactions properly;
• maintaining supporting invoices and receipts;
• using appropriate approval processes for significant payments;
• documenting loans or amounts due between the company and directors; and
• ensuring transactions are reflected accurately in the accounting records.

Good documentation is useful not only for compliance. It also improves financial visibility and reduces confusion about where company cash has gone.

6. Directors need to use reasonable diligence

A director does not need to personally perform every administrative or technical task in the business.

However, delegating work does not mean the director can completely ignore what is happening.

Reasonable diligence can involve asking questions, reviewing important information and responding when something appears unusual.

For example, management information may show that:

• cash reserves are falling rapidly;
• customer receivables are becoming increasingly overdue;
• supplier liabilities are growing;
• the company’s bank balance does not match expectations;
• large unexplained expenses are appearing;
• tax or statutory payments are repeatedly late; or
• financial statements contain figures that management cannot explain.

A director should not automatically ignore warning signs because accounting or finance has been delegated to someone else.

7. Outsourcing accounting does not outsource the director’s responsibility

Many SMEs use external accountants, bookkeepers, corporate secretarial firms or other professional service providers.

This can be an efficient and appropriate way to manage specialised work.

However, ACRA states that directors remain legally responsible for the company’s financial statements even when external professionals are engaged to help prepare them.

Directors should therefore avoid an approach such as:

“The accountant prepared it, so I do not need to understand it.”

ACRA advises directors to read and understand financial statements, challenge accounting treatments that do not match their understanding of a transaction and critically evaluate significant judgements and estimates rather than accepting them automatically.

8. Directors do not need to be accountants

Being a director does not mean becoming a professional accountant.

ACRA recognises that directors may use professional assistance.

However, directors should have enough financial knowledge to conduct an effective high-level review of the company’s financial statements.

At a practical level, an SME director should be able to understand basic areas such as:

• revenue and expenses;
• profit and loss;
• cash flow;
• assets and liabilities;
• accounts receivable;
• accounts payable;
• existing loans;
• major provisions or estimates; and
• whether the financial information reflects what management understands about the business.

If a director does not understand a material figure, asking the accountant or finance team for an explanation is part of responsible oversight.

9. Proper accounting records are a director responsibility

Companies must maintain proper accounting and other records.

ACRA states that records should be sufficient to explain the company’s transactions and financial position and enable true and fair financial statements to be prepared.

Companies must generally retain relevant accounting records for at least five years after the end of the financial year in which the transactions or operations were completed.

For an SME, useful records may include:

• sales invoices;
• supplier invoices;
• receipts;
• bank statements;
• payment records;
• expense claims;
• payroll records;
• contracts;
• inventory records where applicable;
• loan documents; and
• other supporting documents for significant transactions.

Good records also make it easier for management to understand margins, cash flow and financial performance.

10. Directors are responsible for financial reporting

Under the Companies Act, directors have legal responsibilities relating to financial statements.

ACRA states that directors must ensure the financial statements comply with prescribed accounting standards and give a true and fair view of the company’s financial position and performance.

This responsibility applies even where the company qualifies for audit exemption.

An unaudited set of financial statements is not the same as a set of financial statements for which directors have no responsibility.

Directors should review the statements carefully before authorising them for issuance.

11. A small company still needs financial controls

Internal controls are sometimes associated with large corporations, but small businesses also benefit from basic controls.

An SME does not necessarily need a complex corporate approval system.

Useful controls may include:

• requiring approval for payments above a specified amount;
• separating payment preparation from final approval where practical;
• independently verifying changes to supplier bank details;
• reconciling bank accounts regularly;
• reviewing aged receivables and payables;
• restricting access to accounting and banking systems;
• maintaining supporting documents for payments;
• reviewing unusual transactions; and
• monitoring who can create or modify suppliers and beneficiaries.

These controls can reduce errors, fraud risk and unauthorised payments while giving directors better oversight of the company’s finances.

12. Example: one employee controls the entire payment process

Consider a small company where one finance employee can create suppliers, enter invoices and release bank payments without additional review.

The arrangement is convenient because the SME has a small team.

However, it creates a concentration of financial authority.

The company could introduce a simple control where:

• the employee prepares the payment;
• a director reviews the supplier, invoice and amount; and
• the director or another authorised person approves the bank transaction.

This does not eliminate every financial risk, but it creates an independent checkpoint before company money leaves the bank account.

For SMEs, practical governance often involves introducing proportionate controls rather than copying the procedures of a large multinational company.

13. Directors should pay attention to conflicts of interest

SME directors may encounter situations where their personal interests overlap with company decisions.

For example, a company may be considering purchasing services from another business owned by the director or a related person.

Related-party transactions are not automatically improper, but they should be handled carefully.

Directors should consider whether:

• the relationship has been properly disclosed where required;
• the transaction genuinely benefits the company;
• the pricing and terms are reasonable;
• the decision has been properly documented; and
• the company’s interests have been considered separately from the director’s personal interests.

Clear documentation is especially useful where a transaction could later be questioned by shareholders, auditors, creditors or regulators.

