Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.
Section 24 of the Variable Capital Companies Act 2018 is the mechanical heart of the VCC. It permits paid-up share capital to vary continuously, lets the VCC issue and redeem shares on a NAV basis without altering the constitution, and disapplies the capital-maintenance rules of the Companies Act 1967 that would otherwise prevent a fund from operating at all. Without Section 24 there is no investment fund.
What Section 24 actually says
Section 24(1) of the Variable Capital Companies Act 2018 provides that the paid-up share capital of a VCC is at all times equal to the net asset value of the VCC. Section 24(2) authorises the VCC, by its constitution, to issue and redeem shares without the need for member approval otherwise required of a Singapore company, and at a price equal to a proportionate share of NAV (subject to permitted dilution adjustments). Section 24(3) provides that the share capital of a VCC may be reduced through redemption without complying with the procedural restrictions in sections 78A to 78K of the Companies Act 1967.
Crucially, Section 24(4) disapplies Section 76 of the Companies Act 1967 (the prohibition on financial assistance) to VCCs. The reason is functional: a fund routinely uses fresh subscriptions to fund redemptions of departing investors, an act that would otherwise look like a company giving financial assistance for the acquisition of its own shares.
Why a flexible share capital was necessary
An ordinary Singapore company operates within a fixed share capital framework. Capital can be raised by issuing new shares, but reducing capital requires the formal Sections 78A–78K procedure, a special resolution, a solvency statement and often court approval. That regime is incompatible with an open-ended fund whose NAV moves daily.
Section 24 solves three problems in a single provision:
- Pricing. Shares are issued and redeemed at NAV per share, calculated by reference to the latest valuation point. The constitution and operating procedures must define the valuation point, the NAV methodology, and any dilution levy.
- Frequency. Subscriptions and redemptions can occur as often as the constitution permits — daily, weekly, monthly, or on notice. There is no statutory cap.
- Approvals. No shareholder resolution is required for ordinary subscriptions or redemptions; the board (or the manager acting under delegated authority) executes them within the parameters set by the constitution.
This is what allows a VCC to operate as a true open-ended investment fund rather than a closed-ended company. For closed-ended VCC architectures, the same flexibility supports capital calls and distributions across the fund’s life cycle without the friction of repeated capital-reduction procedures.
How Section 24 interacts with the rest of the VCC Act 2018
Section 24 only works because of the surrounding architecture:
- Section 17 gives the VCC the legal personality necessary to issue shares as a body corporate.
- Section 29 allows an umbrella VCC to issue separate classes of shares for each sub-fund, with NAV calculated at sub-fund level.
- Section 38 requires the register of members to be kept current as shares are issued and redeemed — in practice, the transfer agent updates the register at each dealing point.
- Section 87 obliges the VCC to prepare and keep accounting records that allow NAV to be determined accurately; this is the audit underpinning that makes Section 24 functional.
The drafting also speaks to the Companies Act 1967. Section 76 of the Companies Act 1967, which prohibits a company from giving financial assistance for the acquisition of its own shares, is disapplied by Section 24 of the VCC Act 2018 precisely because subscription-funded redemptions would otherwise breach it. Our explainer on Section 76 Companies Act financial assistance sets out how the rule continues to bite on ordinary Pte Ltds.
Practical implications for managers and counsel
1. Constitutional drafting must permit NAV-based redemption. The constitution should expressly state that shares are issued and redeemed at a price determined by reference to NAV per share at the relevant valuation point, with permitted adjustments for dilution and rounding. Lifting clauses from a Pte Ltd constitution will not work.
2. Subscription and redemption mechanics must be documented. The fund’s offering document and operating memorandum should specify the dealing days, cut-off times, settlement periods, suspension events and gating mechanisms. The constitution should authorise the board to suspend dealings where redemption would prejudice remaining members — a power often exercised during market dislocations.
3. Anti-dilution levies require disclosure. If the manager intends to apply a dilution adjustment (also known as swing pricing) to protect non-trading members from the transaction costs of large flows, the methodology must be disclosed in the offering document and applied consistently. Tax counsel should be consulted on how dilution levies are treated for Section 13O or 13U purposes.
4. AML/CFT and FATCA/CRS apply at each subscription. Each subscription is an account opening event for AML purposes, and each redemption a payment event for sanctions screening. The Fund Administrator must operate to standards consistent with MAS Notice VCC-N01 and the relevant FATCA/CRS guidance issued by IRAS.
Numerical thresholds
Section 24 does not itself impose monetary thresholds, but the operating environment does:
- Minimum paid-up capital at incorporation: S$1.
- NAV valuation: at least once at each dealing date as specified in the constitution.
- VCC Grant Scheme (VCCGS): up to 70% of qualifying incorporation costs, capped at S$30,000 per VCC, subject to MAS criteria — see our VCC Grant Scheme walkthrough.
- Section 13O qualifying assets under management: S$20 million by end of the second year of incentive.
- Section 13U qualifying assets under management: S$50 million committed at application.
Common drafting and operational mistakes
Failing to disapply share allotment formalities. The constitution must dispense with the section 161 Companies Act 1967 authority that would otherwise require shareholder approval to allot shares. This is a frequent oversight in copied templates.
Treating subscription monies as loans. Subscription monies are paid in consideration of share issuance and become part of paid-up capital on allotment. They are not loans; characterising them as such creates accounting and tax problems. Our colleagues at Singapore Secretary Services explain the equivalent share-issuance mechanics for an ordinary Pte Ltd in their guide to allotment and transfer of shares.
Mispricing during a suspension. When dealings are suspended, no subscriptions or redemptions should be effected. Some funds have effected redemptions at “last available NAV” during a suspension, leading to dilution claims from remaining investors. Suspend means suspend.
Mismatched custody and register entries. The custodian’s records of shares-on-issue must reconcile to the register of members on each dealing date. Reconciliation breaks are a leading cause of audit findings.
Worked example: subscription and redemption flow
A Section 13U umbrella VCC has two sub-funds. On Monday 1 June 2026, Sub-Fund A has NAV of S$80,000,000 across 8,000,000 shares (NAV per share S$10.00). The fund administrator receives an inward subscription of S$5,000,000 from a new investor and a redemption request of S$3,000,000 from an existing investor for the dealing point on Friday 5 June 2026.
At Friday’s valuation point, Sub-Fund A’s NAV per share has risen to S$10.20 reflecting portfolio gains. The administrator allots 490,196 new shares to the incoming investor (S$5,000,000 / S$10.20) and redeems 294,117 shares from the outgoing investor (S$3,000,000 / S$10.20). Paid-up share capital increases by S$2,000,000 net — consistent with Section 24(1)’s requirement that paid-up share capital equals NAV. No Sections 78A–78K procedure is invoked. No shareholder resolution is required. The register of members is updated, custodian records are reconciled, and the cash leg settles within the published settlement window.
FAQs
Can a VCC issue shares at a price below NAV?
Only in narrow circumstances (such as seed investor classes during launch) and only if expressly permitted by the constitution and offering document, with disclosure to incoming investors. The general rule under Section 24 is NAV-based issuance.
Does redemption of shares need to follow the Companies Act capital reduction procedure?
No. Section 24(3) of the VCC Act 2018 expressly disapplies Sections 78A–78K of the Companies Act 1967. Redemption is effected by the board within the parameters of the constitution.
Is financial assistance to acquire VCC shares allowed?
Section 24 disapplies Section 76 of the Companies Act 1967. In substance, a VCC can fund redemptions from subscriptions without breaching the financial assistance prohibition that applies to ordinary companies.
What if a redemption would drop the VCC below solvency?
Section 25 imposes a solvency-test gate: a redemption that would render the VCC unable to pay its debts as they fall due must not be effected. Directors should obtain a solvency confirmation before sanctioning large redemptions.
How does Section 24 work in an umbrella VCC?
