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1. GENERAL THEMES
The company is essentially an artificial person recognised by law. What this “person”
is allowed to do – all its rights and liabilities – is defined by:
the Companies Act; and
case law which either interprets the provisions of the Companies Act, or fills
the gap in respect of matters not dealt with by the Companies Act
A company is a structure that is set up for the use and benefit of natural persons. To
understand the relationship between the company and its stakeholders, we first need
to identify the most important stakeholders in a company, which include: -
Shareholders;
Shareholder rights – e.g. the rights to dividends, voting power and
decision making
Majority vs Minority – minority shareholders are concerned with the
decisions of majority shareholders as they have an impact on the
shares as a whole
Directors and other managers;
Directors as fiduciaries – held to have a high level of loyalty and there
will be consequences if they fail to meet their duties e.g. criminal
liabilities if there is a breach
Creditors;
Concern is that they want to be paid, contracts govern the relationship
between the creditors and the debtors, usually when a company is
trying to get a loan, creditors will act as personal guarantors so that
there will be a recourse if the debts cannot be paid
Gatekeepers (e.g. auditors);
Regulators (e.g. ACRA)
2. CATEGORIES OF COMPANIES
Registered companies may be categorised in different ways, depending on the purposes for
which the categorisation is made. Under the Companies Act, companies may be registered
with either limited or unlimited liability, and as private or public companies. A company
may also qualify as an exempt private company, and/or a small company. It may also form
part of a group of companies, which comprises a holding company and one or more
subsidiaries. Finally, foreign-incorporated companies should be distinguished from those
incorporated in Singapore as they attract different regulations under the Companies Act.
As per section 17(2) of CA, a company’s liability may be limited either by shares or by
guarantee, or be an unlimited company.
Page 1 of 153
COMPANIES ACT
Cap 50, 2006 Rev Ed
Formation of companies
17.—(2) A company may be —
(a) a company limited by shares;
(b) a company limited by guarantee; or
(c) an unlimited company
(5) As from 15th August 1984, no company limited by guarantee with a share capital shall
be registered under this Act.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“limited company” means 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), a company limited both by
shares and guarantee
COMPANIES ACT
Cap 50, 2006 Rev Ed
Requirements as to constitution
22.—(3) A statement in the constitution of a company limited by shares that the liability of
members is limited shall mean that the liability of the members is limited to the amount,
if any, unpaid on the shares respectively held by them.
While a company limited by guarantee also shields its members from unlimited
liability, it is distinct from a company limited by shares in that it does not require
members to make any payment upon subscription as members
Instead, each member will undertake to contribute a specified amount to the
company’s assets in the event the company wounds up
How much each member agrees to contribute will be stated in the
memorandum of association
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Such companies are usually incorporated for charitable or not-for-profit
purposes, and members of such companies usually undertake to guarantee no
more than a nominal amount of the company’s liabilities
The previous point is further supported by the CA prohibiting such a company
from having a share capital, which effectively prevents the company from
raising capital through the sale of equity, while the restriction on profit
participation limits the company’s ability to attract funds on the promise of profit
sharing
COMPANIES ACT
Cap 50, 2006 Rev Ed
As to constitution of companies limited by guarantee
38.—(1) In the case of a company limited by guarantee, every provision in the constitution
or in any resolution of the company purporting to give any person a right to participate in
the divisible profits of the company, otherwise than as a member, shall be void.
(2) For the purposes of the provisions of this Act relating to the constitution of a company
limited by guarantee and of this section, every provision in the constitution or in any
resolution of a company limited by guarantee purporting to divide the undertaking of the
company into shares or interests shall be treated as a provision for a share capital
notwithstanding that the number of the shares or interests is not specified thereby.
An unlimited company is one in which the liability of the members to contribute to the
assets of the company on winding up is not limited in any way; it places no limit on the
liability of its members
Every present and past member is generally liable to contribute to the assets
of the company an amount sufficient for the payment of its debts and liabilities
An unlimited company may have a share capital but the existence of such capital does
not delimit its members’ liability
However, given the risk of limitless exposure, it is not surprising that unlimited
companies are in fact very rare
While there is no commercial reason why anyone would want to incorporate an
unlimited company, people incorporate unlimited companies in order to comply with
legislation or the rules of some body
E.g. an unlimited company may be granted a license to provide architectural
services whereas a limited company may be granted a license to provide
architectural services only if its paid up capital exceeds S$1 million
Unlimited companies are able to change its status by re-registering as a limited
company, and vice versa, but such conversion may only occur once
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Restricts the right to transfer its shares; and
Exists in many forms such as discretion vested in the board of directors
to refuse to register a proposed transfer of shares, outright prohibitions
subject to approval of named persons, or moratoriums prohibiting any
disposal of interests in the shares for a period of time, or pre-emption
rights which usually confer on other shareholders a first right of refusal
to acquire the transferor’s shares on a pro rata basis
If there is no express restriction, then it is deemed to have done so by
prohibiting a transfer of shared except to a person approved by the
directors of the company
Transfer of shares can also be restricted by providing a pre-emptive
right: e.g. if you want to sell your shares, you have to offer to sell to the
shareholders internally first and hence what the outsiders get is a
smaller stake which is very unattractive
Limits to not more than 50 the number of its members
Joint holders are counted as a single member and members who are
employees of the company or its subsidiary are not counted
Private companies are required to distinguish itself by incorporating the word “Private”
into its name and the certificate of incorporation of a company will state whether it is a
private company’
Private companies will have PTE LTD at the back
COMPANIES ACT
Cap 50, 2006 Rev Ed
Private company
18.—(1) A company having a share capital may be incorporated as a private company if its
constitution
(a) restricts the right to transfer its shares; and
(b) limits to not more than 50 the number of its members (counting joint holders of
shares as one person and not counting any person in the employment of the
company or of its subsidiary or any person who while previously in the
employment of the company or of its subsidiary was and thereafter has
continued to be a member of the company).
Private companies are given more latitude in dispensing with formalities and in
managing or arranging its affairs
o For a meeting at which a special resolution is proposed to be passed, a private
company only needs to give 14 days’ written notice as opposed to 21 days’ for
public companies
Unlike public companies, private companies may dispense with holding annual general
meetings
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Private companies are not required to appoint a professionally qualified person as its
company secretary
A statutory meeting within a period of not less than one month and not more than three
months after the date on which the company is entitled to commence business
Purpose of meeting is to apprise shareholders of important information on the
company’s information
A company secretary who meets the qualifications identified by the CA must also be
appointed
It should not be assumed that all public companies are listed companies. In addition, as only
a public company may offer shares to the public and seek listing on a stock exchange (no
restrictions of transfer of shares), it does mean that all listed companies are necessarily public
companies. However, there is no reason why a public company may not choose to operate
as an unlisted company (e.g. companies limited by guarantee do not have a share capital,
and thus cannot be listed on the stock exchange; companies which are venture capital
companies or involved in the leisure industry).
A private company can be converted into a public company and vice versa, and this
conversion does not affect either the identity or the obligations of the company. This
conversion can be done either voluntarily or involuntarily. The Registrar of Companies may
declare that a company has ceased to be a private company in any of the following situations:
To reflect the need to take into account the interests of a broader group of stakeholders in
deciding the relevance of or necessity for audit, section 205C of the Companies Act was
amended to exempt a company from audit in respect of a financial year in which it qualifies
as a small company.’
Section 205C(5) read with para 2 of the Thirteenth Schedule to the Companies Act states that
a company is a small company from a particular financial year if:
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(i) the revenue of the company for each financial year does not exceed $10
million;
(ii) the value of the company’s total assets at the end of each financial year does
not exceed $10 million;
(iii) it has at the end of each financial year not more than 50 employees.
Para 5 of the Thirteenth Schedule states that a company ceases to qualify as a small company
from a financial year if:
(a) it ceases to be a private company at any time during the financial year; or
(b) it does not satisfy any 2 of the following criteria for each of the 2 consecutive financial
years immediately preceding the financial year:
(i) the revenue of the company for each financial year does not exceed $10
million;
(ii) the value of the company’s total assets at the end of each financial year does
not exceed $10 million;
(iii) it has at the end of each financial year not more than 50 employees.
Neither a parent company nor a subsidiary company that qualifies as a small company is
exempted from audit unless the company is also a member of a small group. As per Section
205C(5) read with para 7 of the Thirteenth Schedule to the Companies Act, a group of entities
constitutes a “small group” from a financial year if the group meets the criteria of a small
company on a consolidated basis, but it ceases to qualify when it fails to satisfy those criteria
for two consecutive financial years.
*Note: This new regime for audit exemption is only applicable in respect of a financial year
commencing on or after 1 July 2015.
While it is likely that many private companies will qualify both as small companies and exempt
private companies, these two regimes are clearly distinct.
Audit exemption is currently available only under the small company and small group
regime
Exempt private company status confers limited privileges as regards financial
arrangements with directors and disclosure of financial information
As per section 4(1) of the Companies Act, an exempt private company is:
(a) a private company in the shares of which no beneficial interest is held directly or
indirectly by any corporation and which has not more than 20 members; or
(b) any private company, being a private company that is wholly owned by the
Government, which the Minister, in the national interest, declares by notification in
the Gazette to be an exempt private company.
If you start a company, you automatically qualify as an EPC as long as you have
under 20 members – not something that you have to apply for
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A solvent exempt private company is not required to file any financial statements with
its annual return
Exempt private companies are not restricted by sections 162 and 163 of the CA from
providing loans or other financial assistance to directors and director-related
companies
In conclusion, exempt private companies enjoy more flexibility in the management of
their financial affairs (greater flexibility in loans)
Note: Repealed section 205C of the Companies Act (applies before 1 July 2015) was for the
provision of an exempt private company to be exempted from audit requirements.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Exempt private company exempt from audit requirements (repealed)
205C.—(1) An exempt private company shall be exempt from audit requirements in respect
of a financial year if its revenue in that year does not exceed the prescribed amount
(2) For a period which is an exempt private company’s financial year but is less than 12
calendar months, the prescribed amount shall be proportionately adjusted.
(1) For the purposes of section 205C of the Act, the prescribed amount is $5 million
As provided by section 5(1) of the Companies Act, one company (A) is a subsidiary of another
company (B) if:
Section 5A of the Companies Act defines a corporation as the ultimate holding company of
another corporation if:
Section 5B of the Companies Act states that a corporation is a wholly owned subsidiary of
another corporation if it does not have any member which is not its holding company, a
subsidiary wholly controlled by the holding company, or their respective nominees.
Section 6 of the Companies Act further provides that one company (X) is related to another
company (Y) if:
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In terms of accounting consequence, the application of section 201(5) of the Companies Act
requires the directors of a parent company to present to shareholders the group’s consolidated
financial statements at its annual general meeting (section 209A makes it clear that “parent
company”, “subsidiary company” and “group” are to be interpreted by reference to the
accounting standards).
Although both regimes utilize the concept of “control” to determine whether a holding
and subsidiary relationship exists, the approach of CA is more formalistic (focus only
on board and voting control)
Accounting standards measure control by a broader and more qualitative assessment
of the extent to which a company is able to affect the variable returns that it derives
from its involvement in another company
*Note: As per Section 21 of the Companies Act, a subsidiary is not permitted to hold shares
in its holding company. The rationale is to pre-empt the formation of corporate groups with
complex interlocking shareholding structures.
Example: Subsidiary becomes a shareholder of the holding company and the board
of the subsidiary exercises voting power and if the board exercises these votes which
will impact their interest in the subsidiary, then there will be a conflict of interests
when the board of the subsidiary also exercises voting power in the holding company
as they can do things that might benefit them
The broad definition of a foreign company can be found in section 4(1) of the
Companies Act
A foreign company that establishes a place of business or carries on business in
Singapore, or which intends to do so, has to comply with the regulations set out in
Division 2 of Part XI of the Companies Act
Foreign companies are required to register with the Registrar under section 368(1)
before it establishes a place of business or commences to carry on business in
Singapore
To facilitate communications and service of documents, a foreign company must have
a registered office in Singapore that is open and accessible to the public for at least
five hours each business day, and must appoint at least one authorized
representative who is a natural person resident in Singapore and who is authorized
to accept on its behalf service of process or other notices served on the company
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may influence the management of those rights and liabilities through the exercise of their votes
at company meetings.
As the company was duly incorporated, it is an independent person with its rights
and liabilities appropriate to itself, and that "the motives of those who took part in the
promotion of the company are absolutely irrelevant in discussing what those rights
and liabilities are"
o The contract of transfer of business was valid;
In order to form a company limited by shares, the Act requires that a
memorandum of association should be signed by seven persons,
who are each to take one share at least
o The company could borrow from its members; and
o The members were not liable for company’s debts
The company is not an agent or trustee for its members
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A member’s control over company does not raise the inference that company and
its members are one entity
Lord Macnaghten: The fact that Mr. Salomon raised 5000l. for the company on
debentures that belonged to him seems to me strong evidence of his good faith and
of his confidence in the company. The unsecured creditors of A. Salomon and
Company, Limited, may be entitled to sympathy, but they have only themselves to
blame for their misfortunes. They trusted the company, I suppose, because they had
long dealt with Mr. Salomon, and he had always paid his way; but they had full notice
that they were no longer dealing with an individual, and they must be taken to have
been cognisant of the memorandum and of the articles of association.
Lord Halsbury LC: I can only find the true intent and meaning of the Act from the
Act itself; and the Act appears to me to give a company a legal existence with, as I
have said, rights and liabilities of its own, whatever may have been the ideas or
schemes of those who brought it into existence.
The key consequences that flow from a company’s status as a separate person can be found
in Section 19(5) of the Companies’ Act. Simply put, the provision makes it clear that a company
may exercise all the functions of a legal person, bring and defend legal actions, and have
perpetual succession as well as the capacity to own land.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Effect of incorporation
19.—(5) On and from the date of incorporation specified in the notice issued under
subsection (4) but subject to this Act, the subscribers to the constitution together with such
other persons as may from time to time become members of the company shall be a body
corporate by the name contained in the constitution capable immediately of exercising all
the functions of an incorporated company and of suing and being sued and having
perpetual succession and a common seal with power to hold land but with such liability
on the part of the members to contribute to the assets of the company in the event of its
being wound up as is provided by this Act.
Note: Section 2 of Interpretation Acts defines “person” and “party” to include any company or
association or body of persons, corporate or unincorporate.
A company is endowed with the “full capacity to carry on or undertake any business or
activity, do any act or enter into any transaction”
Thus, it may undertake such business or activities as it wishes, and form legal
relationships relating to such activities (i.e. formation of contracts)
Catherine Lee v Lee’s Air Farming Ltd [1961] AC 12
Facts
Lee, the appellant’s late husband, had formed the respondent company
to carry on his business of spreading fertilizers on farmland from the air.
Page 10 of 153
He held 2,999 of its 3.000 shares, and by its articles of association
appointed sole governing director and employed at its salary as its chief
pilot. He was killed in an aircraft crash while flying for the company and
if he was a ‘worker’ then his widow was entitled to be paid compensation
under the Worker’s Compensation Act 1922 (NZ).
Mrs Lee appealed successfully against the ruling of the COA of NZ that
Lee could not be a ‘worker’ when he was in effect also the employer.
Judgement
Held that the company was a legal entity separate from its controllers,
and there was no reason why the company could not contract with its
controlling shareholder and governing director
In the Lordship’s view it is a logical consequence of the decision in
Saloman’s case that one person may function in dual capacities. There
is no reason, therefore, to deny the possibility of a contractual
relationship being created as between the deceased and the company.
A company’s business and property are those of its own, and its members have no
direct interest in such business or property
As a company’s business is distinguished from those of its shareholders, it is the
company, rather than the shareholder that sues for defamation when its trade or
business is libeled or slandered (Metropolitan Saloon Omnibus Co Ltd v Hawkins)
A company’s shareholders have neither legal nor beneficial interests in the company’s
property (Macaura v Northern Assurance Co Ltd)
Facts
Macaura sold the whole of the timber on the estate to a company, Irish
Canadian Sawmills Ltd, in consideration of the allotment to him of
42,000 fully paid shares. All the company’s shares were held by
Macaura and his nominees, and he was also an unsecured creditor of
the company. The timber was destroyed in a fire. A claim brought by
Macaura on the policies was disallowed on the ground that he had no
insurable interest in the timber.
