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”

Related Topics
 
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions