Important Pointers from the Companies Act

Company Act is a set of statutory provisions governing companies. This means that the Act adopts a “hard and fast” rule approach, rather than common law (although the Act is supplemented by common law as well).

Registering a Company
A company can be incorporated by the lodgement of the memorandum and articles of the proposed company to the Registrar, payment of prescribed fee and furnishing of essential information as prescribed by the Registrar. The incorporation can be done by a person engaged for the formation of the company or a director/secretary of the proposed company.

Effects of Incorporation
Upon incorporation, the body corporate (your company) may sue and be sued in its own name, will have perpetual succession in that it can survive indefinitely until it is closed down (wound up or strike off), and it may hold land, and the liability of its members is limited in the event the company is wound up.AND THAT IS WHY A COMPANY IS A LIMITED COMPANY.

Debts and obligations incurred by the company are entirely its own (unless you become a guarantor for them) and its members do not share the company´s liabilities. Creditors of the company may only look to the company for payment of debts owed to them by the company. Creditors will have to bear the loss for debts due from an insolvent company, however solvent the company´s individual members may be.

The extent of the liability of the members of a company is to contribute the amount that remains unpaid on the shares that he or she have subscribed. This obligation is owed to the company and not directly to the creditors of the company.

Exception to Rule on Distinct Legal Identity
There are cases when the courts will ignore the doctrine of separate personality and treat the company and its members as one for limited purposes. This means that there may be a chance where the courts will hold the members of a company liable for debts of a company. This is commonly known as the lifting of the corporate veil.

Provisions Affecting Personal Liabilities of Directors of a Company

S339(3) and S340(2) of the Act, when read together implies that where debts are contracted without any reasonable or probable expectation that the company would be able to pay the debts, the directors of the company who were parties to the contracting of such debts will be guilty of an offence and may, after conviction, be made personally liable by the court for the payment of the whole or any part of such debts.

Under S340(1) of the Act, where it appears in the course of the winding up of a company that any business of the company has been carried on with intent to defraud creditors or for any purposes relating to fraud, any person who was knowingly a party to the carrying on of the business in such a manner may be personally liable for all or any of the debts or liabilities of the company.

Under S403(2)(b) of the Act, if a director pays or permits the paying out of dividends in the absence of profits will be liable to the creditors of the company for the amount of the debts due to them to the extent by which the dividends exceed the available profits.

Under common law exceptions, the veil will be lifted if members and/or officers abuse the corporate form for improper or illegal means. Example: if the member already has an existing legal obligation, he cannot utilize a corporate body to shield himself from escaping this obligation. Likewise, if a company is set up to scam or perpetrate a fraudulent act, the member/officer and company will be taken as one.

Owners versus Management
S157A of the Act states that the business of the company shall be managed by or under the direction of the directors. The directors may exercise all the powers of a company except any power that the Act or the memorandum and articles of the company require the company to exercise in general meeting.
This rule thus enables the separation of ownership (the shareholders) from the management (directors) of the company. Of course, a shareholder can still be a director of a company (which is the common practice for most startup private limited companies).

Duties of Directors
Directors need to discharge their fiduciary duties to the Company. S157(1) of the Act mentioned that a director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office. S157(2) made additional mention that officers of a company shall not make improper use of any information acquired by virtue of his position as an officer or agent of the company to gain, directly or indirectly, an advantage for himself or for any other person, or to cause detriment to the company.

Duties of Directors – A Man of many Hats
A director needs to take into account the interests of the company members, employees and creditors. The interest of a creditor needs to be taken into consideration when a company is insolvent, simply because a creditor has the right to appoint a liquidator to get the company assets to which creditors will have preceding rights to claim over those of the shareholders.

Conflict of Interests
A Director cannot put himself in a position whereby his own interests are in conflict with those of the company. If the director comes across a business opportunity in his capacity as a director, he cannot personally take advantage of such an opportunity unless the company has, with full knowledge of the facts, consented to him doing so.

Breach of Fiduciary Duties
If a director places his own interests above those of the company, the director will be liable for any loss caused to the company. Any profits or gains may have to be accounted to the Company.

A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second.
The exact rights of the shareholder will depend on the terms of the memorandum and articles. Shareholders will be entitled to a pro-rata share of any dividends that are declared and paid, as well as pro-rata share of any last remaining assets remaining on closing down of the company. Shareholders are also empowered to appoint and remove the directors of the company.

Capital Maintenance
A company under Singapore law is required to maintain its capital in the sense that it cannot, as a general rule, return capital to its members. Any returns on investment can only come in the form of Dividends out of profits made.

Reduction of Capital

A company can reduce its capital, if authorized by special resolution, by doing the following:

  • (i) extinguish or reduce the liability on any of its shares in respect of share capital not paid up;
  • (ii) cancel any paid-up capital which is lost or unrepresented by available assets;
  • (iii) pay off any paid-up share capital which is in excess of the needs of the company.

Reduction in general is a very tedious process and may be done either via a court approval or via a notice to the Comptroller and satisfaction of solvency and publicity requirements.


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