Judgement
Held that the plaintiff could not sue the insurance companies to recover
his loss as he had no insurable interest in the timber
As explained by Lord Buckmaster: No shareholder has any right to
any item of property owned by the company, for he has no legal or
equitable interest therein. He is entitled to a share in the profits while
the company continues to carry on business and a share in the
distribution of surplus assets when the company is wound up
Applied by Singapore Court of Appeal in Beckkett Pte Ltd v Deutsche
Bank AG
Judgement
o The COA held that Beckkett had no standing to set aside
the sale of those shares. While there was no doubt that
Beckkett, being the company of Asminco, had
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“commercial interest in the Adaro and IBT shares, and
the Asminco was in truth no more than “a corporate
vehicle used to hold the Adaro Shares and the IBT
Shares”, the fact remained that Beckkett and Asminco
were two separate entities, and the affected shares were
the property of Asminco, not Beckkett.
When a company owns a legal right, it is the only person who is entitled to bring
legal proceedings to enforce that right (if a wrong is done against the company)
The “proper plaintiff rule” or “the rule in Foss v Harbottle” states that the shareholders
of the company have no standing to bring about an action
Facts
Two shareholders in the Victoria Park Company brought an action
against the company’s directors and some other persons. They alleged
that the property of the company had been misapplied or improperly
used
Judgement
The court held that the injury complained of was an injury to the
company. In law, the company and its members were not the same.
Therefore, the members could not maintain such a suit. It was for the
company to sue.
However, this general rule is now subject to common law as well as statutory
exceptions that have been developed to remedy that injustice that could result
from a strict adherence to the rule
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3.2.5 LIMITED LIABILITY
The effect of registering a company with limited liability is to shield its members, rather
than the company itself, from unlimited liability
For a company limited by shares, the liability is limited by the amount that they
have agreed to pay on subscribing for the company’s shares
For a company limited by guarantee, the liability of its members is limited to the
specific amount they have agreed to contribute (usually nominal) in the event that
the company is wound up
The original impetus for permitting companies with limited liability was to encourage
enterprise
Trend is to increase rather than limit the types of business vehicles with limited
liability
Rule may operate unfairly against creditors by shifting a portion of default risks to them
In Atlas Maritime Co SA v Avalon Maritime Ltd, The Coral Rose (No 1), Staughton LJ
distinguished between veil “piercing” and “lifting”:
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To pierce the corporate view is an expression I would reserve for treating the rights and
liabilities or activities of a company as the rights or liabilities of its shareholders. To lift
the corporate veil or look behind it, on the other hand, should mean to have regard to
the shareholding in a company for some legal purpose.
*Note: Exceptions to the separate entity rule may arise under statute or at common law
4.1 STATUTE
Page 14 of 153
The jurisdiction has generally been constructed by the liberal use of broad
concepts and metaphors that provide, by their negative undertones, a
semblance of sound reason for departing from the Salomon principle
It is ultimately the policy underlying a particular legal rule that determines
whether a company should be regarded as the same or distinct from its
controllers for the purposes of that rule, and this muddled “doctrine” has come
to be understood more generally as an assemblage of all case or situations
where the company is not treated as an entity separate from its members for
one reason or another
Murky relationship that doctrine bears to other more established legal principles
such as agency and trusts
In Singapore, the courts appear to have accepted four grounds of “abuse of the
corporate form”, viz, that the company has been used
(a) To evade an existing legal obligation
(b) As a mere “sham”, “façade” or “device”;
(c) To perpetrate fraud; or
(d) As an extension or alter ego of its controller
In keeping with the restrictive approach, “abuse” is necessarily a narrow concept, and
thus courts would not pierce the corporate veil merely because it is in the “interests of
justice” to do so
It has been suggested that threshold conditions required for invoking the
jurisdiction are that a person (or persons) who controls a company has
engaged in some impropriety and utilizes the company to conceal such
impropriety
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owned and controlled (directly or through intermediate entities) by the
husband
Judgement
Piercing the corporate veil: is an expression that means disregarding
the separate personality of the company – exceptions to the rule set out
in the case of Saloman
The Concealment Principle: does not involve piercing the corporate
veil at all – the court is not disregarding the “facade”, but only looking
behind it to discover the facts which the corporate structure is
concealing
The Evasion Principle: the court may disregard the corporate veil if
there is a legal right against the person in control of it which exists
independently of the company’s involvement, and a company is
interposed so that the separate legal personality of the company will
defeat the right or frustrate its enforcement
Lord Neuberger: agreed with Lord Sumption’s formulation that the
doctrine should only be invoked where “a person is under an existing
legal obligation or liability or subject to an existing legal restriction which
he deliberately evades or whose enforcement he deliberately frustrates
by interposing a company under his control”. The court may then pierce
the corporate veil for the purpose, and only for the purpose, of depriving
the company or its controller of the advantage that they would otherwise
have obtained by the company’s separate legal personality.
The principle is properly described as a limited one, because in
almost every case where the test is satisfied, the facts will in
practice disclose a legal relationship between the company and
its controller which will make it unnecessary to pierce the
corporate veil.
In Singapore, the suggestion that the corporate veil may be “pierced” to prevent a
person from evading a prior legal obligation or restriction has been endorsed on a
number of occasions, but it was not actually applied
Seems to appear that the principle forms part of the law, but is one that is
vulnerable to challenge
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Narrow doctrine may be invoked when the entire purpose of setting up the company
is because of fraud and hence the company was only a sham and a facade (very
setting up of the company itself is fraudulent, no other purpose other than to commit
that particular crime)
To establish this, there has to be an intention to commit the wrong – difficult
case to prove
Case of Asteroid Maritime Co Ltd v Owners of the Ship or Vessel “Saudi Al Jubail”
(“The Saudi Al Jubail)
Facts
One Mohammed Orrri (“Orri”) owned and operated a group of
companies (“the Orri Group”). The plaintiffs were the owners of the
vessel Fidelity, which was chartered to Cargo Carries Co Ltd (“CCC”).
When CCC defaulted on the payments due under the charterparty, the
plaintiffs arrested the Saudi Al Jubail to recover the outstanding
damages.
The Saudi Al Jubail was initially purchased by Omega Shipping Co
Ltd (“OSC”), but then purportedly transferred to Saudi Al Jubail
Navigation Co Ltd (“SAJ”). All three companies, CCC, OSC and SAJ,
were purportedly members of the Orri Group. However, it turned out
that CCC and SAJ did not actually exist, although OSC was
incorporated in Malta.
Judgement
At [24], the court found that “[OSC and SAJ] were mere corporate
names which Orri had abused and used as a cover for his own trading
and shipowning activities and that he was the beneficial owner of the
vessel at the time the Writ herein was filed.”
4.5 FRAUD
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hold H and TTM jointly liable for CML’s contractual
breach
Judgement
While it was observed that the first two appellants (CML and
TTM) “were no more than corporate puppets compliantly
dancing to the tune of the third appellant (H)”, it was also noted
that the third appellant’s lack of bona fides in staging the event,
and the misrepresentations he made to induce the respondent’s
agreement, were by themselves ample reasons for imposing
personal liability on the third appellant
This hints that the presence of fraud or dishonesty is a sufficient
reason for lifting the corporate veil
o Controller was personally liable because he had used
the companies for fraudulent or dishonest ends
So far as the position in Singapore is concerned, Children’s Media cannot be taken as
having finally settled the question of whether the corporate veil doctrine could be
applied to circumvent the privity of contract rule
Main objection to such a development lies in the consensual nature of contracts
Hence, the reference to evasion of liability was obscure, for this was not a case
where H had himself incurred a liability and interposed CML and TTM to evade
his liability, but one where the liability had been incurred by CML from the start.
Hence, H had no personal liability to begin with and no liability to evade, but
had simply procured CML to breach its contractual liability
Corporate veil may be lifted when a person has used a company as his “alter ego” or
as a “mere extension” of himself
When you use the company as a tool to commit a wrongdoing
NEC Asia Pte Lyd v Picket & Rail Asia Pacific Pte Ltd and endorsed in Alwie Handoyo
v Tjong Very Sumito: Test for deciding whether a company has been used as such is
to ask whether the company is in fact carrying on the business of its controller
Finding is one of fact and such conduct is typically evidenced by the habitual
failure to observe corporate formalities and governance rules, and/or
improper mixing of company with personal assets
Tjong Very Sumito v Chan Sing En: It was held (at first instance) that a controller was
a company’s alter ego and therefore personally accountable for its liabilities for
conversion and unjust enrichment to the plaintiffs
Factors considered were: (a) controller had absolute control over company;
(b) sums paid to company as named recipient were in fact beneficially
received by controller; (c) controller had used sums standing to the
company’s account for his personal purposes; and (d) the company, though
a named defendant to the suit, had not filed an independent defence but had
spoken entirely through the controller as its mouthpiece
Controller had used the company as an “extension” of himself and he had
“made no distinction between himself and the company”
Holding was ultimately inconsequential as the company was later found to be
liable to the plaintiffs neither in conversion nor unjust enrichment
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Alternative understanding of the alter ego exception is that it is not an independent
ground for lifting the veil but merely a species of “implied agency”
If the relevant evidence exist that is able to show that the company and its
controller have consented to create an agency relationship, the controller would
be bound (as principal) by the acts of the company (as agent) – this does not
interfere with the ordinary incidents of the separate entity rule
Are you trying to attribute some sort of wrongdoing to the shareholder? How
do we make the shareholder liable? Do we have to pierce the veil or can we
say that the company is doing this for the shareholder? (Could just be an
agency relationship)
However, in order to establish that there will be an agency relationship
you need to fulfil the necessary elements such as mutual consensus
between parties
Common law principles as well as Companies Act provisions were largely formulated
with the single entity in mind, but larger businesses today are commonly carried on
by a group of companies rather than a single entity
Risk of unfairly disadvantaging third parties (who will have no recourse against the
parent or any of the group companies when the contracting member defaults on its
obligations) has prompted some to suggest that company law should seek to regulate
a corporate group as a single entity
This is so as to reflect the reality that the group is functioning not merely as a
collection of individual units but as an economic whole
One facet of such an approach would be to allow our courts the discretion to lift the
veils of group companies and treat two or more such companies as a single entity
However, this line of reasoning has had no enduring impact in England, and
has never been accepted in Singapore
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DHN Food Distributors Ltd v Tower Hamlets London Borough Council
[1976] 3 All ER 462
Exceptional case that allowed for piercing of the corporate veils of group companies
Facts
The council in 1970 compulsorily acquired the premises and as a result DHN had to close
down its business. Substantial compensation for disturbance could be claimed by DHN
only if it had an interest in land greater than that of a bare licensee.
Held
It was found that it was appropriate to pierce the corporate veils to treat the group as a
single economic entity for the purpose of allowing DHN’s claim as the parent company
and two of its wholly owned subsidiaries had “complete identity of commercial interest and
personality”, manifested by the fact that they had common directors, common ultimate
shareholders, as well as a common interest in maintaining the business on the
acquired land.
Notes
However, facts of DHN were exceptional in that the corporate veils there were
pierced to enable a company to obtain a statutory benefit which it could have been
entitled to but for the technical omission to restructure the ownership of the land
prior to its acquisition; not a case where the corporate veil was pierced to impose
on the parent company liability for obligations first assumed by the subsidiary
Subsequent cases distinguished DHN and declined to treat it as authority for the
more general proposition that the separate legal status of group companies may
be ignored whenever there is unity of control and economic interests
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Issues to consider: Imposing liability on the parent company as
they have the corporate entity and have access to everything
hence giving them the upper hand as compared to the victims
of torts (unequal bargaining power)
o Should the corporate veil be pierced if justice requires it
to be done? No such exception
In Singapore, there is no special discretion for displacing the separate entity rule in a
group context, even if the companies within a group are organized as a single
economic unit
Position is no different even if the subsidiary was set up with the specific
intention to avoid potential future liabilities
A fortiori, the “single economic entity” argument must fail if the companies
concerned, despite having common economic interests, are not connected by
common shareholders or directors
5.1 AGENCY
5.2 TORT
A shareholder acting for or in association with a company may incur personal tortious
liability for its activities
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If the shareholder commits a tort together with the company, they are jointly liable for
the same tort
A shareholder-cum-director also commits a tort if he authorizes, directs or procures a
company to commit a tort
If a shareholder commits a tort whist acting as the company’s agent, he is not exempt
from personal liability even if the company is liable as principal for the same tort
Chandler v Cape plc: Held that a parent company may also owe a duty of care to third
parties dealing with its subsidiaries in exceptional circumstances
5.3 CONTRACT
5.4 TRUSTS
A company may also hold property on trust for the controller, but the general rule is
that a company’s property is its own, and a shareholder has no direct or beneficial
interests in such property even if it has complete shareholding control over the
company
Mere fact of control does not give rise to a trust relationship between a company and
its controller; the usual elements of intention and certainty have to be established
COMPANIES ACT
Cap 50, 2006 Rev Ed
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(c) signs, issues or authorises to be signed or issued on behalf of the company any bill
of exchange, promissory note, cheque or other negotiable instrument or any
indorsement, order, receipt or letter of credit wherein its name is not so mentioned,
he shall be guilty of an offence, and where he has signed, issued or authorised to be signed
or issued on behalf of the company any bill of exchange, promissory note or other negotiable
instrument or any indorsement thereon or order wherein that name is not so mentioned, he
shall in addition be liable to the holder of the instrument or order for the amount due thereon
unless it is paid by the company.
Directors
145.—(10) If a company carries on business without having at least one director who is
ordinarily resident in Singapore for more than 6 months, a person who, for the whole or any
part of the period that it so carries on business after those 6 months —
(a) is a member of the company; and
(b) knows that it is carrying on business in that manner,
shall be liable for the payment of all the debts of the company contracted during the period
or, as the case may be, that part of it, and may be sued therefor.
Liability where proper accounts not kept
339.—(3) If, in the course of the winding up of a company or in any proceedings against a
company, it appears that an officer of the company who was knowingly a party to the
contracting of a debt had, at the time the debt was contracted, no reasonable or probable
ground of expectation, after taking into consideration the other liabilities, if any, of the
company at the time of the company being able to pay the debt, the officer shall be guilty of
an offence and shall be liable on conviction to a fine not exceeding $2,000 or to
imprisonment for a term not exceeding 3 months.
Responsibility for fraudulent trading
340.—(1) If, in the course of the winding up of a company or in any proceedings against a
company, it appears that any business of the company has been carried on with intent to
defraud creditors of the company or creditors of any other person or for any fraudulent
purpose, the Court, on the application of the liquidator or any creditor or contributory of the
company, may, if it thinks proper to do so, declare that any person who was knowingly a
party to the carrying on of the business in that manner shall be personally responsible,
without any limitation of liability, for all or any of the debts or other liabilities of the company
as the Court directs.
(2) Where a person has been convicted of an offence under section 339(3) in relation to the
contracting of such a debt as is referred to in that subsection, the Court, on the application
of the liquidator or any creditor or contributory of the company, may, if it thinks proper to do
so, declare that the person shall be personally responsible without any limitation of liability
for the payment of the whole or any part of that debt.
Dividends payable from profit only
403.—(2) Every director or chief executive officer of a company who wilfully pays or permits
to be paid any dividend in contravention of this section —
(b) shall also be liable to the creditors of the company for the amount of the debts due
by the company to them respectively to the extent by which the dividends so paid
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have exceeded the profits and such amount may be recovered by the creditors or
the liquidator suing on behalf of the creditors.
6. INCORPORATION PROCESS
The Companies Act is the primary legislation that regulates a company’s formation and its
legal capacity. According to section 4(1) of the Companies Act, “company” is defined to mean
only “a company incorporated pursuant to this Act or pursuant to any corresponding previous
written law”.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Formation of Companies
17.—(3) No company, association or partnership consisting of more than 20 persons shall
be formed for the purpose of carrying on any business that has for its object the acquisition
of gain by the company, association or partnership, or by the individual members thereof,
unless it is registered as a company under this Act, or is formed in pursuance of some other
written law in Singapore or letters patent.
While no penalty is expressly stated for the contravention of this prohibition, but a person who
contravenes may be liable under the Companies Act’s general penalty provision. At common
law, an association that has carried on business in contravention of section 17(3) of the
Companies Act is illegal and may not therefore sue or be sued by its members.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Names of companies
27.—(1) Except with the consent of the Minister or as provided in subsection (1B), the
Registrar must refuse to register a company under this Act under a name which, in the
opinion of the Registrar —
(a) is undesirable;
(b) is identical to the name of any other company, limited liability partnership, limited
partnership or corporation or to any registered business name;
(c) is identical to a name reserved under subsection (12B) or section 378(15), section
16 of the Business Names Registration Act 2014, section 19(4) of the Limited
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Liability Partnerships Act (Cap. 163A) or section 17(4) of the Limited Partnerships
Act (Cap. 163B); or
(d) is a name of a kind that the Minister has directed the Registrar not to accept for
registration.
Once a proposed company name has been reserved, a person may proceed to register
the company by lodging with the Registrar:
Constitution of the proposed company
The form of incorporation
The prescribed fee; and
A declaration made in compliance with section 19(2) of the Companies Act
A company must have at least one member (section 20A) and one director (section
145(1)) who is ordinarily resident in Singapore
Director must be a natural person who has attained the age of 18 years
If company only has one member, the sole member may also be the sole
director of the company
A person who has agreed to subscribe for shares in a company is deemed to
be a member of the company and his name shall be entered into the company’s
register
A certificate or notice of incorporation is conclusive evidence that all requirements
precedent to registration have been complied with, and that the company in question
is duly incorporated under the Companies Act
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7. PROMOTERS
A promoter has the power of defining how, and when, and in what shape, and under
what supervision, it shall start into existence and begin to act as a trading corporation
To guard against the risk of abuse of such powers to the detriment of the company
being formed, the law imposes on the promoter the obligations of a fiduciary
An extension of agency or trust principles
A promoter is obliged to act in good faith in the company’s interests
Must not place himself in a position of conflicting interests and duties, nor make
a profit from his position without full disclosure to the company
If a promoter contract with the company without making adequate disclosure,
the contract is liable to be rescinded (Emile Erlanger v The New Sombrero
Phosphate Co)
Proscription against secret profits is not limited to the gains derived directly
from the sale of a property or an asset to the company, but extends also to
benefits arising from transactions that are ancillary to such a sale
Promoter may transact with the company he promotes and benefit from the transaction
if full disclosure is made of his interests
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Company may strip the promoter of such reward if it were not disclosed
Company may also rescind the contract against the third party vendor on the
ground of material misrepresentation or the vendor’s notice of the promoter’s
breach
If the promoter fails to disclose his interests when he is himself the vendor of the asset,
the company’s right to recover his undisclosed profit hinges on whether the asset was
first acquired by the promoter for his own account or as a fiduciary of the company
If the asset was acquired for himself initially, a failure to disclose his identity as
vendor will entitle the company to rescind the contract, limited by the usual
equitable constraints
If the asset is acquired by the promoter as agent or fiduciary for the company,
then the asset prima facie belonged to the company, and the promoter may not
profit from dealing with it except with the company’s fully informed consent
If promoter conceals his interests, the company is entitled to either
rescind the contract or seek an account of the promoter’s secret profits
Promoter’s profit is the difference between the price at which he
purchased the asset and the price at which it was sold to the company
Promoter is not entitled to any remuneration for his services unless the company has
agreed to such remuneration by way of a binding contract
The profit that he derives from the sale of an asset or business to the company or
some transaction ancillary to such sale has conventionally been the primary means by
which he is rewarded for his effort
COMPANIES ACT
Cap 50, 2006 Rev Ed
Page 27 of 153
bound by and entitled to the benefit thereof as if it had been in existence at the date of the
contract or other transaction and had been a party thereto.
(2) Prior to ratification by the company the person or persons who purported to act in the
name or on behalf of the company shall in the absence of express agreement to the
contrary be personally bound by the contract or other transaction and entitled to the
benefit thereof.
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THE COMPANY’S CONSTITUTION
1. INTRODUCTION
The constitution is a document or a set of documents that sets out the basic structure
by which a company is organised
Which is basically a set of fundamental rules
As the constitution is hard to change, it benefits the minority and protects their
rights
Traditionally, a company’s constitution comprised two separate documents that served
different functions
Memorandum of association
Defines the company’s essential features (i.e. name, capital structure,
member’s liability and objects)
Articles of association
Regulates the relationship between the company and its members, as
well as that among members
However, Companies (Amendment) Act 2014 introduced the replacement of the
memorandum and articles of association with a single-document constitution (with
effect from 3 Jan 2016)
Companies incorporated on or after the effective date of the amendment (3 Jan
2016) are required to adopt constitutions in the form of a single document
Companies incorporated prior to the date may continue to be regulated by the
memorandum and articles of association
2. DEFINITION
COMPANIES ACT
Cap 50, 2006 Rev Ed
Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“constitution”, in relation to a company, means —
the constitution of the company which is registered with the Registrar under section
19, as may be amended from time to time; and
in the case of a company incorporated before the date of commencement of section
3 of the Companies (Amendment) Act 2014, the memorandum of association of the
company, the articles of association of the company, or both, in force immediately
before that date;
Companies Act does not mandate companies existing prior to the Effective Date to
replace their memoranda and articles of association with the new-styled constitution
Vast majority of companies will likely continue to rely on registered memoranda
and articles of association as their constitutional documents
Therefore, there is a need for the two-limb definition found in the Companies
Act
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As the difference between the two forms of constitution is largely one of form, no
practical or legal difficulty is anticipated by the co-existence of the forms of the
constitution
The historical distinction between the memorandum and the articles of association lay in their
different functions.
Provisions of the memorandum would take precedence over those in the articles in so far as
they related to a matter that was statutorily mandated to be included in the memorandum.
Prior to the 2004 amendment of the Companies Act, this dominant status of the memorandum
was further fortified by the relative difficulty of amending the memorandum of association.
Distinction between the memorandum and the articles of association was substantially
eliminated when the Companies (Amendment) Act 2004 abolished the requirement to state
a company’s objects in its memorandum and introduced a general power to amend the
memorandum by special resolution.
Pared the mandatory content of the memorandum to a bare minimum and altogether
closed out the possibility of permanent entrenchment
Net result is that there is no practical difference between the legal effects of the
provisions stated in the memorandum and in the articles of association
Little justification for maintaining the memorandum as a separate document
4. SINGLE-DOCUMENT CONSTITUTION
The new single-document constitution that is in effect from 3rd January 2016 basically
contains:
1) Basic Requirements
2) Internal Regulations
3) Template Model Constitution
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4.1 PRESCRIBED CONTENT
The required content of a single-document constitution is set out in section 22(1) of the
Companies Act.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Requirements as to constitution
22.—(1) The constitution of every company shall comply with such requirements as may be
prescribed, shall be dated and shall state, in addition to other requirements —
Internal regulations refer to regulations that companies are required to adopt in its constitution
to govern its internal affairs.
Regulations are subject only to the Companies Act and relevant common law
principles
Typically, these regulations from the bulk of the constitution’s content, for example:
Shares – issue and transfer
Appointment and removal of directors
Powers of directors
Board and shareholder meeting procedures
Distribution and/or capitalisation of profits
Distribution of surplus assets on liquidation
Any other matters included by shareholders
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Prior to the 2014 amendments, there was a “default” set of articles set out in Table A of the
Fourth Schedule to the Companies Act which could be adopted by companies as its articles,
though it was not obliged to do so.
Since the 2014 amendments, Table A has been replaced by the model constitutions
prescribed by the Minister pursuant to section 36(1) of the Companies Act. Given the complex
and diverse operations of public companies in Singapore, the Steering Committee for the
Review of the Companies Act took the view that it would not be useful to prescribe a standard
constitution for them. Hence, the model constitutions prescribed under section 36(1) apply
only to private companies and companies limited by guarantee.
The provision, section 39(1) of the Companies Act, is generally understood to have the effect
of creating a contract between the company and all its members, and between the members
inter se.
This confers upon a member the personal right to bring an action to enforce a
regulation of the constitution, or to restrain its breach
That the constitution is a contract between members also means that one member
may institute legal actions directly against another member without joining the
company as a party
But however, do note that a member’s right to enforce a provision of the constitution is
subject to a number of restrictions
Just because something is found in the constitution does not mean that it can
automatically be enforced by a member
A company’s constitution is binding only on persons who are parties to it (generally the
members who have subscribed to it by acquiring shares in the company).
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solicitor. The company did so employ him for a period of time but subsequently terminated
the appointment. Plaintiff then brought an action against the company for breach of contract.
Issue
Whether the plaintiff could bring forward an action against the company
Held
The rule of privity is generally straightforward for cases such as Malayan Building Ltd v Raffles
Hotel Ltd, where a “pure” outsider who holds neither shares nor office in the company has no
standing to enforce the contract between the lessee and its members.
However, this principle has also been extended to bar a member’s enforcement of a
provision in the company’s constitution that is said to concern a non-member or an
outsider right. This is the qua-member rule that was laid down in Hickman v Kent or Romney
Marsh Sheep-Breeders’ Association:
Facts
o The defendant association was incorporated as a non-profit making company.
Article 49 pf its articles of association provided that disputes between the
association and any of its members should be referred to arbitration. Hickman,
a member, brought this action complaining of various irregularities in the affairs
of the association, including the refusal to register his sheep in his published
flock book, and a threat to expel him from membership. The association was
granted a stay of proceedings.
Judgement
o An outsider to whom rights purport to be given by the articles in his capacity as
such outsider, whether he is or subsequently becomes a member, cannot sue
on those articles treating them as contracts between himself and the company
to enforce those rights
o … no right merely purporting to be given by an article to a person, whether a
member or not, in a capacity other than that of a member, as for instance,
as solicitor, promoter, director, can be enforced against the company
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5.2.3 RATIONALE AND DIFFICULTIES
Qua-member rule thus operates to limit the constitutional rights that a member may
enforce by way of a personal action; only those rights conferred upon him in his
capacity as a member are enforceable
This rule has been criticised as an unjustified gloss on section 39 of the
Companies Act (which expressly renders “all provisions” binding on the
company’s members
May however be justified that (at a broad level), the rule is a limit implicit
in the very nature of a company’s constitution
Drawing a distinction between member rights and outsider rights
Just because you own shares does not immediately entitle you to member
rights – you have to be a member to be able to enforce those rights
Being a director does not immediately entitle you to member rights
Authorities have had little success in drawing a bright line between member and non-member
rights, especially in cases involving member-directors. There have been two lines of authority:
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if either Salmon or Axtens dissented. The directors resolved to acquire and to
let various properties, but Salmon dissented
Judgement: The bargain made between the shareholders is contained in
articles 75 and 80 of the articles of association, and it amounts for the purpose
in hand to this, that the directors should manage the business; and the
company, therefore, are not to manage the business unless there is provision
to that effect. A shareholder may always enforce the articles because he has
in common with all other members, the right to have the articles observed
Directors and other officers of the company can enforce a term of the constitution by entering
into personal contracts with the company, be it oral or in writing.
An extrinsic contract may incorporate the terms of the constitution either by express
reference or by implication. Whether a term is so incorporated is determined by looking at
all the documents as a whole.
Chee Kheong Mah Chaly v Liquidators of Baring Futures (Singapore) Pte Ltd:
Page 35 of 153
Facts
The liquidators of BFS, PLC and their related company, Bishopscourt
Ltd (BL) (‘the three companies’), instituted proceedings in London to
recover damages from D&T and C&L(S) and C&L(London) for
negligence in the discharge of their duties as auditors of BFS. A
settlement was eventually reached with C&L(S) and C&L (London)
under which part of the moneys received, amounting to some £24
million, would be set aside to enable the three companies to continue
their proceedings against D&T.
The sufficiency or otherwise of the £24 million fund set aside would
depend on whether, if D&T were to succeed in defending the BFS
action, they would be entitled to costs on the indemnity or the
standard basis.
Judgement
Indemnity clause was held to have been incorporated in the auditors’
contract as it was a term relevant to scope of the auditors’
responsibilities
However, as provided for in section 26 of the Companies Act, a company is free to amend its
constitution, but it is not always free to act upon the amendment and rely upon the altered
constitution to justify the breach of a pre-existing legal (contractual) obligation.
Gaps in the constitution may be “filled” by existing contractual principles including the
implication of terms in fact (Sembcorp Marine Ltd v PPL Holdings Pte Ltd) and the introduction
of extrinsic material (Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex
Pte Ltd). However, the introduction of extrinsic material to interpret the contract should be
limited since company constitutions are also intended for the use of outsiders who have no
access to background information.
The constitution can be viewed as a statutory contract, which differs from a normal contract in
the following ways:
Normal legal doctrines of contract such as vitiating factors do not apply to a company’s
constitution
Not all the member’s consent is needed to amend the constitution
Section 39(1) effects:
Constitution is binding and legally enforcing
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A member can be called to court when found in defiance of it. Whether
specific remedies such as specific performance is enforced is a matter
of discretion and factually inclined. Damages are, however, available
Contract between the company and the members, and between the members
themselves
Contractual status derived from section 39 and not from contractual concept of
consensus ad idem
The idea of consensus as idem can be said with respect to the incorporators
of the constitution, but this is not the case for members who join subsequently
Content subject to the provisions of the Companies Act
Relational, long term contract
Many usual rules in contract law are not applicable eg. no rescission for
misrepresentation, remedies are more limited
Alteration or amendment of its content does not require the unanimous agreement of
the members
As a result of the qua-member rule, not all obligations in the constitution are
enforceable
Under section 26(1) of the Companies Act, any clause in the constitution is prima facie
alterable by special resolution
As per section 184(1) of the Companies Act, a special resolution is one that
is passed by a three-quarter or higher majority of the votes cast at a general
meeting (75% of votes)
If the constitution of a company is altered by a special resolution, by an order of
court, or by some other document, the company has to lodge a copy of such
resolution, order or document, together with a copy of the amended
constitution, with the Registrar within 14 days after the date of the said resolution,
order or document
Failure to lodge as required may result in the imposition of penalties on both
the company and its officers
Section 39(3) of the Companies Act provides that a member is not bound by a
subsequent alteration that requires him to subscribe for more shares in the company,
or which otherwise increases his liability to contribute to the company’s share capital,
or to pay money to the company, unless he has given his written consent either before
or after the alteration
COMPANIES ACT
Cap 50, 2006 Rev Ed
As to effect of alterations on members who do not consent
39.—(3) Notwithstanding anything in the constitution of a company, no member of the
company, unless either before or after the alteration is made he agrees in writing to be
bound thereby, shall be bound by an alteration made in the constitution after the date on
which he became a member so far as the alteration requires him to take or subscribe for
more shares than the number held by him at the date on which the alteration is made or in
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any way increases his liability as at that date to contribute to the share capital of or otherwise
to pay money to the company.
As seen in section 26(1AA) of the Companies Act below, where the constitution is
altered by such resolution, such alteration is deemed to form part of the original
constitution on and from the date of the special resolution
Consistent with the common law rule that alterations to the company’s
constitution may only take prospective effect
Means that a company may not, by altering its constitution, undermine or
otherwise adversely affect any legal right or interest that has accrued under the
constitution prior to the alteration
COMPANIES ACT
Cap 50, 2006 Rev Ed
General provisions as to alteration of memorandum
26.—(1AA) Any alteration or addition made to the 5 constitution under subsection (1) shall,
subject to this Act, be deemed to form part of the original constitution on and from the date
of the special resolution or such later date as is specified in the resolution.
