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.


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.


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.

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