Sample Law Term Paper on Company Law

Company Law

Question 1

Advantages and disadvantages of forming a company to take over the business

In Singapore, companies are operated and governed by Cap 50 of the Companies Act of the year 2006. After forming a company, partners  X and Y would benefit from the advantages of operating a company, for instance, limited liability where they would stop being personally liable for the company’s debts. Other benefits include separate entity where ownership and management would be separated, lower tax advantages on profits, ease of raising capital and enjoying a perpetual existence life of the business. The incorporation would, on the other hand, pose some disadvantages like high set up costs of incorporation, dilution of powers, requirement to prepare complex accounts, and disclosure requirements. The company also requires a filing of more taxes and more paperwork are also a requirement by law.

The two partners should consider the factors like whether they have the required legal documents as required by the S22 (1) and S35 (1) of the Companies Act. They should also consider if they have the minimum capital requirement, name, and location of the company. The best company suited for their need would be the incorporation of a public limited company. 

X and Y would be required to prepare the company’s constitutions as required under S 22(1) of the Companies Act. The constitution incorporates the contents of the memorandum of association and the Article of Association before applying for the letter of incorporation from the Registrar of the company. The next steps would be the submission of the company’s constitutions to the minister and the registrar of the companies for the issuance of incorporation letter.

The effects of incorporation are that the company starts exercising its powers as explained under S19 (5) where it can use its name to sue or to be. The company also acquires separate identity from that of its members that are recognized by law, that is, its existence and identity are legally separate from the owners as in the case of Salomon v A Salomon & Co Ltd of 1897. The significance of incorporation is that it confirms the legal existence of the company, the objective is lawful, and it overrides any irregularity that could have occurred during its formation.

Question 2

After incorporation, the company becomes a separate legal entity from its shareholders and hence subject to its obligations. If the company fails to pay debts, owners are only liable to the extent of the unpaid shares they hold with the company as in the rule of Salomon V. Salomon and Co. Ltd. 1897.  Directors are the agents of the company, and they should only act as on behalf of the company since it is an artificial person. B borrowed loan on behalf of the company and hence acted within the powers as a director and hence cannot be personally liable to pay back the loan held by the company since only acted as an agent. The bank should sue the company to pay its debts and should not sell the assets of B. The liquidation process to sell the company assets can be granted by the court for the company to recover its withstanding amount.

Question 3

The subsidiary is a company where the parent company acquires a majority of the ownership and control. Subsidiary in many cases is formed to help the company achieve the objectives of taxation, liabilities and regulation purposes. The company and subsidiary are separate legal persons where they enjoy separates rights and obligations. The veil of incorporation could be pierced by the Melvin limited and hence treat Bingo and its subsidiary as a merely formed to alter the contracts and ego of one another. The subsidiary acts as an agent, and there brings the fact of agency relationship where the veil of incorporation could be lifted and treat the companies as one.

Question 4

Rodgers as a creditor of Bland Pte Ltd cannot recover his debts from Ace Pte. Ltd since both companies are separate legal entities that are liable for their individual debts. The directors have the fiduciary duties to act in the best interests of the company. Paying the Bland’s creditors from Ace funds would account for the breaking of fiduciary duty to the Ace Pte  Ltd. For the creditor to recover the debt from Ruff and Reddy, the veil of incorporation needs to be lifted as per the outlined rules by the statutes and the common law which involve the existence of fraudulent transactions. The failure of the Bland Pte Ltd was not as a result of the fraudulent transaction, and hence, the directors could not be held personally responsible for the company’s debts.

Question 5

Ace Ltd entered into a contract of employment with Z with a restraining clause of not to engage in any business that was competing with Ace Ltd. Z broke the contract and joined Modern Electronics Pte. Ltd. Ace Ltd cannot enforce the restraint of trade clause against Modern Electronics Pte. Ltd since it is a separate legal entity with Z. Modern Electronics Pte. Ltd can only sue or be sued for its rights and obligations, but not for the obligations of its members.

Question 6

• Can B Pte. Ltd cannot hold any shares in A Ltd. In company law, a company should not hold any shares of its holding company either by the nominee or by itself.
• A Ltd. and B Pte. Ltd are related companies since they have met the conditions that are necessary for the relationship to exist as explained in section 6 of the Companies Act. A is a holding company of B company, and hence, B is a subsidiary corporation of Company A making them related.
• In what circumstances is it necessary to determine the existence of a holding company-subsidiary relationship?
• Under S 5 of the companies Act Cap 50 indicates that for a company to be deemed as a subsidiary of another corporation, the holding company must control the composition of the BOD of the subsidiary. The holding company must have control of more than half of the voting rights of a subsidiary.