Russell v Northern Bank Development Corp Ltd: While a company may not contract
out of the statutory power to amend the constitution, an agreement amongst
shareholders not to vote in favour of any such amendment is nevertheless valid and
enforceable
Facts: In 1988, the board of directors proposed to make an increase of capital
to 4 million by a rights issue. Russell, an executive, objected to this and was
successful in obtaining a declaration that the agreement was binding on his
fellow shareholders (although not on the company itself)
Judgement: A company may effectively be prevented from altering its
constitution so long as those shareholders with sufficient votes to block a
special resolution are contractually bound to do so
As with other provisions of the constitution, as per section 33(1) of the Companies Act,
a company may amend its object clauses by special resolution
Company has to give at least 21 days’ written notice of the proposal to table
the resolution at a general meeting – section 33(2)
Notice has to be sent to all members of the company as well as all trustees for
debenture holders and, in the case where there is no trustee for any class of
debenture holders, to all debenture holders of that class – section 33(3)
If the resolution is passed as a special resolution, the members or debenture holders
whose interests meet or exceed the prescribed threshold may, within 21 days from the
resolution, apply to the court to cancel the alteration – section 33(5) and section 33(6)
Once an application is made, the alteration will not take effect except with the
confirmation of the court
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Special resolution may not be lodged with the Registrar until after the lapse of
21 days from the date of the resolution, but shall be so lodged within 14 days
after the expiry of the said 21 days or after the court has determined the
application
COMPANIES ACT
Cap 50, 2006 Rev Ed
Alterations of objects in constitution
33.—(1) Subject to this section, a company may by special resolution alter the provisions of
its constitution with respect to the objects of the company, if any.
(2) Where a company proposes to alter its constitution, with respect to the objects of the
company, it shall give 21 days’ written notice by post or by electronic communications in
accordance with section 387A or 387C, specifying the intention to propose the resolution
as a special resolution and to submit it for passing at a meeting of the company to be held
on a day specified in the notice.
(3) The notice shall be given to all members, and to all trustees for debenture holders and,
if there are no trustees for any class of debenture holders, to all debenture holders of that
class whose names are, at the time of the posting of the notice, known to the company.
(4) The Court may in the case of any person or class of persons for such reasons as to it
seem sufficient dispense with the notice required by subsection (2).
(5) If an application for the cancellation of an alteration is made to the Court in accordance
with this section by —
(a) the holders of not less in the aggregate than 5% of the total number of issued shares
of the company or any class of those shares or, if the company is not limited by
shares, not less than 5% of the company’s members; or
(b) the holders of not less than 5% in nominal value of the company’s debentures,
the alteration shall not have effect except so far as it is confirmed by the Court.
(5A) For the purposes of subsection (5), any of the company’s issued shares held as
treasury shares shall be disregarded.
(6) The application shall be made within 21 days after the date on which the resolution
altering the company’s objects was passed, and may be made on behalf of the persons
entitled to make the application by such one or more of their number as they appoint in
writing for the purpose.
(7) On the application, the Court —
(a) shall have regard to the rights and interests of the members of the company or of
any class of them as well as to the rights and interests of the creditors;
(b) may if it thinks fit adjourn the proceedings in order that an arrangement may be
made to the satisfaction of the Court for the purchase (otherwise than by the
company) of the interests of dissentient members;
(c) may give such directions and make such orders as it thinks expedient for facilitating
or carrying into effect any such arrangement; and
(d) may make an order cancelling the alteration or confirming the alteration either wholly
or in part and on such terms and conditions as it thinks fit.
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(8) Notwithstanding any other provision of this Act, a copy of a resolution altering the objects
of a company shall not be lodged with the Registrar before the expiration of 21 days after
the passing of the resolution, or if any application to the Court has been made, before the
application has been determined by the Court, whichever is the later.
(9) A copy of the resolution shall be lodged with the Registrar by the company within 14
days after the expiration of the 21 days referred to in subsection (8), but if an application
has been made to the Court in accordance with this section, the copy shall be lodged with
the Registrar together with a copy of the order of the Court within 14 days after the
application has been determined by the Court.
(10) On compliance by a company with subsection (9), the alteration, if any, of the objects
shall take effect.
(11) For the avoidance of doubt, a reference in this section to the alteration of any provision
of the constitution of a company or the alteration of the objects of a company includes the
removal of that provision or of all or any of those objects.
Section 39(3) of the Companies Act provides that a member is not bound by a
subsequent alteration that requires him to subscribe for more shares in the
company, or which otherwise increases his liability to contribute to the company’s
share capital, or to pay money to the company, unless he has given his written consent
either before or after the alteration
As per section 26(1B) of the Companies Act, a provision that was entrenched by the
memorandum before 1 April 2004 may only be altered by unanimous agreement of
the company’s members
This is because companies incorporated before the Effective Date may retain
their memorandum and articles of association as their constitution, this abated
form of “entrenched” provision will continue to be a feature of the constitution
to the extent that it exists in the memorandum
COMPANIES ACT
Cap 50, 2006 Rev Ed
General provisions as to alterations of constitution
26.—(1B) Notwithstanding subsection (1), a provision contained in the constitution of a
company immediately before 1st April 2004 and which could not be altered under the
provisions of this Act in force immediately before that date, may be altered only if all the
members of the company agree.
Page 40 of 153
An entrenching provision is a statutory mechanism that enables shareholders to
safeguard certain constitutional rights by setting more stringent requirements for their
alteration
An entrenching provision entrenches another provision – Provision A is
entrenched to make Provision B harder to change
A provision in the constitution that provides
That other provisions in the constitution cannot be altered in
accordance with the Act; or
That other provisions in the constitution cannot be altered
except with a majority greater that 75%; or except where other
specified conditions are met
Purpose: to entrench certain rights such as voting rights, rights to dividends,
rights as a director of the company
If an entrenched provision contained certain individual rights then it could only
be altered if that particular person agrees to its alteration
The purpose in limiting majority rule is that an entrenching provision may be
used to
this effect because it could subject the amendment of a specified provision to the
approval of minority shareholders or to the fulfilment of one or more conditions outside
the majority’s control. That it may not be removed or amended except with the approval
of all members further strengthens the minority’s position
The definition of an “entrenching provision” can be found in section 26A(4) of the
Companies Act
As per section 26(1A) of the Companies Act, section 26(1) which states that a
constitution of a company may be altered or added to by special resolution is subject
to section 26(A)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Power to entrench provisions of memorandum and articles of company
26A.—(1) An entrenching provision may —
(a) be included in the constitution with which a company is formed; and
(b) at any time be inserted in the constitution of a company only if all the members of
the company agree.
(2) An entrenching provision may be removed or altered only if all the members of the
company agree.
(3) The provisions of this Act relating to the alteration of the constitution of a company are
subject to any entrenching provision in the constitution of a company.
(4) In this section, “entrenching provision” means a provision of the constitution of a
company to the effect that other specified provisions of the constitution —
(a) may not be altered in the manner provided by this Act; or
(b) may not be so altered except —
i. by a resolution passed by a specified majority greater than 75% (the
minimum majority required by this Act for a special resolution); or
ii. where other specified conditions are met.
Page 41 of 153
In addition, a provision that satisfies the description of section 26A(4) will only qualify
as an entrenching provision for purposes of section 26A if it is included in the
company’s constitution at the time of its incorporation, or is subsequently inserted into
the constitution with the agreement of all the company’s members – section 26A(1)
An entrenching provision may be removed or altered only if all the members of the
company agree – section 26A(2)
Example of an entrenching provision:
Clause X: Party A shall have the right to appoint 3 directors for as long as it
holds not less than 35% of the company’s issued shares.
Clause Y: Provided that Party A holds not less than 35% of the Company’s
issued shares, Art X shall not be amended except with the approval of the
holders of not less than 80% of the issued shares of the Company.
Clause Y is the entrenching provision as it makes Clause X harder to
amend
Where a company is altering its constitution, the freedom to vote is constrained by the
requirement that an alteration has to be made “bona fide for the benefit of the
company as a whole”
Failing this test will invalidate an alteration even if it has been approved by a special
resolution
Rationale for constraint lies in the need to control the exercise of majority power
Page 42 of 153
The amendment was valid. Any suspicions excited by the fact that the amendment
only affected Zucanni’s executor were dispelled once it was realised that this was
because Zuccani was the only holder of paid-up shares who at the time was in arrear
of calls
The altered articles applied to all holders of fully paid shares, made no distinction
between them, and therefore the directors could not be charged with bad faith
Judgment
The power to alter a company’s articles must be exercised ‘bona fide for the benefit
of the company as a whole’. An alteration so made is valid and binding on the
members and may affect their existing rights as members. It may, however, amount
to a breach of an independent contract
The shareholders were acting in the truest and best interests of the company in
exercising the legal right to alter the articles so that the company might as one result
obtain payment of the debt due from Mr Zuccani. The shareholders were only bound
to look to the interests of the company. They were not bound to consult or consider
Mr Zuccani’s separate or private interests.’
In deciding whether an alteration is made bona fide for the company’s benefit, the court
must defer to the shareholders’ assessment
Shuttleworth v Cox Brothers & Co (Maidenhead), Ltd:
Facts
The plaintiff was a director of the defendant company on the terms of
article 18, which provided that he and others should be the first directors
of the company, that they should be permanent directors, and that each
of them should hold office so long as he should live, unless he should
become disqualified from any of the clauses specified in article 22. The
company passed an altered article by a special resolution, adding a
seventh clause: ‘If he shall be requested in writing by all the other
directors to resign his office.’ The plaintiff was then asked to leave
Judgement
The test is whether the alteration of the article was in the opinion of
the shareholders for the benefit of the company
Whether the shareholders were acting in good faith
Court may not substitute its own view for the shareholders’ since it is
the shareholders, and not the court, who are responsible for managing
the company’s affairs (less intrusive approach)
Once it is shown that the shareholders honestly believed the alteration to be in the
company’s interests, it cannot be struck down only because the court disagrees with
the shareholders’ assessment
An alteration is presumed to be valid unless there is evidence of bad faith
Peters’ American Delicacy Co Ltd v Heath: The onus of proof is on the person
challenging the alteration (this case no longer carries weight, refer to the case
of Gambotto instead
Sidebottom v Kershaw, Leese & Co, Ltd:
Facts
Page 43 of 153
The defendant company had altered its articles by introducing a
provision which gave the directors power to buy out, at a fair price, the
shareholding of any member who competed with the company’s
business. The plaintiffs, who were minority shareholders and who
carried on a competing business, unsuccessfully challenged the validity
of the alteration
Judgement
An alteration is made in bad faith if it is made with fraudulent or
malicious intent
E.g. An alteration prompted by a malicious motive would be one aimed
at injuring a minority shareholder without regard to the company’s
interests
Lord Sterndale MR: “I think, looking at the alteration broadly, that it is
for the benefit of the company that they should not be obliged to have
amongst them as members persons who are competing with them in
business, and who may get knowledge from their membership which
would enable them to compete better.”
Where an alteration is prima facie beneficial to the company, the presumption
of good faith is strengthened so that nothing short of direct evidence of bad
faith is required for its rebuttal
The mere fact that a minority shareholder would be adversely affected by the
alteration is not by itself a sufficient ground for inferring bad faith
In general, a finding of good faith on the part of the majority will dispose of any attempt
to invalidate a constitutional amendment
Test is therefore predominantly subjective as it is the shareholder’s own
view that is determinative of the issue, but is qualified by an objective
component, that the alteration will not be upheld if it is one which no
reasonable person would consider to be for the company’s benefit
Reasons for objective qualification: absence of any reasonable basis
for the majority’s view may be evidence of majority’s bad faith or the
majority, whilst acting with the best of intention, have failed to take into
account matters which they ought to have considered
In Greenhalgh v Arderne Cinemas Ltd, Lord Evershed MR reformulated the bona fide
test to address the issue as to whether the majority could, by altering the articles,
advance their own interests at the minority’s expense
Facts
The articles of the defendant provided that existing members should
have pre-emptive rights if a member wished to sell their shares. Mallard,
the managing director, had negotiated with an outsider for the sale of a
controlling interest in the company. Mallard had procured the passing
of a special resolution to give effect to this agreement. In effect, this
negated the pre-emptive rights of the existing members. One of the
latter, Greenhalgh, claimed a declaration that the resolutions were
invalid as a fraud on the minority. The COA refused a declaration
Individual Hypothetical Member Test
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“Benefit for the company” – the shareholder must proceed upon what,
in his honest opinion is for the benefit of the company as a whole
“The company as a whole” had to mean, in this context, not the
company as an entity distinct from its corporators, but the “corporators
as a general body”
Test: the case may be taken of an individual hypothetical member and
it may be asked whether what is proposed is, in the honest opinion of
those who voted in its favour, for that person’s benefit
Problems:
Far from clear who would qualify as a “hypothetical member”
o This would be problematic in a situation like Gambotto
where the case is only dealing with a very specific class
of shareholders
o If the very purpose of the alteration is targeted at a
specific person or class then the hypothetical test would
be futile
o When using this test, strip off the characteristics of
majority and minority
Even assuming that this wholly detached member exists, the
test is problematic if it effectively requires a member to vote
altruistically in another’s interests
Discrimination Test
A constitutional amendment would be impeached if its effect “were to
discriminate between the majority shareholders and the minority
shareholders, so as to give the former an advantage of which the latter
was deprived”
It is therefore not necessary to require that persons voting for a
special resolution should, so to speak, dissociate themselves
altogether from their own prospects
If the corporators think it is a fair offer and vote in favour of the
resolution, it is no ground for impeaching the resolution that they
are considering their own position as individuals
Problems:
On its face, the test appears to suggest that the mere fact that
the majority had gained at the expense of the minority would
constitute a good reason for impeaching the amendment. But
this was precisely the case in Greenhalgh, yet the amendment
was upheld. Indeed, such an approach goes against a host of
authorities, which consistently held that the mere fact that an
alteration operated to the disadvantage of particular minority
shareholders does not render the amendment mala fide
Today, a shareholder who is so aggrieved may stand a better chance of securing
redress by petitioning under section 216 of the Companies Act, which affords a broader
ground for reviewing the fairness of the majority’s actions
Page 45 of 153
6.1.5.2 COMPULSORY SHARE TRANSFERS
Page 46 of 153
Court struck out an amendment to insert a compulsory acquisition clause even though there
was evidence that the company would stand to gain over A$4m in tax and administrative
savings if the majority shareholders had complete control of the company.
Issue
Whether the bona fide test was appropriate for appraising alterations that confer powers of
expropriation
Held
Court struck out the clause and held that bona fide test was inappropriate
Judgment
Proper Purpose Test
o An alteration would only be lawful if
It is made for a proper purpose; and
It does not operate oppressively in relation to minority shareholders
First limb encapsulates the equitable principle that it is a “fraud on the power” to alter
the articles for a purpose other than that for which the power was conferred. For the
majority judges, the line between proper and improper purposes is drawn by
distinguishing between alterations that protect a company from harm and those that
positively advance its interests
o “Proper purpose” refers to securing the company from significant detriment
or harm
Does not include the advancement of the interests of the company
as a legal and commercial entity or those of the majority
Criticism: substantial commercial benefits can never be held as a
proper purpose, blurred benefit-detriment distinction, onus of proof
on majority shareholders, very stringent test, courts playing a more
interventionist role
Second limb states that alteration has to be fair in the circumstances
o Procedural fairness: company must ensure a fair process for effecting the
alteration
Disclosure of all relevant information
Presumably requires shares to be valued by an independent expert
o Substantive fairness: largely requires the acquisition to be at a fair price
Conception of shares as property
o Gambotto places greater emphasis on the proprietary nature of shares and
the need to protect this economic interest
o Peters’ American Delicacy Co Ltd v Health – rights in shares are “not
enduring and indefeasible but are liable to modification or destruction
Distinction between shares in small private companies and large
public companies
UK Company Law Review Steering Group declined to adopt the Gambotto approach
The CLR considered the possibility and drew attention to the fact that in
Gambotto the alteration of articles was undoubtedly of benefit to the company
as a whole (it stood to gain tax advantages) and the minority were to be fully
compensated
Page 47 of 153
In addition to the constraints discussed above, an alteration of the constitution may
also be invalidated pursuant to an application made under section 216 of the
Companies Act
This may be the case where a shareholder adversely affected by the alteration
is able to establish that the majority has conducted the company’s affairs in a
manner that constitutes commercial unfairness. The alteration may be
evidence of such unfair conduct if it violates a contractual or other legal
obligation to which the company or the majority shareholders are bound, or is
otherwise in breach of the minority shareholder’s “legitimate expectations”
7. SHAREHOLDERS’ AGREEMENTS
Page 48 of 153
Russell v Northern Bank Development Corp Ltd
[1992] 1 WLR 588
Shareholders Agreement
Facts
A company and its shareholders entered into a shareholders’ agreement. Clause 3 of the
agreement provided that the company would not increase its share capital except with the
consent of all parties to the contract.