14. Directors should not misuse confidential company information

Section 157 also addresses improper use of information obtained through a person’s position with the company.

Company information may include:

• customer information;
• supplier pricing;
• commercial strategies;
• financial results;
• planned transactions;
• business opportunities;
• confidential contracts; and
• other non-public information.

Directors and officers should not improperly use this information to obtain an advantage for themselves or another person or to cause detriment to the company.

Good information governance therefore forms part of responsible company management, not merely cybersecurity.

15. Annual returns and company information still need attention

Directors also have important administrative obligations under the Companies Act.

ACRA lists responsibilities including:

• filing annual returns;
• holding annual general meetings where required;
• maintaining company information and registers;
• preparing financial statements where required; and
• reporting relevant changes to company information, officers and shareholders.

Changes to company information, officers and shareholders generally need to be reported through Bizfile within 14 days.

Annual returns must also be filed even for dormant companies.

These filing obligations have their own penalties and enforcement processes, separate from the increased S$20,000 maximum penalty under section 157.

16. Do not rely entirely on the company secretary

A company secretary or corporate service provider can help an SME manage corporate filings and statutory administration.

However, directors should still understand important deadlines and provide accurate information when required.

A practical compliance calendar can include:

• financial year end;
• financial statement preparation;
• annual general meeting deadlines where applicable;
• annual return deadlines;
• tax filing deadlines;
• licence renewal dates;
• loan covenant reporting dates; and
• other industry-specific compliance dates.

This reduces the likelihood that an important obligation is missed simply because management assumed an external provider was handling it.

17. New director appointments also changed in 2026

The 2026 corporate law changes also affected the appointment of new directors.

ACRA updated Form 45, the Consent to Act as Director and Statement of Non-Disqualification to Act as Director, with effect from 6 May 2026.

The updated form includes a declaration that the proposed director:

• is aware of the statutory obligations of a director;
• undertakes to use the company only for legitimate business purposes; and
• understands that misuse of the company for unlawful purposes may result in regulatory or legal action.

The form also includes a new statement relating to convictions for specified money laundering offences.

Companies appointing new directors should use the updated Form 45 and retain the completed form as part of their statutory records.

18. Money laundering convictions can disqualify a director

Another change that took effect on 6 May 2026 strengthens Singapore’s framework against the misuse of companies for unlawful purposes.

Individuals convicted of money laundering offences under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act 1992 can be disqualified from acting as company directors.

This change is reflected in the updated Form 45 used for new director appointments.

For SMEs, the practical lesson is that appointing a director should not be treated as a casual administrative exercise.

The company should understand who it is appointing and the responsibilities that person will assume.

19. Nominee and non-executive directors also have duties

ACRA states that directors’ duties apply to all directors, including non-executive directors and nominee directors.

A person should therefore not agree to become a director under the assumption that the role is only a name on company records.

A director who does not participate in daily operations should still understand the responsibilities associated with the appointment and maintain appropriate oversight.

This is particularly important where a person is asked to become a director for another business as a favour or administrative arrangement.

20. Directors should ask questions before approving major borrowing

Directors’ responsibilities also matter when an SME takes on financing.

Before approving a major loan or financing facility, management should understand:

• why the financing is required;
• how much the company needs;
• how the money will be used;
• the interest rate and fees;
• the repayment schedule;
• security or guarantees required;
• the effect on monthly cash flow;
• existing debt commitments;
• financial covenants where applicable; and
• whether the company has a realistic source of repayment.

Signing financing documents without understanding the company’s ability to repay can create significant financial pressure later.

Good governance and good financial planning therefore overlap.

21. Example: approving a loan without reviewing cash flow

Consider an SME considering a S$300,000 loan to expand operations.

The director focuses on the fact that the lender has approved the facility but does not review the repayment schedule or prepare a cash-flow forecast.

After the expansion begins, customer payments take longer than expected and the new operation requires additional working capital.

The company now needs to service the loan at the same time that its cash reserves are falling.

A more diligent approval process could have included:

• a base-case cash-flow forecast;
• a downside scenario;
• the monthly debt repayment amount;
• the minimum cash buffer required;
• expected customer payment terms;
• additional operating costs; and
• a contingency if revenue takes longer to grow.

The purpose of director oversight is not to guarantee that every business decision succeeds.

It is to ensure that important decisions are made on an informed basis rather than without reasonable consideration of the risks.

22. Keep evidence of important decisions

Good governance includes documenting important decisions.

Depending on the size and structure of the company, this may include board resolutions, meeting minutes or written records of management decisions.

For significant decisions, documentation can record:

• what decision was considered;
• what information was reviewed;
• the financial implications;
• significant risks identified;
• conflicts of interest disclosed;
• professional advice obtained where relevant;
• alternatives considered; and
• the final decision and approval.

Documentation does not make a poor decision automatically acceptable.

However, maintaining clear records can demonstrate how management approached the decision and improve organisational accountability.

23. Build a simple director dashboard

An SME director does not need to read every transaction individually to maintain useful financial oversight.