Question 7

Tan Lin Tze would benefit from having his business be run via other company because he would use the already established company name. He would also benefit from already established brand loyalty and hence would not require a lot of effort to penetrate the market. The establishing costs would also be substantially minimal as compared to the start up costs of forming a new company.

Although after choosing the sole proprietorship structure would not separate his business liability and personal liability, it would be the best structure for him to operate. The reason being that corporate structure in a small business do not in many times protect personal assets from business liability especially about contracts executed by the owner. Contracts would be requiring the owner to personally guarantee performance as a way of carrying out business. This is particularly true for the franchise business where the owner would lease the site to the franchise business and contracts entered with the major suppliers of the franchise.

Question 8

The member can enforce his claim since the director is acting against the rules set by the article of the association. According to the article, the share shall be offered to the existing members to the proportion of their shares currently held. The directors are given powers to compel shares and transfer them to a member or members as per their nomination. The directors are hence not allowed to transfer the shares to the non-member entity or person.

After the termination of the contract before the end of a contractual term, Harris is entitled to sue the company. He is also entitled to the full benefits of the term of contracts unless dismissed due to the negligence of the duties assigned.

In the event where the shares were to be valued, the article has suggested that the price should be determined by an independent valuation. If the valuation were at the discretion of directors, any member should institute an action against the directors’ move for the breach of their fiduciary role.

Question 9

Directors are the agents of the company, and they should act in the good interest of the company. If the powers given by the company is exceeded the company would be acting ultra vires and hence the contract would be null and avoid. X should avoid enforcing such contracts since any loss cannot be claimed in the court of law since the contract was above the powers of the company and hence null and void.

Question 10

If during the general meeting the resolution was passed in the absence of a quorum, the resolution is null and do not constitute a part of the business transaction. In a general meeting, a quorum is constituted by the presence of a minimum of one qualifying member. A qualifying person in a meeting includes a member of the company, an authorized individual to be a representative of the corporation at a meeting and a proxy which could be appointed by a member in relation to the meeting.

Question 11

The contract entered between X and Hartford Pte Ltd was null and void since A was not the company’s managing director as claimed by the directors. As a result, X cannot reinforce action against the company since A did not act on behalf of the company. X can only claim the outstanding amount from A who acted to misrepresent X and hence the contract is based on misrepresentation and as a result not valid.

Question 12

Directors of Precision Engineering Pte Ltd cannot enforce payment under the contract since the contract is based on misrepresentation. E was not the Daytone Company director and hence did not have the capacity to act on its behalf terming the contract unenforceable.

Question 13

Albert Ltd is bound by the guarantee because as a separate legal entity with a common seal can enter into a contract in its name. The common seal of Albert was affixed on the documents and signed by the director and company secretary.

If solicitor for Universal Bank knew that Harris had not been appointed as the company secretary, Albert Ltd would not be bound by the guarantee. This is because the attested signatures on the common seal were not signed by the company secretary as required by law but Harris and was not the secretary of the company making it not binding to the Albert Company. 

Question 14

Athol, Hartog, and Brand are personally held liable for the pre-incorporation contracts entered into before the company was incorporated. Directors act as agents of the company, and hence the company was not incorporated, they could not have acted for the non-existing company. Ace Foods Pte Ltd cannot institute legal liability to the Ace Foods Pte Ltd since pre-incorporation contracts are null and void

Question 16

The article of association acts as a company’s constitution and in JRJ Pte Ltd, one of the clauses has stated that the loan for the company has to be approved by all the directors.  In the case, the loan was only signed by one director and hence not enforceable. The company can, therefore, avoid the loan since it was binding and also Jasmine has not authorized signatory for the loan as declared by the board of directors.

Directors have a fiduciary duty to act in the best interests of the company and should not place their interests before the duty assigned to avoid conflicts of interest. This is explained by the Act under section 157 (1), (2), (3) and (4). This is also evidenced in the case of Chew Kong Huat v Ricwil (Singapore) 2000. The director is obliged to disclose the interests failure to which the company can recover the overstated amount from Jules.

Question 17

Preference shareholders have rights of applying to the court to cancel the alteration of the article of association that affects their rights of receiving cumulative dividends. The rights are exercisable within the 21 days after the resolution was passed by the members. To retain their rights to cumulative dividends, the members applying to the court must hold a minimum of 5% of the aggregate nominal value of the cumulative preference shares.

Question 18

(a) X is liable to pay the 20 cents call to the outstanding shares that were partly paid. When the company issues the unpaid or partly paid shares, it retains the rights of collecting the outstanding amount. The directors are required to send the call notices to the holders of the partly paid share requesting them to pay the amount to the company on a specific date.

(b) (i) S is a member since he was re-allotted the shares that were forfeited by a former company’s member.

(ii) After allotment of shares, the directors are not allowed to issue new shares. The offering of shares to S after allotment to X before receiving the letter of forfeiture from X would hence prevent S from becoming a member of the company. 