Issue
Whether the clause was valid
Held
So far as the company was concerned, the clause was an unlawful attempt to oust
the company’s statutory power to amend its memorandum and increase its share
capital
As regards the shareholders, however, clause 3 was merely an agreement
concerning how they would exercise their votes in a particular situation. There is no
reason why such an agreement could not be upheld since owners of shares are, like
other property owners, free to deal with their shares (including the right to vote) in
such manner as they deem fit
Consequently, the House of Lords granted a declaration that clause 3 was valid as
between the shareholders
Judgment
While a company may not contract out of the statutory power to amend the
constitution, an agreement amongst shareholders not to vote in favour of any such
amendment is nevertheless valid and enforceable
A company may effectively be prevented from altering its constitution so long as
those shareholders with sufficient votes to block a special resolution are
contractually bound to do so
Page 49 of 153
SHARES
1. CAPITAL
1.1 MEANING
Share capital (permanent capital) refers to funds that a company raises in exchange
for issuing an ownership interest in the company in the form of shares (amount of
money put up by the subscribers to a company’s share issuance)
No fixed entitlement
Residual claimants – everything that is left over belongs to the shareholders
Shareholders thus known as the ultimate owners
Good/bad depending on how well the company does
Closer to owners than debt capital – rights are grounded on property law
Represents rights IN the company
Subject to capital maintenance rules
Rights to take out investments
If the company calls for unpaid shares, then the shareholders have to pay up
Debt capital (temporary capital) is capital raised through borrowing from a source
outside the company in exchange for issuing debentures (amount of money owed by
the company to the creditors)
Creditor has fixed entitlement to interest during period of loan
During liquidation – entitled to his principal (capital)
Rights grounded on contract
Represents rights AGAINST the company
May be secured on company’s assets
In terms of priority of claims, when a company is liquidated, creditors can claim before
shareholders. Likewise, a claim on company during its lifetime is also creditors before
shareholders
A loan relationship is documented in contract while a shareholder relationship is
documented in the Company’s Constitution.
Uncalled capital – for companies to call for when they require funds
Page 50 of 153
Reserve capital – funds that serve as a guarantee in the case that a company winds
up
Held
The appeal failed. If the New York order was in rem, then it could not affect title to
shares in the Isle of Man. If in personam, the court had a wide common law
discretion, but the action had been brought against the wrong party. However the
order was neither: ‘The purpose of bankruptcy proceedings…is not to determine or
establish the existence of rights, but to provide a mechanism of collective execution
against the property of the debtor by creditors whose rights are admitted or
established. That mechanism may vary in its details.’
The Manx court had jurisdiction to assist the committee of creditors, as appointed
representatives under the Chapter 11 order, to give effect to the plan. As there was
Page 51 of 153
no suggestion of prejudice to any creditor in the Isle of Man or local law which might
be infringed, there was no discretionary reason for withholding such assistance.
Definition of a share
In the case of fully paid shares, the question of liability does not of course arise.
So a share is the measure of the shareholder’s interest in the company: a
bundle of rights against the company and the other shareholders. As against the
outside world, that bundle of rights is an item of property, a chose in action. But
as between the shareholder and the company itself, the shareholder’s rights may
be varied or extinguished by the mechanisms provided by the articles of
association or the Companies Act.
Page 52 of 153
3. SHARE CAPITAL STRUCTURE: PAR VALUE ABOLISHED
Most significant relatively recent change to the concept of shares in Singapore was the
abolition of par (or nominal) value and of the related concept of authorized capital
These changes were made by the Companies (Amendment) Act 2005 and took effect
on 30 January 2006
Par value is the minimum price at which shares can generally be issued and it is
basically a measure of shareholder’s interest
Maintenance of capital by prohibiting companies from allotting shares at a discount
to their par value
Par value was no longer useful in performing the roles it was supposed to do and could
be a source of confusion instead
During the life of the company, the value of a share will in most cases have
lost any correspondence it might have had to the par value
Basically, this means that the par value bears no relation to the actual
value of a share
In actual fact, to determine the real value of a share, one must take the
total value of a company divided by the total number of shares (it is not
the value of the stock market as it is just the value people who ascribe
to it)
As there is no minimum prescribed for the par value in Singapore, shares
could be issued with very low par values to obviate certain restrictions imposed
by the capital maintenance rules, such as the rule against issuing shares at a
discount, and the more stringent user restrictions on nominal share capital, by
designating as share premium what would otherwise have been nominal
capital. The function of ‘par value’ as a benchmark lost much of its significance
this way
Prior to abolition, there were special rules which applied to issuing shares either at a discount
or at a premium. However, the abolition of par value for shares has brought about
consequential changes to a number of related concepts and provisions in the CA. Not only
were the rules regarding discounts and premiums abolished (subject to transitional
provisions), there was also no longer a need to distinguish between share capital and share
premium, and the concept of authorized capital as the sum total of the par values of all shares
that the company is authorized to issue could no longer be retained.
Key sections of the CA that effect the abolition are section 62A and 62B
Former section 22(1)(c) was repealed from 30 January 2006, hence there is no longer
a need for share capital to be stated in the constitution
Page 53 of 153
The power to alter share capital is dealt with in section 71 and the constitution (Articles 40
and 41 of Table A Fourth Schedule).
COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 40 – 41 of Table A
40.—(1) The company may from time to time by ordinary resolution do one or more of the
following:
(a) increase the share capital by such sum as the resolution shall prescribe;
(b) consolidate and divide all or any of its share capital;
(c) subdivide its shares or any of them, so however that in the subdivision the
proportion between the amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in the case of the share from which
the reduced share is derived;
(d) cancel the number of shares which at the date of the passing of the resolution in
that behalf have not been taken or agreed to be taken by any person or which
have been forfeited and diminish the amount of its share capital by the number
of the shares so cancelled.
41. Subject to any direction to the contrary that may be given by the company in general
meeting, all new shares shall, before issue, be offered to such persons as at the date of the
offer are entitled to receive notices from the company of general meetings in proportion, as
nearly as the circumstances admit, to the amount of the existing shares to which they are
entitled. The offer shall be made by notice specifying the number of shares offered, and
limiting a time within which the offer, if not accepted, will be deemed to be declined, and,
after the expiration of that time, or on the receipt of an intimation from the person to whom
the offer is made that he declines to accept the shares offered, the directors may dispose
of those shares in such manner as they think most beneficial to the company. The directors
may likewise so dispose of any new shares which (by reason of the ratio which the new
shares bear to shares held by persons entitled to an offer of new shares) cannot, in the
opinion of the directors, be conveniently offered under this regulation.
4. CLASSES OF SHARES
From an investor’s perspective, there will be a risk-return trade off which makes it more
attractive for investing
From a company’s perspective, it is a way of raising capital without conceiving control
Gives the company a breathing space – no need to pay dividends when they
are in trouble for a few years (especially for non-cumulative)
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Gets more money when issuing a more fanciful share by a higher issue price
(due to higher demand), and pay out lower dividends
**All down to the aim of lowering the cost of capitals
Ordinary shares are basically any share that is not a preference share: residual class
of shares
They have no legal entitlement to dividends even if there are profits as it
conflicts the idea that shareholders are residual claimants
Amount of dividends is proposed by the directors and approved by
shareholders
Ordinary shareholders are known as the residual claimants of the company
They are ranked last in terms of any distribution in a winding up
Preference share as defined in the repealed (by 2014 Act) section 4 states that in
relation to sections 5, 64 and 180, it is a share which does not entitle the holder
thereof to vote at a general meeting (except in limited circumstances) or to
participate beyond a specified amount in any distribution, whether by way of dividend,
or on redemption, in a winding up, or otherwise
Note that this definition appears somewhat at odds with conventional
understanding of preference shares as shares which confer at least some
preferential rights as to payment of dividends or return of capital in a
liquidation
The typical features of a preference share are as follows:
Fixed dividends on terms of issue of the preference shares
Fixed entitlement/promise on the condition that the company is making
profits
Priority to dividends and assets on liquidation
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A dividend is a distribution of a portion of a company's earnings,
decided by the board of directors, to a class of its shareholders
An asset is a resource with economic value that an individual,
corporation or country owns or controls with the expectation that
it will provide future benefit
Dividends are profits which a company has at that particular
time, while an asset is what the company has
Do not carry any votes (A category of preference shares)
However, it is not uncommon for preferences shares to have voting rights,
though these are commonly restricted
Preferential rights to payment of dividends and return of capital:
Entitled before ordinary shareholders get paid
On winding up: creditors > preference shareholders > ordinary
shareholders
Fixed entitlement: usually as a percentage of issue price
Contractual promise to pay a fixed dividend – safety net
Cf ordinary share, which has more potential for growth
Since dividends are payable out of profits – if there are no profits the
company does not have to pay – i.e. the promise is conditional on the
company having profits
Hybrid capital – they are shares in the legal sense but they act like bonds
Preference shares have fixed entitlements, and are sometimes treated as
debts in an economic sense
Preference share rights are set out in the constitution
COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights of holders of preference shares to be set out in constitution
75.—(1) No company shall allot any preference shares or convert any issued shares into
preference shares unless there are set out in its constitution the rights of the holders of
those shares with respect to repayment of capital, participation in surplus assets and
profits, cumulative or non-cumulative dividends, voting and priority of payment of
capital and dividend in relation to other shares or other classes of preference shares.
(2) If default is made in complying with this section the company and every officer of the
company who is in default shall be guilty of an offence and shall be liable on conviction to a
fine not exceeding $2,000.
Page 56 of 153
shares without regard to the company's earnings or profitability. A
cumulative dividend must be paid, whereas a regular dividend, also
called a non-cumulative dividend, may be paid to or withheld from
shareholders at the company's discretion
Noncumulative describes a type of preferred stock that does not pay
the stockholder any unpaid or omitted dividends. Preferred stock shares
are issued with a stated dividend rate, which may be a stated dollar
amount or a percentage of the par value. If the corporation chooses not
pay dividends in a given year, the investor does not have the right to
claim any of the unpaid dividends in the future
Participating or non-participating
Situation where shareholder may receive a cut/bonus of the company’s
profit for that year
May be on the terms that the shareholders get paid 5% of the issue
price (i.e. the amount you paid in)
But if the company does particularly well that year, the shareholder may
get an amount beyond that of 5%
‘Particularly well’ (i.e. essentially, the super profit) will be defined
in the company’s constitution
Convertible or non-convertible
Conversion to ordinary shares as ordinary shares have an indefinite life,
as compared to the finite life set of preference shares
Note: Conversion price is set at the beginning; if price of ordinary shares
go up, one is essentially buying these ordinary shares at a lower price
Redeemable or non-redeemable
Section 70 of the CA provides that a company having a share capital
may, if authorized by its articles, issue preference shares that are liable
to be redeemed
In the absence of an express distinction between the rights of different classes, the
law presumes that all shareholders rank equally
COMPANIES ACT
Cap 50, 2006 Rev Ed
Redeemable preference shares
70.—(1) Subject to this section, a company having a share capital may, if so authorized by
its constitution, issue preference shares which are, or at the option of the company are to
be, liable to be redeemed and the redemption shall be effected only on such terms
and in such manner as is provided by the constitution.
(3) The shares shall not be redeemed unless they are fully paid up.
(4) The shares shall not be redeemed out of the capital of the company unless —
(a) all the directors have made a solvency statement in relation to such redemption; and
(b) the company has lodged a copy of the statement with the Registrar.
(5) For the avoidance of doubt, shares redeemed out of proceeds of a fresh issue of shares
issued for the purpose of redemption shall not be treated as having been redeemed out of
the capital of the company.
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(6) A private company may redeem any redeemable preference shares by lodging a
prescribed notice of redemption with the Registrar.
(8) If a public company redeems any redeemable preference shares, it shall within 14 days
after doing so give notice thereof to the Registrar specifying the shares redeemed.
The requirements for the issuance of shares with different voting rights by the public
company are laid out in section 64A of the CA
A public company may only issue different classes of shares if the issue of different
classes of shares is permitted under its constitution and the rights attached to each
class of shares are set out in the constitution (section 64A(1))
While a public company may issue shares with special, limited, conditional or no
voting rights (as per section 64A(2)), it may only be issued with the approval of a
special resolution (section 64A(3))
COMPANIES ACT
Cap 50, 2006 Rev Ed
Issue of shares with different voting rights by public company
64A .—(1) Different classes of shares in a public company may be issued only if —
(a) the issue of the class or classes of shares is provided for in the constitution of
the public company; and
(b) the constitution of the public company sets out in respect of each class of
shares the rights attached to that class of shares.
(2) Without limiting subsection (1) but subject to the conditions of subsection (1)(a) and (b),
shares in a public company may —
(a) confer special, limited, or conditional voting rights; or
(b) not confer voting rights.
(3) Notwithstanding anything in subsection (1) or (2), a public company shall not undertake
any issuance of shares in the public company that confers special, limited or conditional
voting rights, or that confers no voting rights unless it is approved by the members of the
public company by special resolution.
(4) Where a public company has one or more classes of shares that confer special, limited
or conditional voting rights, or that confer no voting rights, the notice of any general meeting
required to be given to a person entitled to receive notice of the meeting must specify the
special, limited or conditional voting rights, or the absence of voting rights, in respect of
each such class of shares.
(5) This section shall not operate so as to limit or derogate from the rights of any person
under section 74.
(6) Nothing in this section shall affect the right of a private company, subject to its
constitution, to issue shares of different classes, including shares conferring special, limited
or conditional voting rights or no voting rights, as the case may be.
Page 58 of 153
A question arises as to whether public companies should be allowed to issue shares with
voting rights
The default rule for the number of votes attached to a share is 1 vote per share, but
subject to constitution
Non-voting shares must have a vote on certain matters: sections 64(4) and s
180(4)
Must vote for the benefit of the class as a whole
Deduce what the intention and the impetus was for the voting to
determine whether it really is for the benefit of the class as a whole
Bona fide for the interest of the company
Subjective – depends on who the person is
The idea of an amiable lunatic – he is kind but because he is a
lunatic it might not really be for the interests of the company
COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights and powers attaching shares
64.—(1) Subject to subsections (2) and (3), sections 21 and 76J, and any written law to the
contrary, a share in a company confers on the holder of the share the right to one vote on
a poll at a meeting of the company on any resolution.
Page 59 of 153
(2) A company’s constitution may provide that a member shall not be entitled to vote unless
all calls or other sums personally payable by him in respect of shares in the company have
been paid.
(3) Subject to subsection (4) and section 64A, a right specified in subsection (1) may be
negated, altered, or added to by the constitution of the company.