NAV is calculated separately for each sub-fund under Section 29. Subscriptions, redemptions and dilution adjustments operate at sub-fund level, while the umbrella VCC remains a single legal person under Section 17.
Section 24 in an open-ended versus closed-ended VCC
Section 24 is jurisdiction-neutral as between open-ended and closed-ended VCCs — both are accommodated. In an open-ended VCC, the constitution will set a regular dealing cycle (daily, weekly or monthly), and Section 24 supports the corresponding NAV-based issuance and redemption mechanics. In a closed-ended VCC, the constitution will typically restrict subscriptions to commitment-and-drawdown cycles and prevent voluntary redemptions during the investment period; Section 24 still operates to make capital calls and distributions mechanically straightforward without invoking the Companies Act 1967 capital-reduction process.
Hybrid architectures — a closed-ended sub-fund alongside open-ended sub-funds in the same umbrella — are entirely possible and increasingly common, particularly where a single sponsor runs a multi-strategy platform. The constitution must clearly identify which terms apply to which sub-fund. Section 24’s capacity is broad enough to support the hybrid, but the constitutional drafting needs to be precise.
Tax considerations on capital flows
For an approved Section 13O or 13U VCC, capital flows under Section 24 do not, of themselves, generate Singapore tax incidents. Subscription monies are capital contributions; redemptions are returns of capital. The tax incidence sits at the level of qualifying income generated by the portfolio and is governed by the conditions of the incentive. Where the VCC is not under a tax incentive, capital flows remain non-taxable as receipts, but income generated on invested capital is taxed in the ordinary course. The Inland Revenue Authority of Singapore (IRAS) has issued e-tax guides on the application of the relevant provisions to VCCs.
For GST, dealings in shares of a VCC are generally exempt supplies. The fund manager’s services to the VCC, however, may attract GST depending on the manager’s GST registration status and the place-of-supply rules. The constitution and offering document should disclose how GST is borne — typically by the relevant sub-fund — and the dilution mechanics should account for the practical leakage.
Suspension of dealings: when and how
Section 24 must be read together with the suspension provisions typically contained in a VCC’s constitution. Suspension is an extraordinary step that pauses both subscriptions and redemptions, usually triggered by market closure, the inability to determine NAV reliably, settlement-system disruption, or the directors’ reasonable judgement that continued dealings would prejudice members.
The constitution should set out, at minimum, the events that may trigger suspension, the party with authority to declare it (typically the board on the manager’s recommendation), the notification requirements to investors and to MAS, the maximum duration before review, and the protocol for the resumption of dealings. During suspension, no shares may be issued or redeemed under Section 24, and any in-flight subscription monies should be held pending resumption rather than allotted at a stale NAV.
Practitioners reviewing draft constitutions should look carefully at the interaction between suspension powers and side letters. Where preferred investors have negotiated guaranteed liquidity, suspension provisions may conflict with side-letter commitments; the side letter should ordinarily defer to the suspension power, with appropriate disclosure.
Audit and accounting under Section 24
Because paid-up share capital must equal NAV under Section 24(1), the audit of a VCC focuses heavily on the valuation methodology, the segregation of records between sub-funds (where applicable) and the reconciliation between the share register and the custodian’s records. Auditors will look for:
- A documented valuation policy, including treatment of illiquid or level-three assets;
- Independent price verification for marketable instruments;
- Reconciliations between transfer agent records, custodian records and the GL;
- Evidence that dilution adjustments are calculated and applied consistently;
- Documentary support for the solvency confirmation underlying each large redemption (Section 25).
Related guides
See our VCC Singapore structure, setup and operations guide for end-to-end mechanics, and the consolidated VCC Act 2018 text on SSO. ACRA publishes the relevant filings; MAS publishes the regulatory framework. For a worked example on UHNW families from Greater China, see our VCC incorporation guide for UHNW families from Greater China.
Need help with this? Call, SMS or WhatsApp +65 8501 7133, or email hello@rafflescorporateservices.com. Raffles Corporate Services works with a panel of corporate and employment law firms; this article is general information, not legal advice.