VCC Act 2018 — Section 24 variable capital and share redemption — Step-by-step walkthrough
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 vcc act 2018 gives a Variable Capital Company its defining feature: variable capital. A VCC may issue and redeem shares without shareholder approval and pay dividends out of capital, so its share capital always equals its net asset value and investors can subscribe and redeem at NAV.
What Section 24 of the VCC Act 2018 establishes
Section 24 of the Variable Capital Companies Act 2018 provides that the actual value of the paid-up capital of a VCC is at all times equal to the net asset value of the VCC. Shares may be issued, redeemed or repurchased so that capital moves up and down with subscriptions and redemptions, free of the capital-maintenance constraints that bind an ordinary company under the Companies Act 1967.
Why variable capital matters
Open-ended funds need to let investors enter and exit at net asset value on each dealing day. Variable capital makes this possible because redemptions reduce capital automatically, without the court process or solvency-statement formalities an ordinary company faces on a capital reduction. This is what makes the VCC a natural home for open-ended strategies.
Redemption and distribution out of capital
A VCC may redeem shares and pay dividends out of capital, provided it remains solvent. The interaction with distributions is detailed in our guide to Section 32-33 distribution out of capital. The directors must be satisfied the VCC can meet its liabilities as they fall due before authorising any redemption or distribution.
How dealing and valuation work
The VCC’s constitution and offering document set the dealing frequency, which may be daily, weekly or monthly, and the valuation methodology. On each dealing day the fund administrator strikes net asset value, then processes subscriptions by issuing shares and redemptions by cancelling them at that NAV. Because capital equals NAV by operation of Section 24, no separate capital-reduction filing is needed.
Cost and timeline
There is no separate ACRA filing for routine issuances and redemptions because they happen at the fund-administration level at each dealing point. The VCC incorporation fee is S$8,000. Net asset value is struck on each dealing day according to the fund’s stated frequency.
Step-by-step process
First, set the dealing frequency and valuation policy in the constitution and offering document. Second, strike net asset value at each dealing point through the fund administrator. Third, process subscriptions by issuing shares and redemptions by cancelling them at NAV. Fourth, confirm solvency before any distribution out of capital. Fifth, keep the register and accounts current. Family offices structuring an open-ended vehicle should review our family office structures walkthrough, and groups onshoring should read the subsidiary of a foreign parent pitfalls guide.
Common mistakes and gotchas
The main pitfalls are paying distributions without a documented solvency assessment, mismatching the valuation policy with the dealing calendar, and treating VCC redemptions like a Companies Act capital reduction. Variable capital removes the court route, but it does not remove the directors’ solvency duty.
FAQs
Does a VCC need shareholder approval to redeem shares? No. Section 24 of the VCC Act 2018 allows issuance and redemption without the capital-maintenance approvals an ordinary company needs.
Can a VCC pay dividends out of capital? Yes, provided it remains solvent.
How is the redemption price set? At net asset value struck on the relevant dealing day.
Is a court process required? No, unlike a Companies Act capital reduction.
Who strikes the net asset value? The appointed fund administrator, under the valuation policy in the constitution.
Authoritative sources: the Variable Capital Companies Act 2018 on Singapore Statutes Online and the Accounting and Corporate Regulatory Authority (ACRA).