However, there are certain situations laid out in section 64(4) that requires a share to
carry a vote
COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights and powers attaching shares
64.—(4) Notwithstanding subsection (3), the right of a holder of a specified share of a
company to at least one vote on a poll at a meeting of the company on the following
resolutions may not be negated or altered:
(a) a resolution to wind up the company voluntarily under section 290; or
(b) a resolution to vary any right attached to a specified share and conferred on
the holder.
Page 60 of 153
2014 Act: New section 64 now provide that public companies may now specify
voting rights in constitution
Where a proposed alteration of the constitution will have the effect of varying “class
rights”, most companies’ constitutions require an additional procedure to be followed
Safeguard for the shareholders of that class, and this can be seen as a kind of
de facto “entrenchment” of the class rights
Prior to 1 April 2004, if class rights were contained in the memorandum of association,
it would seem that they were entrenched as the Act provided then that the
memorandum of a company could be altered only to the extent and in the manner
provided by the Act but not otherwise (Section 26(1B) applies where rights which
were defined in the memorandum were alterable, but only by unanimous resolution
of the members)
If there was no specific provision in the Act allowing the alteration of a particular
clause in the memorandum, that clause was unalterable
Prior to 1 April 2004, the articles of association are, subject to the Act and any
conditions in the memorandum, alterable by special resolution
If class rights are contained in the articles, they are generally alterable by
special resolution unless the memorandum prohibits or regulates such
alteration, in which event the memorandum governs
Articles defining class rights are still alterable by special resolution, only if they are not
subject to the provisions of any entrenching provision within the meaning of section
26A
Where the rights attached to a class are set out in a resolution of the company, they
may be varied by resolution in a similar way
To vary the rights of a class of shares, you will have to have a separate class meeting
While the definition of a class right is not found in the statute, it can be said to be a
right (e.g. to a dividend or a vote) which is attached to all shares of a particular
class (e.g. preference shares)
If specific rights are given to certain members in their capacity as members or
shareholders, then those members become a class
Class rights are those in the first and third category of Cumberland
Page 61 of 153
The articles of Cumberland were altered so that the plaintiff had (i) rights of pre-emption
over the company’s other ordinary shares (arts 7 and 9); (ii) rights in respect of unissued
shares (art 5); and (iii) the right to appoint a director, so long as it held at least 10% of the
shares (art 12).
The articles of the defendant adopted art 4 of Table A of the Companies Act 1948 whereby
the rights attached to any class of shares could only be varied with the consent of three
quarters of the class. The plaintiff contended that the articles conferred on it class rights
which could not be abrogated or varied without its consent.
Issue
Whether the plaintiff’s rights under arts 5, 7, 9 and 12, rights attached to a class of shares
Held
A right or benefit may constitute a “class right” even if it is not referable to any
particular share, if it is conferred on the member in his capacity as a member but not
some other members
Judgment
Rights or benefits which may be contained in articles can be divided into 3 different
categories:
First, there are rights or benefits which are annexed to particular shares
o Classic examples of rights of this character are dividend rights and rights to
participate in surplus assets on a winding up
o If articles provide that particular shares carry particular rights not enjoyed by
the holders of other shares, it is easy to conclude that the rights are ‘attached
to a class of shares’, for the purposes of both s 125 & art 4 of Table A
o The plaintiff’s rights however, cannot be brought within this first category
o The rights were not attached to any particular shares – there is no reference
to any current shareholding held by the plaintiff
A second category of rights or benefits which may be contained in articles would
cover rights or benefits conferred on individuals not in the capacity of
members or shareholders of the company but, for ulterior reasons, connected
with the administration of the company’s affairs or conduct of its business
o If the rights or benefits were not conferred on the beneficiary in the capacity
of member or shareholder of the company, then the rights could not be
regarded as class rights
o Current case does not fall into the 2nd category – the purpose of the rights &
privileges conferred on the plaintiff by those articles was to enable the
plaintiff, in its capacity as a shareholder in the defendant, to obstruct an
attempted take-over of the defendant.
The third category will cover rights or benefits that, although not attached to
any particular shares, were nonetheless conferred on the beneficiary in the
capacity of member or shareholder of the company
o In the present case, the rights under arts 5, 7, 9 & 12 fell within this category
Page 62 of 153
o Rights will not be enforceable by the plaintiff except otherwise than as an
owner of ordinary shares in the defendant
o Enforcement by the plaintiffs of the rights granted under arts 5, 7 & 9 would
require no more than ownership by the plaintiff of some rights; art 12 would
require the plaintiff to hold at least 10% of the issued shares, but any shares
would do
o A company, which, by its articles, confers special rights on one or more
of its members in the capacity of member or shareholder thereby
constitutes the shares for the time being held by that member or
members, a class of shares for the purposes of s 125 the rights are
class rights
The question is whether after the amendment of the articles, the holders of the shares
in question have the rights they had before the amendment
If they still have the same rights, there is no variation of class rights
notwithstanding that the enjoyment of those rights may have changed
Proposed issue of new capital did not “affect” the rights or privileged of the existing
preference stockholders. They might be affected as a matter of business by reason
of the new preference stock which would be in the possession of the ordinary
Page 63 of 153
shareholders & have a majority over the existing preference stock. This however,
would only affect the enjoyment of the rights and not the rights itself
Judgment
The rights, as such, are conferred by resolution or by the articles, and they cannot
be affected except with the sanction of the members on whom those rights are
conferred; but the results of exercising those rights are not the subject of any
assurance or guarantee under the constitution of the company, and are not protected
in any way.
Romer LJ: “But in my opinion it cannot be said that the rights of ordinary shareholders
would be affected by the issue of further ordinary capital; their rights would remain
just as they were before, and the only result would be that the class of person entitled
to exercise those rights would be enlarged.”
Note
Issue
Whether this amounted to a variation of class rights
Held
A right or benefit may constitute a “class right” even if it is not referable to any
particular share, if it is conferred on the member in his capacity as a member but not
some other members
Judgment
The only right of voting which is attached in terms to the shares of that class is the
right to have vote per share pari passu with the other ordinary shares of the company
for the time being issued
Page 64 of 153
If it had been attempted to reduce that voting right, e.g. by providing or attempting
to provide that there should be one vote for every five of such shares, that would
have been an interference with the voting rights attached to that class of shares
As a matter of law, the rights remained as they always were – a right to have one
vote per share pari passu with the ordinary shares for the time being issued which
include the new 2 s ordinary shares resulting from the subdivision
In other words, the fact that the holders of the 10s shares had increased their voting
power five-fold did not amount in law to a variation of Greenhalgh’s rights. He still
had his original one vote per share after the resolution
When you vary class rights, your own class rights will not be changed but this might
alter your enjoyment to rights as a whole
COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights of holders of classes of shares
74.—(6) The issue by a company of preference shares ranking pari passu with existing
preference shares issued by the company shall be deemed to be a variation of the rights
attached to those existing preference shares unless the issue of the first-mentioned shares
was authorised by the terms of issue of the existing preference shares or by the
constitution of the company in force at the time the existing preference shares were issued.
Article 5 of Table A
The rights conferred upon the holder of the shares of any class issued with preferred or
other rights shall, unless otherwise expressly provided by the terms of issue of the shares
of that class, be deemed to be varied by the creation or issue of further shares ranking
equally therewith
74.—(7) For the purposes of this section, the alteration of any provision in the constitution
of a company which affects or relates to the manner in which the rights attaching to
the shares of any class may be varied or abrogated shall be deemed to be a variation
or abrogation of the rights attached to the shares of that class.
Section 74(6) seems to be in contradiction to the case of White v Bristol which states that a
dilution of preference shares is itself a variation of class rights. However, what is the
definition of preference shares? There is no legal definition according to statute – last time
there was a definition of preference shares in the old Companies Act but even then the
definition did not apply to s74 so we take preference shares to mean any shares which are
not ordinary shares
The issue here is that you are elevating this class of shares but you are not providing a
definition for what constitutes preference shares and hence this seems rather problematic
It is usual to provide in the constitution that class rights may be modified only after
a specified proportion of the holders of shares of that class have consented to the
modification or have voted in favour of the alteration at a separate meeting
Such provisions are commonly referred to as a ‘modification of rights’ clause
Page 65 of 153
Any procedure for modification of class rights set out in the constitution must
be strictly complied with
COMPANIES ACT
Cap 50, 2006 Rev Ed
Article 4 of Table A (Regulation 8 of Model Constitution)
Rights attached to any class be varied with the consent in writing of the holders of 75%
of the issued shares of that class, or with the sanction of a special resolution passed
at a separate general meeting of the holders of the shares.
Necessary quorum shall be 2 persons at last holding or representing by proxy one-third of
the issued shares of the class and that any holder of shares of the class present in person
or by proxy may demand a poll.
To every such special resolution section 184 shall with such adaptations as are necessary
apply.
But the modification of rights clause and the additional protection it creates may not be
offered to an amendment of the modification of rights clause itself, where this is not
entrenching, unless that clause is construed as itself creating a class right
Where companies do not have the modification of rights clause in the constitution
from inception, but have only inserted them at later stage, it would seem that
whether or not the class rights which their constitution defines would be entrenched
within the meaning of section 26A would depend on whether the addition of the
modification of rights clause happened to be voted in unanimously or not
COMPANIES ACT
Cap 50, 2006 Rev Ed
Power to entrench provisions of constitution of company
26A.—(1) An entrenching provision may —
(a) be included in the constitution with which a company is formed; and
Page 66 of 153
(b) at any time be inserted in the constitution of a company only if all the members of the
company agree.
Hence, since special procedure in the constitution for modification of class rights in
Article 4 of Table A is an entrenching provision, one needs unanimous consent to
change the modification of rights clause
When a company wants to change the modification of rights clause, that is in
itself a change in class rights
If you interpret the definition of entrenching provision narrowly (a provision that
entrenches another clause) then the MOR clause might be an entrenching provision
Depends on how it is inserted in the Constitution at the start or inserted based
on unanimous decision
You must explain how it is an entrenching provision and how it falls within the
defintion
Even if the procedure set out in a modification of rights clause is complied with, a
dissatisfied shareholder may still block the alteration by applying to court under
section 74. This section allows a holder (or holders) of 5% of the shares of the class
in question to apply to court to have a variation or abrogation of their rights
cancelled
If such an application is made, the variation or abrogation will not have any
effect until it is confirmed by the court
Court will disallow the alteration if it is of the opinion that the alteration would
unfairly prejudice the shareholders of the class represented by the applicant;
in other words, the resolution must be fair to all members of the class
Re Holders Investment Trust: The majority must exercise its power for the
purpose of benefitting the class as a whole, and not for any particular
member or members
Carruth v Imperial Chemical Industries Ltd: Where it is proved that the majority
have voted in that manner because of their interests as members of some other
class, the court will not necessarily regard the resolution as fair and may decline
to confirm it
Section 74 of the CA gives an additional right to a holder of shares of a particular class
to complain to the court and have any attempt to vary rights cancelled
However, there seems to be a qualification to this right as it only applies where
there is a MOR clause in the Constitution
Assumption that if you have classes of shares naturally there will be a
MOR clause
COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights of holders of classes of shares
74.—(1) If, in the case of a company the share capital of which is divided into different
classes of shares, provision is made by the constitution for authorizing the variation or
abrogation of the rights attached to any class of shares in the company, subject to the
Page 67 of 153
consent of any specified proportion of the holders of the issued shares of that class or the
sanction of a resolution passed at a separate meeting of the holders of those shares, and
in pursuance of that provision, the rights attached to any such class of shares are at any
time varied or abrogated, the holders of not less in the aggregate than 5% of the total
number of issued shares of that class may apply to the Court to have the variation or
abrogation cancelled, and, if any such application is made, the variation or abrogation shall
not have effect until confirmed by the Court.
(1A) For the purposes of subsection (1), any of the company’s issued shares held as
treasury shares shall be disregarded.
(2) An application shall not be invalid by reason of the applicants or any of them having
consented to or voted in favor of the resolution for the variation or abrogation if the Court is
satisfied that any material fact was not disclosed by the company to those applicants before
they so consented or voted.
(3) The application shall be made within one month after the date on which the consent was
given or the resolution was passed or such further time as the Court allows, and may be
made on behalf of the shareholders entitled to make the application by such one or more of
their number as they appoint in writing for the purpose.
(4) On the application the Court, after hearing the applicant and any other persons who
apply to the Court to be heard and appear to the Court to be interested, may, if satisfied
having regard to all the circumstances of the case that the variation or abrogation would
unfairly prejudice the shareholders of the class represented by the applicant, disallow the
variation or abrogation, as the case may be, and shall, if not so satisfied, confirm it and the
decision of the Court shall be final.
Note: The right to apply to court under s 74 only exists where there is a modification of
rights clause; if there is no such provision, class rights may be altered in the normal
manner (via special resolution), and the court has no power to interfere
Page 68 of 153
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for issue of shares by directors
161.—(1) Notwithstanding anything in a company’s constitution, the directors shall not,
without the prior approval of the company in general meeting, exercise any power of the
company to issue shares.
(2) Approval for the purposes of this section may be confined to a particular exercise of that
power or may apply to the exercise of that power generally; and any such approval may be
unconditional or subject to conditions.
Any issue of shares in contravention of section 161 is void and the consideration for
the shares will be recoverable accordingly
Existing shareholders have first right to subscribe for new shares to be issued by the
company (i.e. pre-emption rights on new issues), as per Article 41 of Table A, as seen
below (or Regulation 45 of Model Constitution)
When you want to issue shares or transfer shares you have to seek approval
from the board of directors and this might be subjected to pre-emption rights
such as having to sell within the company first before proceeding to sell shares
outside
COMPANIES ACT
Cap 50, 2006 Rev Ed
Article 41 of Table A
Subject to any direction to the contrary that may be given by the company in general
meeting, all new shares shall, before issue, be offered to such persons as at the date
of the offer are entitled to receive notices from the company of general meetings in
proportion, as nearly as the circumstances admit, to the amount of the existing
shares to which they are entitled. The offer shall be made by notice specifying the number
of shares offered, and limiting a time within which the offer, if not accepted, will be deemed
to be declined, and, after the expiration of that time, or on the receipt of an intimation from
the person to whom the offer is made that he declines to accept the shares offered, the
directors may dispose of those shares in such manner as they think most beneficial to the
company. The directors may likewise so dispose of any new shares which (by reason of the
ratio which the new shares bear to shares held by persons entitled to an offer of new shares)
cannot, in the opinion of the directors, be conveniently offered under this regulation.
The court has a power to validate any improper issue or allotment of shares under
section 72, notwithstanding any other provision of the Act. An application for validation
may be made by the company, a shareholder, a creditor or by a mortgagee of the
shares
Should be just and equitable
Following factors may be considered to be relevant in deciding whether or not
to validate improperly issued shares:
Page 69 of 153
Whether the persons who issued the shares deliberately flouted the
law or acted with such reckless disregard of the statutory provisions
that it would be inappropriate to validate the shares
Whether innocent shareholders were misled into taking up such
shares and would be prejudiced by the court's refusal to validate the
shares
The reason for which the validation order is sought, e.g. that the
applicant wishes to have locus standi to petition for the winding up of
the company
The former section 68 which prohibited the issue of shares at a discount to par value
was repealed in 2006
Directors’ duties might be relevant with regards to the constraints on issue price, as
directors are ultimately subject to fiduciary duties to act bona fide in the best
interests of the company. Hence, issue price cannot be set too low which could lead
to the detriment to the company
Where shares are paid for by consideration other than cash, there is no requirement
that such consideration must be adequate
Re Wragg Ltd: Value of asset is generally determined by the board and the
court does not inquire into adequacy of consideration unless it is wholly illusory
After the abolition of the par-value scheme, there is no longer a constraint on the share
issue price and the new section 68 clarifies that a company may issue shares for
no consideration
This was enacted for very specific situations (e.g. bonus issue), statute was
not meant to change the general rule
Consideration for shares issued – value that is given is subjected to market value
Sometimes consideration can be given via assets
COMPANIES ACT
Cap 50, 2006 Rev Ed
Issue of shares for no consideration
68. A company having a share capital may issue shares for which no consideration is
payable to the issuing company.
