Singapore Company Law
Here you will be able to get an overview of the laws that govern all Singapore companies.
The Singapore Companies Act is the central governing repository of laws that governs all the companies and business entities here. There are additional regulations and statutes for regulating certain types of Singapore companies. The following are some examples:
- The Limited Liability Partnership Act governs the Limit Liability partnerships.
- The Insurance Act regulates insurance companies
- The Financial Advisors Act and the Securities & Futures Act regulate financial advisers
- The Banking Act is for banks
Additionally, all these statutory additions that regulate business activities are supported by case laws originating from the decisions of courts in the case of litigation matters.
INCORPORATION OF SINGAPORE COMPANY & ITS EFFECTS
The Singapore Companies Act makes it mandatory for a business entity in Singapore with over 20 members to incorporate a company.
In order to incorporate a company, it will be required to file an application along with all the mandatory documents and requisite fee with the Accounting & Corporate Regulatory Authority of Singapore (ACRA). One such crucial documentation is the Memorandum & Articles of Association (M&AA). This includes the constitutional documentation plus regulations of the Singapore company with all the provisions required for governing it.
The Companies Act states that the M&AA should prescribe the company name, the value of the company’s share capital, and if the company members’ liability is limited or unlimited. If there is some conflict between the Memorandum and the Articles, the law states that the provisions of the former documents will prevail.
After the Memorandum has been registered, the Registrar issues a notification of incorporation that states that the Singapore company has been established from a specific date along with the type of the company – Unlimited or Limited and whether it is a private company.
Richmond supports you with regard to all the steps involved in the incorporation of your company, and with the post-incorporation requirements. The help we will provide you will depend on the details you provide us with regard to the kind of business activities you want to engage in.
AFTER SINGAPORE COMPANY REGISTRATION
After the incorporation of the company, it becomes a corporate entity that is capable of the following:
- It can file a case against another entity or get sued itself
- Continues to remain in existence until it is wound up
- It can own property
- Its members’ liabilities are limited if the company is winded up
Once a Singapore company has been incorporated, it will be considered as a separate legal entity from that of the company members. This means that any debts and liabilities of the company will be assigned to itself without the members sharing those liabilities. Thus, creditors of a Singapore company will have to seek debts settlement from the company. In case the company’s assets cannot pay off the debts, the creditors will be bearing the loss, without concern about the solvency of the members of the company.
The company members are liable only to pay (through contribution) the unpaid amounts on the company shares that they have subscribed. However, this liability is owed to the company and not to anyone else including the creditors.
Thus, if the shares had been issued on the basis of being fully-paid or if they are fully paid, company members stand without any liability to the company. It is crucial to understand that in the case of a limited company, it is the liability of the members to contribute to the company that is limited and not that of the company towards the share capital that the members have subscribed.
BEYOND THE CORPORATE SHIELD
Although an incorporated Singapore company is a separate entity, in certain cases, Courts can consider the company and its members to be the same. At times, Courts could hold the company members responsible for the company’s debts. Courts have the power to break through the shield provided by incorporation through common law or an explanation of statute.
1. Accumulating debts and financial compulsions
If the company’s debts have accrued without any rational expectation that the accounts of the company could anyway pay off the debts, a member of the company who stood party to such contracts that created the debts will be guilty of the offence and if convicted by the Courts, will be made liable personally for part of the entirety of such debts.
The common law applies the following understanding. The main reason companies are incorporated is to protect oneself against the personal liabilities that come with the failure of the business. But if it is found that the company members/officers have abused the protection provided by company incorporation, the common law will provide a break through the corporate cover.
If a member already possesses certain legal liabilities, but makes an attempt to hide behind the corporate veil for evading the obligations, the ‘separate entity’ status between the company and its members will be ignored by the courts.
2. Illegal or Fraudulent Actions
If during the process of the company wind up, it is noticed that a business transaction was performed with the intent of defrauding company creditors or creditors of another individual or for any type of fraudulent objective, the court could hold an individual who was willingly a party to such a business to be liable personally for part of all of the company debts to such creditors.
Based on the common law, in case the company is used as a tool for conducting a fraudulent action, the courts have the power to consider the company and its member(s) as the same entity. Even if the company and its promoter are different entities, if the court finds that the company was incorporated with the intent of defrauding investors, the court could hold the company promoter liable.
3. Unofficial Disbursal of Dividends
If dividends are disbursed by the company even though the company didn’t record any profits for the said period, the member/director/manager of the company who allowed or paid the dividends will stand liable to the company creditors for the debts to the amount by which the dividends exceeded the company profits. Such an act is a breach on the duty to not unjustifiably discriminate the company creditors.