A simple monthly management dashboard can highlight important indicators such as:

• cash balance;
• monthly revenue;
• gross profit margin;
• operating profit or loss;
• accounts receivable ageing;
• accounts payable ageing;
• inventory levels;
• loan balances;
• monthly debt repayments;
• tax and statutory liabilities;
• major overdue customers; and
• significant unusual transactions.

Reviewing these figures regularly helps directors identify financial problems earlier.

It also makes the company’s financial statements less unfamiliar when year-end reporting arrives.

24. Establish approval limits before problems occur

An SME can also define which decisions employees may make independently and which require director approval.

For example:

• routine purchases below S$500 may be approved by department staff;
• purchases between S$500 and S$5,000 may require a manager;
• larger purchases may require director approval;
• new bank beneficiaries may require independent verification;
• major contracts may require director review; and
• new borrowing may require formal board approval.

The actual thresholds should reflect the size and risk profile of the business.

The objective is to make authority clear so that important decisions are not made informally simply because nobody established a process.

25. Directors should act early when financial problems appear

Financial problems are generally easier to manage when they are identified early.

Warning signs may include:

• repeated difficulty meeting payroll;
• rapidly increasing overdue payables;
• customers taking longer to pay;
• persistent operating losses;
• frequent emergency borrowing;
• tax liabilities being delayed;
• suppliers reducing credit terms;
• loan repayments becoming difficult to meet; or
• management being unable to explain where cash is going.

Ignoring these indicators rarely improves the company’s position.

Directors may need to review costs, strengthen collections, renegotiate supplier terms, revise expansion plans, obtain professional advice or reconsider the company’s financing structure.

26. A practical director governance checklist for SMEs

SME directors can use the following checklist as a practical starting point:

• Understand the role. Treat directorship as a legal responsibility rather than an administrative title.
• Review company finances regularly. Understand cash flow, profitability, major assets, liabilities and debt.
• Keep proper records. Maintain accurate accounting records and supporting documents.
• Review financial statements. Ask questions where figures or accounting treatments do not make sense.
• Separate company and personal finances. Properly document director-related transactions and reimbursements.
• Introduce basic financial controls. Use appropriate payment approvals and access restrictions.
• Monitor statutory deadlines. Keep track of annual returns, financial reporting and other corporate obligations.
• Update ACRA information promptly. Report relevant changes within the required timeframe.
• Manage conflicts of interest. Disclose and document related-party situations appropriately.
• Protect confidential information. Do not misuse company information for personal or third-party advantage.
• Document major decisions. Maintain appropriate records of significant approvals and considerations.
• Review borrowing carefully. Understand repayment obligations and cash-flow impact before taking on debt.
• Use professional advisers appropriately. Obtain accounting, legal or corporate advice when necessary, while remembering that directors retain their own responsibilities.
• Act on warning signs. Investigate unusual financial or operational issues rather than assuming someone else will handle them.

27. Strong governance can also improve financing readiness

Director governance is not only about avoiding penalties.

A business with accurate records, reliable financial statements, clear approval processes and well-documented decisions is generally easier for management to understand.

These practices can also help when the SME approaches a bank or financing provider.

Lenders may need information such as:

• financial statements;
• management accounts;
• bank statements;
• existing debt information;
• cash-flow forecasts;
• accounts receivable and payable information; and
• details about how financing will be used.

A company that maintains reliable financial information throughout the year may be better prepared to provide this information when financing is needed.

Good governance can therefore support compliance, financial management and financing readiness at the same time.

28. The higher penalty should be treated as a reminder, not the only reason to improve governance

The increase from S$5,000 to S$20,000 is significant, but SMEs should not improve governance only because the maximum fine has increased.

The same practices that help a director meet legal responsibilities can also make the business stronger.

Accurate records improve financial decisions.

Payment controls reduce the risk of losses.

Regular management reporting reveals cash-flow problems earlier.

Documented decisions improve accountability.

Clear responsibilities reduce the likelihood that important tasks are forgotten.

Governance should therefore be viewed as part of running a financially healthy company rather than a separate compliance exercise.

Final thoughts

Singapore strengthened the consequences for breaches of directors’ duties in 2026.

From 6 May 2026, breaches under section 157 of the Companies Act can result in a fine of up to S$20,000, imprisonment for up to 12 months, or both.

For SME owners who also serve as directors, the change is a useful reminder that company directorship carries responsibilities even when the business is small, privately owned or managed by a close team.

Directors should act honestly, use reasonable diligence, understand the company’s finances, maintain proper oversight and avoid improperly using their position or company information.

They should also ensure that proper records are maintained, financial statements are reviewed carefully and important statutory obligations are not ignored simply because work has been delegated to an accountant, employee or corporate service provider.

The practical goal is not to turn every SME director into a legal or accounting specialist.

It is to ensure that the people ultimately responsible for the company understand what is happening, ask appropriate questions and make significant decisions on an informed basis.

Good director governance protects more than regulatory compliance. It also supports stronger financial control, better decision-making and a more resilient business.