The function of the share register is essentially to keep a record of all the members
Company is only concerned with people who are in the register
COMPANIES ACT
Cap 50, 2006 Rev Ed
Members of company
Page 70 of 153
19.—(6) The subscribers to the constitution shall be deemed to have agreed to become
members of the company and on the incorporation of the company shall be entered as
members —
(a) in the case of a public company, in the register of members kept by the public
company under section 190; or
(b) in the case of a private company, in the electronic register of members kept by the
Registrar under section 196A.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Inspection and closing of register
192.—(1) A public company may close the register of members or any class of members
for one or more periods not exceeding 30 days in the aggregate in any calendar year.
(2) The register and index shall be open to the inspection of any member without charge
and of any other person on payment for each inspection of $1 or such less sum as the public
company requires.
(3) Any member or other person may request the public company to furnish him with a copy
of the register, or of any part thereof, but only so far as it relates to names, addresses,
number of shares held and amounts paid on shares, on payment in advance of $1 or such
less sum as the company requires for every page thereof required to be copied and the
company shall cause any copy so requested by any person to be sent to that person within
a period of 21 days or within such further period as the Registrar considers reasonable in
the circumstances commencing on the day next after the day on which the request is
received by the company.
(4) If any copy so requested is not sent within the period prescribed by subsection (3), the
public company and every officer of the company who is in default shall be guilty of an
offence and shall be liable on conviction to a fine not exceeding $400 and also to a default
penalty.
ACRA maintains the share register of a private company while the individual public
company itself maintains its own share register (sections 196A and 190)
Note: SGX-listed public companies’ shares are subject to the Central Depositary
(“CDP”) regime. This affects the methods of registration, certification and transfer of
shares of such companies.
Also, no more share certificate for public listed companies
COMPANIES ACT
Cap 50, 2006 Rev Ed
Electronic register of members
196A.—(1) On and after the date of commencement of section 110 of the Companies
(Amendment) Act 2014, the Registrar shall, in respect of every private company, keep and
Page 71 of 153
maintain an electronic register of members of that company containing such information
notified to the Registrar on or after that date.
Register and index of public companies
190.—(5) Every public company having more than 50 members shall, unless the register of
members is in such a form as to constitute in itself an index, keep an index in convenient
form of the names of the members and shall, within 14 days after the date on which any
alteration is made in the register of members, make any necessary alteration in the index.
As shares are intangibles and have no physical existence, section 123(1) of the CA
provides that the share certificate is prima facie evidence of the title of the member
to the share
Certificate is not the share
COMPANIES ACT
Cap 50, 2006 Rev Ed
Certificate to be evidence of title
123.—(1) A certificate under the common or official seal of a company specifying any shares
held by any member of the company shall be prima facie evidence of the title of the member
to the shares.
It is commonly thought that shares held under the Central Depository system are
uncertificated as the transfers on the system are made without delivery of certificates.
This is in fact not correct. Shares of companies incorporated under the CA are all
certificated. There is a difference between immobilisation of the shares (which the
CDP system effects) and their dematerialisation, which neither the CDP system nor
the Act does
The CA requires a share certificate to be issued to the holder of shares within two
months of an allotment or within one month of a transfer
Each share must normally be distinguished by an appropriate number
Share certificate will usually indicate the identifying numbers of the shares
As per section 66(1), companies incorporated in Singapore may not issue share
warrants
Share warrants are contracts entered into between the company itself and
potential investors – an option to purchase the company’s shares at a
predetermined price at a later date
COMPANIES ACT
Cap 50, 2006 Rev Ed
Share warrants
66.—(1) A company shall not issue any share warrant stating that the bearer of the warrant
is entitled to the shares therein specified and which enables the shares to be transferred by
delivery of the warrant.
Page 72 of 153
(2) The bearer of a share warrant issued before 29 December 1967 shall, in the 2-year
period after the date of commencement of section 34 of the Companies (Amendment) Act
2014, be entitled to surrender it for cancellation and to have his name entered in the register
of members.
The amount outstanding on the par value remained available to creditors since this
would be called up if the company went into liquidation
In modern times, partly paid shares are uncommon due to the abolishment of par value
in Singapore
COMPANIES ACT
Cap 50, 2006 Rev Ed
Transitional provisions for section 62A
62B.—(1) For the purpose of the operation of this Act on or after 30th January 2006 in
relation to a share issued before that date —
(a) the amount paid on the share shall be the sum of all amounts paid to the
company at any time for the share (but not including any premium); and
(b) the amount unpaid on the share shall be the difference between the price of
issue of the share (but not including any premium) and the amount paid on the
share.
(2) On 30th January 2006, any amount standing to the credit of a company’s share premium
account and any amount standing to the credit of a company’s capital redemption reserve
shall become part of the company’s share capital.
When a call is made, a debt arises on the part of the shareholder. As long as the
shareholder’s name remains on the register of members, his liability to pay calls
continues. Even after a shareholder ceases to be a member, he remains liable in
respect of calls already made. When a shareholder sells his shares, the purchaser
impliedly agrees to indemnify him against calls made after the agreement for
sale but before his name is removed from the register of members
Only the person who is named as holder of the shares in the company's register
of members is liable for calls
Where the person registered is a nominee for some other person, there is an
equitable right of indemnity against the true owner
These are constitutional remedies of the company which mainly apply in the context
of partly-paid shares, where a shareholder fails to pay an instalment due on the shares
See e.g. Articles 9-12, 28-35 of Table A and Regulations 13-16, 32-39 MC
Lien – a right to keep possession of property belonging to another person until a debt
is discharged
Page 73 of 153
COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulations 13 – 16 of Model Constitution (Lien)
13.—(1) The company has a first and paramount lien on —
(a) every share (that is not a fully paid share) for all money (whether presently
payable or not) called or payable at a fixed time in respect of that share; and
(b) all shares (other than fully paid shares) registered in the name of a single person
for all money presently payable by the person or the person’s estate to the
company.
(2) The company’s lien, if any, on a share extends to all dividends payable on the share.
(3) The directors may at any time declare any share to be wholly or partly exempt from
paragraph (1) or (2), or both.
14.—(1) Subject to paragraph (2), the company may sell, in any manner as the directors
think fit, any shares on which the company has a lien.
(2) No sale may be made under paragraph (1) unless —
(a) a sum in respect of which the lien exists is presently payable;
(b) a notice in writing, stating and demanding payment of the amount in respect of
which the lien exists as is presently payable, has been given by the company to
the registered holder for the time being of the share, or the person entitled to the
share by reason of the death or bankruptcy of the registered holder of the share;
and
(c) a period of 14 days has expired after the giving of the notice in sub‑paragraph
(b).
15.—(1) To give effect to any sale of shares under regulation 14, the directors may
authorise any person to transfer the shares sold to the purchaser of the shares.
(2) Subject to regulations 25, 26 and 27, the company must lodge a notice of transfer of
shares in relation to the shares sold to the purchaser with the Registrar.
(3) The purchaser of any shares referred to in paragraph (1) is not bound to see to the
application of the purchase money, and the purchaser’s title to the shares is not affected by
any irregularity or invalidity in the proceedings with respect to the sale of the shares.
16.—(1) The proceeds of any sale of shares under regulation 14 received by the company
must be applied in payment of any part of the amount in respect of which the lien exists as
is presently payable.
(2) Any remaining proceeds from the sale of shares must (subject to any lien for sums not
presently payable as existed upon the shares before the sale but which have become
presently payable) be paid to the person entitled to the shares at the date of the sale.
Regulations 32 – 39 of Model Constitution (Forfeiture of Shares)
32. If a member fails to pay any call or instalment of a call on the day appointed for payment
of the call or instalment of the call, the directors may, as long as any part of the call or
instalment remains unpaid, serve a notice on the member requiring payment of the unpaid
part of the call or instalment, together with any interest which may have accrued.
Page 74 of 153
33. The notice under regulation 32 must —
(a) name a day (not earlier than 14 days after the date of service of the notice) on
or before which the payment required by the notice is to be made; and
(b) state that, in the event of non-payment at or before the time appointed, the
shares in respect of which the call was made is liable to be forfeited.
34.—(1) If the requirements of a notice referred to in regulation 33 are not complied with,
any share in respect of which the notice was given may, at any time after the notice is given
but before the payment required by the notice has been made, be forfeited by a resolution
of the directors passed for the purpose of forfeiting the share.
(2) Forfeiture under paragraph (1) includes all dividends declared in respect of the forfeited
shares and not paid before the forfeiture.
35. A forfeited share may be sold or otherwise disposed of on any terms and in any manner
as the directors think fit, and, at any time before a sale or disposition, the forfeiture may be
cancelled on any terms as the directors think fit.
36.—(1) A person whose shares have been forfeited ceases to be a member in respect of
the forfeited shares.
(2) Despite paragraph (1), the person referred to in that paragraph remains liable to pay to
the company all money which, at the date of forfeiture, was payable by the person to the
company in respect of the shares (together with interest at the rate of 8% per annum
beginning on the date of forfeiture on the money for the time being unpaid if the directors
think fit to enforce payment of such interest).
37. A statutory declaration in writing that the declarant is a director or the secretary of the
company, and that a share in the company has been forfeited on a date stated in the
declaration, is conclusive evidence of the facts stated in the declaration as against all
persons claiming to be entitled to the share.
38.—(1) The company may receive the consideration, if any, given for a forfeited share on
any sale or disposition of the forfeited share and may execute a transfer of the share in
favour of the person to whom the share is sold or disposed of (called in this regulation the
transferee).
(2) Upon the company executing a transfer of the share in favour of the transferee, the
company must lodge a notice of transfer of share with the Registrar under section 128 of
the Act for the purpose of updating the electronic register of members to reflect the
transferee as the registered owner of the forfeited share.
(3) The transferee is not bound to see to the application of the purchase money, if any, and
the transferee’s title to the share is not affected by any irregularity or invalidity in the
proceedings with respect to the forfeiture, sale, or disposal of the share.
39. The provisions of this Constitution as to forfeiture apply in the case of non-payment of
any sum which, by the terms of issue of a share, becomes payable at a fixed time as if the
sum had been payable by virtue of a call duly made and notified.
A company may have the power to forfeit shares for non-payment of calls. The power
to forfeit and the conditions for the exercise will be prescribed in the articles (Articles
28-33 of Table A)
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Shares that are forfeited may, if the company is so authorised by its articles, be
cancelled and the amount of its share capital diminished
Power to forfeit shares must be exercised bona fide and only when the member
is unable to pay for the shares
Not to be used to relieve members from liability when they are merely unwilling
to pay the unpaid portion on their shares (Allen v Gold Reefs of West Africa
Ltd)
Shares can be surrendered if a shareholder does not want to wait until his shares are
forfeited for non-payment
Power to accept a surrender of shares must be exercised bona fide
If the aim of the surrender is to relieve a shareholder from his liability to pay
calls, the surrender may be avoided
Company has no power to cancel shares upon a surrender. If shares are to be
cancelled, the cancellation must comply with the rules regarding reduction of
capital
Common to provide that a company shall have a lien over a member’s shares for
amounts unpaid on those shares
Lien may exist even in respect of other debts owed by a member to the
company, unconnected with the consideration paid for the shares
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7.1 OWNERSHIP
Legal title in a share of a company incorporated under the CA is vested in the person
to whom the share is issued or transferred and whose name is on the register of
members in respect of that share
Fundamental principle of company law states that the company does not need to
concern itself with the beneficial/equitable ownership of a share (see also Art 7 TA;
Reg 11 MC)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Limitation of liability of trustee, etc., registered as holder of shares
195.—(4) Subject to this section, no notice of any trust expressed, implied or constructive
shall be entered in a register or branch register or be receivable by the Registrar and no
liabilities shall be affected by anything done in pursuance of subsection (1), (2) or (3) or
pursuant to the law of any other place which corresponds to this section and the corporation
concerned shall not be affected by notice of any trust by anything so done.
Regulation 11 of Model Constitution
11.—(1) Except as required by law, no person is to be recognised by the company as
holding any share upon any trust.
Section 7 sets out the circumstances when a person is deemed to have an interest in
a share for the purposes of, inter alia, determining substantial shareholdings, in the
case of loans to companies in which directors have an interest, for the purpose of
maintain the register of directors’ shareholdings and in the context of the directors’
general duty of disclosure
Requirement of directors to disclose their interests in shares is due to the fear
of money laundering
Section 7(1) lays out the substantive rules where the definition of interests in
shares are used
With regards to deemed interests, one must look to section 7(4), section 7(4A)
and section 7(6)
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Section 7(4) refers to deemed interests arising from control and held
through
Section 7(4A) refers to deemed interests arising from 20%+ interest
(in intermediate companies)
Section 7(6) refers to deemed interests due to certain contractual
interests
Section 7(9) lays out the circumstances where such interests are to be
disregarded
Section 7 – Variety of situations where somebody would be deemed to have an interest
in shares
Control over disposal of shares
Equitable interests
Interests held by corporations
Definition applies
To determine substantial shareholdings
Directors’ holdings
In the case of loans or quasi-loans to director-related companies
COMPANIES ACT
Cap 50, 2006 Rev Ed
Interests in shares
7.— (1) The following subsections have effect for the purposes of Division 4 of Part IV and
sections 163, 164 and 165 and subsection (6A) shall, in addition, also have effect for the
purposes of section 244.
(1A) Subject to this section, a person has an interest in shares if he has authority (whether
formal or informal, or express or implied) to dispose of, or to exercise control over the
disposal of, those shares.
(1B) For the purposes of subsection (1A), it is immaterial that the authority of a person to
dispose of, or to exercise control over the disposal of, particular shares is, or is capable of
being made, subject to restraint or restriction.
(2) Where any property held in trust consists of or includes shares and a person
knows, or has reasonable grounds for believing, that he has an interest under the
trust, he shall be deemed to have an interest in those shares.
(3) A unit in a collective investment scheme within the meaning of section 2 of the Securities
and Futures Act (Cap. 289) —
(a) that is issued or offered to the public for subscription or purchase, or for which the
public is invited to subscribe for or purchase, and that has been so subscribed or
purchased; or
(b) that is issued for the purpose of an offer to the public by and is held by the manager
concerned within the meaning of section 283 of that Act, does not constitute an
interest in a share.
(4) Where a body corporate has, or is by the provisions of this section deemed to
have, an interest in a share and —
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(a) the body corporate is, or its directors are, accustomed or under an obligation
whether formal or informal to act in accordance with the directions, instructions or
wishes of a person; or
(b) a person has a controlling interest (means more than 50%) in the body
corporate, that person shall be deemed to have an interest in that share.
(4A) Where a body corporate has, or is by the provisions of this section (apart from this
subsection) deemed to have, an interest in a share and —
(a) a person is;
(b) the associates of a person are; or
(c) a person and his associates are,
entitled to exercise or control the exercise of not less than 20% of the voting power
in the body corporate, that person shall be deemed to have an interest in that share.
(5) For the purposes of subsection (4A), a person is an associate of another person if the
first-mentioned person is —
(a) a subsidiary of that other person;
(b) a person who is accustomed or is under an obligation whether formal or informal to
act in accordance with the directions, instructions or wishes of that other person in
relation to the share referred to in subsection (4A); or
(c) a body corporate that is , or a majority of the directors of which are, accustomed or
under an obligation whether formal or informal to act in accordance with the
directions, instructions or wishes of that other person in relation to the share referred
to in subsection (4A).
(6) Where a person —
(a) has entered into a contract to purchase a share; (contractual interest!)
(b) has a right, otherwise than by reason of having an interest under a trust, to have a
share transferred to himself or to his order, whether the right is exercisable presently
or in the future and whether on the fulfilment of a condition or not;
(c) has the right to acquire a share, or an interest in a share, under an option, whether
the right is exercisable presently or in the future and whether on the fulfilment of a
condition or not; or
(d) is entitled (otherwise than by reason of his having been appointed a proxy or
representative to vote at a meeting of members of a corporation or of a class of its
members) to exercise or control the exercise of a right attached to a share, not being
a share of which he is the registered holder,
that person shall be deemed to have an interest in that share.