Question 19

At common law companies were restricted from buying their shares as in illustrated in the case of case Trevor v. Whitworth (1887). However numerous reasons, for instance, ownership consolidation, boosting of financial ratios and undervaluation have necessitated the buying back of shares though with restrictive rules

The procedure for buying back shares includes checking the provision in the article of association providing for the buy-back. If the provision is not contained, a special resolution should be passed to amend the article and allow for the buy-back. For the public limited company, buying back of shares is through market purchase and resolution for the authority to buy back is passed at every AGM since it last for a maximum period of 18 months.

Question 20

The Singapore company law Cap 50 section 162 prohibits companies other than a private company from making loans to a director. This is also evidenced in the case of Dynasty Line Ltd v Sia Sukamto 2013 and Rolled Steel Products (Holdings) Ltd v British Steel Corp 1986.

Question 21

Directors have fiduciary duties of disclosure and acting in the good interests of the company. The director should disclose the purchase of overpriced properties about the selling of company’s shares to its shareholders to avoid such an overstated transaction that will affect the company profitability. If the value of the property were valued by an independent valuer, the director should only seek the approval of members in a general meeting to issues shares to the Zen Pte Ltd.

Devlin as a substantial shareholder in Ace Ltd could be holding more than 5% of the nominal value of the ordinary shares has the right to file an application in the court to stop the issuing of shares by the Ace Ltd. S 83 give the substantial shareholders rights to notify the company of any change in interests.

Question 22

Under section 71 of the companies act CAP 50 allows company if authorized by its AOA to alter its share capital in a general meeting. Section 76 C to G,  allows a company to purchase its shares issued if authorized to by the articles as long as the total number do not exceed 10 % of the class of shares of the ascertained class for a given period. The shares hence can be redeemed by the company for the major preference shareholders after giving the notice to the company concerning the change in interest.

Question 23

Shareholders do not have rights to dividends and directors have the power to declare dividends or invest the company’s profit for the good interest of the company. The shareholders can stop the paying of dividends through a passing of a special resolution during the general meeting.

Question 24

The company directors should not ignore the previous year’s losses when paying dividends from the profits made. The dividend should not be paid from the revaluation accounts or share premium accounts for any accounting year. The market value of shares should not be considered as a factor affecting the payments of dividends.

Question 25

Able Finance Company loan was secured by floating charge over the company’s asset but was registered after registration of Beta Finance Company whose debt was borrowed later after Able Company. The registration gave Beta company high priority to claim on floating charge as per the register. Jones as a company director was to be reimbursed after all the other floating charges were paid their dues.

Question 26

Under S 151 of the Companies Act, does not allow for the provision of any retiring director to be automatically reappointed in the office. Section 147 states that the person vacating the office shall not be capable of reappointed unless qualified for reappointment as a director. Unless the shareholders in general meeting pass a resolution to appoint retiring directors through an extension of the term, the director should not transact any business transaction of business and hence Albert is not an officer of Oscar Pte Ltd.

Question 27

Can the following persons be directors of a company incorporated in Singapore?

• A resident of Australia

Under S 145 (5) a person can be a director of a company incorporated in Singapore, but there must be one resident director in a company.

• A person under 18 years of age

S145 (2) only allows a person of full age to act as a director.

• Another company

A director can be appointed as a director even if a director of another company in Singapore.

• The company secretary

The Acts allow any person who holds a qualifying shares to be a director of the company even its employees.

• An undischarged bankrupt

Section 148 (1) disqualifies undischarged bankrupt from holding the office of director.

• A person convicted four years previously for offenses involving stolen credit cards 

A person convicted of offenses four years shall not hold the office of a director under section 154.

• A person who was previously a director of two insolvent companies which have been wound up

Section 149 (2) (b) disqualifies a person to be a director if has been a director of an insolvent company.

• The company’s auditor

The company auditor can be a director after acquiring qualifying shares.

Question 28

Majority directors can only remove a director that was representing the specific class on the board through a resolution from a general meeting. In a proprietary company, the director cannot remove the director since the directors are as well the owners of the business.

Question 29

The company secretary is not an agent of the company and hence, cannot act on its behalf. Dellis Pte Ltd is hence not liable for the debts owned by its employees and hence Compute Ltd should claim the outstanding balance to the company secretary since he is personally liable. 

Question 30

The action of Simon amounted to insider trading where he knew the information was material and non-public. Bluestone Pte Ltd has the right to sue Simon for trading illegally using inside information.

Question 31

Under S 156 (1), directors should disclose any interests in a transaction to the board of directors after acquiring relevant facts and knowledge concerning the interest. Howell, Grabb, and Kurt did not disclose the facts that they knew and had a personal interest in the sale of property to Aceline Pte Ltd. The directors of Eastern Mining Ltd as per the S 157 (3) (a) (b), should hold the three directors liable for the breach of duty and hence compensate the company for the damage suffered.

