Singapore: A Legal Overview Of Singapore's Corporate Sector

Last Updated: 15 June 2017
Article by STA Law Firm

The Singapore Companies Act 1967 was the primary legislation regulating corporate entities in Singapore. Ensuring the Act is kept updated in order to efficiently reflect the realities of businesses and maintain Singapore's strength as a global business hub, while at the same time provide appropriate safeguards for stakeholders, is a key concern for policy makers. The legal powers available to any board of directors are powers to act on behalf of their company. The powers are not independent of the company and as a rule, they may not carry out, in the name of the company, any activity that the company itself is not entitled to perform.

In Singapore, companies are principally governed by the Companies Act (Cap 50, 2006 Rev Ed) (hereinafter the Act). It should be noted though that specific types of companies may, in addition to the Companies Act, be regulated by other statutes. The Act does not only establish the range of activities that the company may engage in but it also, invariably, defines the powers that are delegated from the company to its directors. The Act formally delegates the directors with wide powers to manage the business and affairs of the company. As well as a general delegation of power, it also sets out a series of specific powers, such as the power to borrow up to a certain amount, the power to refuse to register share transfers and to forfeit shares in certain circumstances. The Act also states that the directors of the company shall manage the business of the company and exercise all of its powers subject to the provisions of the Companies Act. The directors are also responsible for the management of the company's business, for this purpose they may exercise all the powers of the company.

Where the company's constitution places any restrictions on the powers of the company or on the powers of the directors, those restrictions must be observed by the directors as part of their duties to the company. Where a third party deals with a company in good faith, the power of the directors to bind the company, or to authorize others to do so, is deemed to be free of any restriction in the company's constitution. Further, the Act that the third party will not be regarded as acting in bad faith by reason only that he or she actually knew that the transaction was beyond the powers of the directors. The powers of individual directors to bind their company are also strongly affected by the rules of the law of agency. These rules apply to the determination of whether a principal (in this case the company) is bound by the acts undertaken by persons acting on its authority (its agents) in their dealings with third parties.

DIFFERENT FORMS OF COMPANY

Limited Liability Partnership (LLP)

A limited liability partnership company (LLP) is defined in Section 2(1) of the Limited Partnerships Act 2005. Under Section 4 of the Act;

  1. LLP is a corporate body which is formed by registration;
  2. It has a legal personality that separates it from its partners;
  3. It has perpetual succession.

Under Section 22 of the Limited Partnerships Act 2005, an LLP is required to have a minimum of 2 partners. Liability of the partners are set out in Section 8(1), (2) and (3); which states that the partners are personally not liable for indemnification, assessment or otherwise. However, they are liable in tort for the wrongful act or omission for other partners of the LLP. Further, Section 23(1) states that a minimum of 1 manager is required for an LLP in Singapore. Managers are liable for matters that are covered under Section 24 of the Act, they are also liable for penalties imposed on the LLP under Section 23(3)(b).

Status quo of Companies

According to Article 17 of the Singapore Companies Act, companies can undertake the following legal structures:

  1. Company limited by guarantee;
  2. Unlimited company;
  3. Company limited by shares (most prevalent, similar to LLC)

Limited Liability Company (LLC)

The Singapore Companies Act 1967, defines "limited company" as a company limited by shares or by guarantee or, prior to the expiry of the period of 2 years as specified in Section 17(6). The requirements for a limited company in Singapore are; the Companies Act permits a maximum of 50 shareholders for limited companies. The limited company must also have a minimum of 1 resident director.

Corporate Governance

Separation of Ownership and Management

Pursuant to Section 157A 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 company's constitution of the company requires the company to exercise in general meeting. This reflects one of the features of company law, namely, that it can facilitate a separation of ownership and management. The members or shareholders who own the company need not necessarily be involved in its management as directors. While in some companies, the members of the company may also be involved in its management - either as directors or in some other executive capacity - in other companies, the members are not involved in management. Instead, such companies are managed by boards of directors in which many of the directors are not members of the company.

Statutory Duties

  1. Subject to Section 157 of the Act - Directors owe fiduciary duties to their companies at common law: Under common law, directors are regarded as fiduciaries and therefore owe fiduciary duties to their companies. At the same time, the Act also prescribes certain duties on directors which mirror their general duties under the common law. One important provision is Section 157(1) of the Act which prescribes that a director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office. Section 157(2) of the Act goes on to state that an officer or agent 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.
  2. Section 157 makes certain duties mandatory and does not derogate from existing rules: Section 157 of the Act does not purport to be an exhaustive statement of the law relating to the duties that directors owe to their companies. In this regard, Section 157(4) provides that the section is in addition to and not in derogation, of any other rule of law relating to the duty or liability of directors or officers of a company. The effect of Section 157 is to render the statutory duties mandatory while the duties at common law are capable of exclusion by agreement between the company and its directors, assuming that the company has made such a decision independently of the interested directors. Under Section 157(3) of the Act, a breach of Sections 157(1) 157(1) and 157(2) renders the officer or agent liable to the company for any profit made or any damage suffered by the company as a result of the breach. At the same time, a breach of these sections is an offense, and the officer or agent shall be liable upon conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding one year.

Duty at Common Law to Act in the Best Interests of the Company

Courts will not substitute own judgment for that of directors. While exercising their duties, directors (and the company's senior managers) must act bona fide in what they consider is in the best interests of the company. When the acts of directors are challenged, the courts do not substitute their own judgment for that of the directors - ECRC Land Pte Ltd v Wing On Ho Christopher [2004] 1 SLR 105; Vita Health Laboratories Pte Ltd v Pang Seng Meng1. All that the courts are concerned about is whether the directors have acted honestly in what they (and not the courts) considered to be in the company´s best interests. Of course, if the decision is one that no reasonable board would have arrived at, this casts serious doubt on the bona fides of the directors.

Directors are entitled to have regard to interests of members and employees notwithstanding the company's separate personality. It should be noted though that, while the directors´ overriding duty is to the company, Section 159 of the Act provides that in exercising their powers, directors are entitled to have regard to the interests of the company´s employees generally, as well as the interests of its members. That a director may have regard to the interests of their members is also the position at common law since the members collectively do in a sense comprise the company notwithstanding the company´s separate personality. The entitlement to have regard to the interests of employees is also a sensible one since advancing the interests of employees will often be in the best interests of the company.

Effect of 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. If the director has profited from his position without the informed consent of the company, the director may have to account for the profits to the company. Where the director has contracted with the company, e.g. the director has sold an asset to the company; the company may be able to avoid the contract if the contract with the company was entered into in breach of the director´s fiduciary obligations to the company. Where a third party has entered into a contract with the company knowing that the directors of the company have acted improperly, the company may also be able to avoid the contract vis-à-vis the third party.

Footnote

1. [2004] 4 SLR 162

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.