Question 32

Under S 157 (1) a director should at all time act honestly and apply reasonable diligence when discharging the duties of the office. Woods should be removed by the company for the negligence of duties and prioritizing on personal interests. Macgregor failed to disclose to the directors about the drinking problem and hence should personally be charged for any damaged suffered by the company due to non-disclosure. The company should not extend loans to the directors or a member of director’s family. Macgregor breached this duty and hence the company can take legal measures against the director. Macgregor also committed a fraud where should be removed as a director and compensate the company the damages as a result of his actions.

Question 33

The directors are liable for any loss the company suffers as a result of their action. The member can use derivative action to bring an action in the court on behalf of the company. Through the special resolution, the member can force the alteration of the articles. The shareholder can retrieve his investment in Shaky Pte Ltd through buy back since his share does not exceed 10%.

Question 34

A should sue the company’s directors on behalf of the company. A can obtain compensation for the damages payable to him concerning the termination of his duties. A have the rights to be heard at the special resolution meeting after receiving a notice of his removal.

A’s position at common law has been strengthened in that as a minority shareholder, he has the derivative actions and can sue on behalf of the company for issuance of additional shares by Band C.

Question 35

Jack can sue his sons for carrying out the business that is in direct competition with Grevillea Nursery Pte Ltd, which resulted in the conflict of interests. This is explained in the Boardman vPhipps1966 which was related to ensuring the duty of avoiding conflicts of interests.  Under S 156 (1) company’s directors have a fiduciary duty of disclosing interests in the transaction, but Jack’s sons breached the duty thus can be held liable.

Question 36

According to the S 181 (1) (a) of the companies, law provides that a proxy should only be entitled to voting through a poll and Borris had Proxies of other shareholder and they were entitled to vote. Section 178 (1) (a) has provided that any provision in the articles of the company shall be void if it excludes the right to demand a poll at a general meeting. The contract was, therefore, void since the director did not grant Borris demand for a poll.

Question 37

• The debenture has rights to specify the crystallization of the fixed charge as a result of failure to meet the terms of maintaining the value of stock at $100,000.
• According to S 253 (1) (b), Ace Motors Pte Ltd should apply under the order of the court to have the winding up process commence so that it can recover its debts.
• Whining as a company director did not disclose the value of the vehicle purchased and hence conflicted the interests of his duty as director through paying the less amount to the company through the purchase of a motor vehicle. He is supposed to pay for the loss that caused the company incurred amounting to $ 10,000.
• Under S 157 director is required to discharge the duties assigned using due diligence and honesty failure to do this make him liable for any loss incurred by the company as a result of his action. Whining acted knowing that Aybee Pte. Ltd. has insufficient funds to pay unsecured creditors and hence is liable for the damage caused.
• The possible insolvency procedures include voluntary winding up and through an application of the court order.

The procedure for voluntary winding up includes lodging a copy of the resolution with the Registrar within seven days after the resolution was passed. It also involves giving a notice of resolution in any newspaper that circulates in Singapore within ten days after the resolution was passed as explained in the S 290 (2) of the companies’ law. The procedure of winding up through a court is explained by S 255 (2) through the application of for the winding up, payments of preliminary costs, appointments of liquidator and release of a liquidator and dissolution of the company. 

Question 38

Liquidators

Liquidators have a duty of calling creditors meeting in case of insolvency, to collect and apply the assets, setting the time limit within which the debts and claims are ought to be proved. Liquidators also make calls, adjust the rights of contributors, and rectify members register.

Receiver Manager

They carry out the activities of incorporation to protect the security interests of their appointee.

Judicial Manager

The role of a judicial manager is to manage the property, and the business of the company is hence rehabilitating the company or preserving its business as a going concern.

Question 39

Through a special resolution, the company directors should file e for voluntary winding up citing that the company is unable to pay its liabilities as and when they fall due. Directors should hence appoint a provisional liquidator to commence the winding up processes.

Question 40

The insolvency means the company cannot pay its debts when demanded and hence the winding procedures should be instituted. The liquidator would be appointed, and the consequences to Tan Lin Tze and his wife Kim is that their powers as company’s directors would cease immediately. The purpose of judicial management would be to rehabilitate the company and hence preserving its business as a going concern. 

The transferring of a motor car to Tan Lin Tze at a low value amounted to dishonesty and breaching of the duty of acting diligently as required by the company law. Tan Lin Tze would be liable to the company for the profit made and the damaged suffered by the company as a result of his actions.

The priority of reimbursement during winding up is that the unsecured creditors are paid before the payment of director’s wages.