(7) A person shall not be deemed not to have an interest in a share by reason only that he
has the interest in the share jointly with another person.
(8) It is immaterial, for the purposes of determining whether a person has an interest in a
share, that the interest cannot be related to a particular share.
(9) There shall be disregarded —
(a) an interest in a share if the interest is that of a person who holds the share as bare
trustee;
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(b) an interest in a share if the interest is that of a person whose ordinary business
includes the lending of money if he holds the interest only by way of security for the
purposes of a transaction entered into in the ordinary course of business in
connection with the lending of money;
(c) an interest of a person in a share, if that interest is an interest held by him by reason
of his holding a prescribed office;
(ca) an interest of a company in its own shares if
that interest is purchased or otherwise acquired in accordance with sections 76B to
76G (including treasury shares); and
(d) a prescribed interest in a share, being an interest of such person, or of the persons
included in such class of persons, as is prescribed.
Sales and other disposals are implemented by a transfer of the shares (Articles 20-
23 of Table A; Regulations 24-27 of Model Constitution)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulations 24 – 27 of Model Constitution (Transfer of Shares)
24.—(1) Subject to this Constitution, any member may transfer all or any of the member’s
shares by instrument in writing in any usual or common form or in any other form which the
directors may approve.
(2) The instrument of transfer must be executed by or on behalf of the transferor and the
transferor remains the holder of the shares transferred until the name of the transferee is
entered in the electronic register of members.
25.—(1) To enable the company to lodge a notice of transfer of shares with the Registrar
under section 128(1)(a) of the Act, the following items in relation to the transfer of shares
must be delivered by the transferor to the registered office of the company:
(a) the instrument of transfer;
(b) a fee not exceeding $1 as the directors from time to time may require;
(c) the certificate of the shares to which the instrument of transfer relates;
(d) any other evidence as the directors may reasonably require to show the right of
the transferor to make the transfer.
(2) Upon receipt of the items referred to in paragraph (1), the company must, subject to
regulation 26, lodge with the Registrar a notice of transfer of shares in accordance with
section 128 of the Act and retain the instrument of transfer referred to in regulation 24.
26. The directors may decline to lodge a notice of transfer of shares with the Registrar if —
(a) the shares are not fully paid shares;
(b) the directors do not approve of the transferee; or
(c) the company has a lien on the shares.
27. The lodging of any notice of transfer of shares with the Registrar for the purpose of
updating the electronic register of members may be suspended at any time and for any
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period as the directors may from time to time determine, but not for more than a total of 30
days in any year.
For shares in unlisted private companies, the procedure (as modified by the 2014 Act)
will (presumably) involve the following steps:
The transferor and transferee execute a share transfer form;
The transferee lodges the form with the company;
The board approves the transfer (if required);
The company notifies ACRA electronically of the relevant details;
ACRA updates the electronic register (“EROM”) thus registering the transferee
as a new member;
the company issues a share certificate to the transferee
For shares in SGX-listed companies, since 1993 the procedure has been different
because of the scripless trading system used by the Singapore Exchange. Listed
shares are now held and transferred through the Central Depository (“CDP”) system
(which now functions under the SFA). The procedure is briefly described in Corporate
Law at [12.066]-[12.067] and in Woon at [11.152]
Shares are freely transferable unless restrictions are imposed by the constitution
or restrictions by agreement
It would seem that transfers may also be restricted by a moratorium (a temporary
prohibition of an activity) on the issuance of shares, albeit that the moratorium is not in
the articles nor an agreement with all the shareholders (Pacrim Investments Pte Ltd v
Tan Mui Keow Claire & Anor)
In the case of a private company, the transfer of shares is usually restricted by giving
a discretion to the directors to refuse to register a transfer, or by stipulating to whom
shares may be transferred, or by giving to the existing members a right to have any
shares offered to them first before they can be transferred (“pre-emptive rights”)
The person who presents a transfer for registration impliedly warrants that it is genuine
and impliedly undertakes to indemnify the company against any loss that it may suffer
by reason of the registration
A person who presents a transfer to a company for registration, whether it is in
favour of himself or someone else (e.g. a broker presenting a transfer on behalf
of his or her client) impliedly warrants that it is genuine, and if it is not, may be
liable to indemnify the company if it suffers loss by acting on it
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The shareholder had had his share certificates stolen. The thief lodged forged transfers with
stockbrokers, who in good faith sent the share certificates and transfer deeds to the bank
for registration and transfer, which was done. The transferee thus came to be registered
and he then sold the shares. The innocent shareholder asked for his name to be restored
to the register and for related relief. The bank brought third party proceedings against the
stockbrokers. The original shareholder succeeded against the bank. As between the bank
and the stockbrokers, at first instance and in the Hong Kong Court of Appeal the Judges
relied on the Barclay implied indemnity and found the stockbrokers liable to indemnify the
bank. The stockbrokers appealed to the Privy Council
Held
The Privy Council accepted the principle that a person who presents transfers for
registration impliedly warrants them to be genuine
This is based on the general principle that when an act is done by one person at the
request of another and that act turns out to be tortious, the person doing it is entitled
to an indemnity from him who requested it to be done
A blank transfer is one that has been executed by the shareholder named in the share
certificate but which is blank as regards the transferee
Perfectly legal notwithstanding the prohibition in section 66 on issuing share
warrants which make shares transferable by delivery
Delivery of the blank transfer does not effect any legal transfer of the shares, it
is registration that does
Usually done by people who own shares but need to borrow money
Security over shares (to give a property right to the lender)
Not an absolute title, only by way of security
Equitable charge by way of deposit of the share certificate and the submission
of a blank transfer form
Question of authority only arises when it is a genuine transfer form executed in
blank
Implied warranty promising the transferee that the transfer form is
genuine
There are 2 basic scenarios:
(1) Where the transfer has been obtained from the registered owner of shares
Owner intends to pass title and hands over, transferee obtains an
equitable interest in those shares
Where deposited with him as security for a loan, obtain only a limited
interest in the shares
Owner has no intention to vest him with title, that person obtains no title
to the shares e.g. deposited for safekeeping
(2) Where the transfer has been obtained from someone who is not the
registered owner
There is a risk that transferor is not the owner of the shares and the true
owner has not authorised the transfer of shares to the transferee.
Hence, transferor cannot then pass good title (unless owner is estopped
from denying the efficiency of the title)
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A person who takes a transfer of the shares does so subject to the
defects of the title of the transferor: Seah Eng Lim v P & O Banking
Corp Ltd
However, three ways in which a transferee can get good title:
Transferor has equitable interest, owner being divested himself
of all but bare legal title; application of the normal property rule
True owner has entrusted the shares to the transferor for the
purposes of disposal; or normal principles of agency
True owner is estopped from denying the transferor’s authority
to transfer the shares on his behalf. (through negligence –
although hard to prove as a person generally owes no duty to
safeguard his property – or positive representation which he is
precluded from denying)
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Insufficient to rely upon a transfer form only, as the company is not
responsible for any representations made in a transfer form
Estoppel will not arise even if the transfer is certified by the company,
since certification of a transfer is not a representation that the
transferor has any title to the shares
An estoppel also arises in respect of the statement as to the amount to which the
shares are paid up
In an appropriate case, even the person to whom the certificate is issued may
be able to take advantage of the estoppel
In order for an estoppel to arise in such a situation, it must be shown that the
person to whom the representation was made acted on the representation to
his prejudice
An estoppel will not arise if the claimant did not rely upon the share certificate
COMPANIES ACT
Cap 50, 2006 Rev Ed
Power of Court to rectify register
194.— (1) If —
(a) the the name of any person is without sufficient cause entered in or omitted from the
register; or
(b) default is made or unnecessary delay takes place in entering in the register the fact
of any person having ceased to be a member,
the person aggrieved or any member or the public company may apply to the Court for
rectification of the register, and the Court may refuse the application or may order
rectification of the register and payment by the company of any damages sustained by any
party to the application.
(2) On any application under subsection (1), the Court may decide —
(a) any question relating to the title of any person who is a party to the application to
have his name entered in or omitted from the register, whether the question arises
between members or alleged members or between members or alleged members
on the one hand and the public company on the other hand; and
(b) generally, any question necessary or expedient to be decided for the rectification of
the register.
(3) The Court when making an order for rectification of the register shall by its order direct
a notice of the rectification to be so lodged.
(4) No application for the rectification of a register in respect of an entry which was made
in the register more than 30 years before the date of the application shall be entertained by
the Court.
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i.e. on death or bankruptcy of shareholder
COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 24-27 of Table A or Regulations 28-31 of Model Constitution
24. In case of the death of a member the survivor or survivors where the deceased was
a joint holder, and the legal personal representatives of the deceased where he was
a sole holder, shall be the only persons recognised by the company as having any title to
his interest in the shares; but nothing herein contained shall release the estate of a
deceased joint holder from any liability in respect of any share which had been jointly held
by him with other persons.
25. Any person becoming entitled to a share in consequence of the death or bankruptcy of
a member may, upon such evidence being produced as may from time to time properly be
required by the directors and subject as hereinafter provided, elect either to be registered
himself as holder of the share or to have some person nominated by him registered
as the transferee thereof, but the directors shall, in either case, have the same right to
decline or suspend registration as they would have had in the case of a transfer of the share
by that member before his death or bankruptcy.
26. If the person so becoming entitled elects to be registered himself, he shall deliver or
send to the company a notice in writing signed by him stating that he so elects. If he elects
to have another person registered he shall testify his election by executing to that person a
transfer of the share. All the limitations, restrictions, and provisions of these Regulations
relating to the right to transfer and the registration of transfers of shares shall be applicable
to any such notice or transfer as aforesaid as if the death or bankruptcy of the member had
not occurred and the notice or transfer were a transfer signed by that member.
27. Where the registered holder of any share dies or becomes bankrupt his personal
representative or the assignee of his estate, as the case may be, shall, upon the production
of such evidence as may from time to time be properly required by the directors in that
behalf, be entitled to the same dividends and other advantages, and to the same rights
(whether in relation to meetings of the company, or to voting, or otherwise), as the registered
holder would have been entitled to if he had not died or become bankrupt; and where 2 or
more persons are jointly entitled to any share in consequence of the death of the registered
holder they shall, for the purposes of these Regulations, be deemed to be joint holders of
the share.
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COMPANY MANAGEMENT AND
MEETINGS
1. INTRODUCTION
The company was the first business vehicle to enable the separation of ownership and
management, and thus the professionalization of management. This division is especially
manifested in public listed companies, which are typically managed by a team of professional
managers who do not hold significant stakes in the company. By contrast, the owners of small
closely-held companies are often also the directors and key employees of the company. In
either case, you should appreciate the fact that, from a legal responsibility point of view, the
management of a company falls largely on the company’s board of directors. Thus, unless
otherwise specified by the Companies Act or the company’s constitution, the board of directors
is the principal decision-making body (or organ) of the company.
Nevertheless, the Companies Act and most companies’ constitutions do in fact reserve certain
decisions to the shareholders. These usually relate to important matters which directly affect
the shareholder’s rights or interests, e.g. amendments to the constitution, payment of
dividends, or restructuring of the company’s share capital. Even in these cases, the
shareholders are usually asked simply to approve or disapprove a proposal formulated by the
board. The shareholders formally express their collective will by voting at the general meeting,
which is therefore also regarded as a decision-making body (or organ) of the company. A
decision of either organ, when acting within its powers, is regarded in law as a decision of
the company.
The constitutional distinction between the respective domains of the board and the
shareholders is a fundamental feature of company law. It not only affects how the powers of
the company are exercised but also influences other company-law rules, especially the duties
of directors.
One of the important roles of company law is to regulate the conduct of directors with a view
to ensuring that they act in the interests of the company and, indirectly, its shareholders and
other stakeholders. The Companies Act does this in different ways, laying down both broad
general standards (or duties) and also detailed rules applicable to specific situations.
In this topic we will also consider some of the detailed rules (in the Act and the constitution)
on how formal decisions of the company are made. Traditionally, this occurs at meetings –
whether board or general meetings. Procedural rules do not exist in a vacuum: they often
inter-relate with statutory and common-law rules, and an appreciation of the relationship is
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required for a full understanding. (Procedure may not be a particularly riveting topic, but
dealing with it is an important part of legal practice).
Company law recognises only two possible bodies as having the original power
(derived directly from the company’s constitution) to exercise corporate powers and to
act as the company (basic division of powers between the board and the general
meeting is now primarily governed by section 157A)
Shareholders in general meeting
Board of directors
Constitution of the company lays down the framework by which the company is run
internally
Provides details as to the proper conduct of shareholders’ as well as directors’
meetings
As long as proper procedures for decision-making by these organs is followed,
decisions made by the general meeting of the shareholders or at a meeting
of the board of directors are considered decisions of the company
Not every shareholder is necessarily entitled to participate in the
general meeting as some shares may not carry or may have only limited
voting entitlements
Every company must have a board of directors
Elected by the general meeting and entrusted with the management of the
company
Generally required to act as a collegiate body
An individual director does not have the authority to bind the company unless
he is specifically authorised
Job is to participate in the decisions of the board
In the past, the relationship between the shareholders and the directors was essentially
a hierarchical one
Traditional point of view:
Shareholders, because of their contribution of capital, were traditionally thought
of as “owners” of the company
The above is the rationale for their central role in the control of corporate
matters
Board of directors were seen as skilled managers to whom the authority to
manage the business was delegated
There has been a fundamental change in the way the law viewed the company and
the relative positions of the shareholders and the board within the corporate structure
Aron Salomon v A Salomon & Co Ltd: Incorporation led to the steady erosion
of the shareholders’ superior position
Modern view:
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Considers both the general meeting and the board of directors as respectively
deriving directly from the company’s constitution, original authority to commit
the company to juristic acts
Scope of authority of the general meeting and of the board therefore depends on the
particular terms of the constitution
Rationale for the division of power is that it is a bargain amongst shareholders which
can only be modified by amending the constitution
If the management of the company is in the board of directors, then they alone
can exercise these powers. If a particular activity is not on the list, then the
shareholders cannot make a decision in that regard
Upon the construction of the articles, the directors could not be compelled to comply
with the resolution
Judgment
Lord Collins MR held that the simple majority of shareholders was not enough
to override the requirement in the constitution that the directors may only be
given instructions through a three quarter majority. So the directors were
entitled to reject the offer. They are not agents to the shareholders nor the
company. The shareholders would need to dismiss the directors or change the
constitution. He elaborated
o It has been suggested that this is a mere question of principal and agent,
and that it would be an absurd thing if a principal in appointing an agent
should in effect appoint a dictator who is to manage him instead of his
managing the agent. I think that that analogy does not strictly apply to this
case. No doubt for some purposes directors are agents. For whom are they
agents? You have, no doubt, in theory and law one entity, the company,
which might be a principal, but you have to go behind that when you look to
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the particular position of directors. It is by the consensus of all the individuals
in the company that these directors become agents and hold their rights as
agents… There are provisions by which the minority may be overborne, but
that can only be done by special machinery in the shape of special
resolutions.
General rule is that neither organ is permitted to usurp the authority that has
been constitutionally conferred on the other organ
John Shaw & Sons (Salford) Ltd v Shaw
Facts
Two of the brothers failed to accept certain other provisions of
the settlement, and as a result it was resolved at a meeting of
the permanent directors that the present action should be
instituted against them. But before the hearing of the suit the
shareholders held an extraordinary meeting, at which a
resolution was passed directing the board to discontinue the
action forthwith
Judgement
Should the shareholders wish to override a decision of the
board, the only way in which the general body of the
shareholders can control the exercise of the powers vested by
the articles in the directors is by
o Altering their articles (by special resolution: need 75%
vote)
However, if board of directors have already
signed contract with 3rd party any amendment
of articles cannot undo the decision (3rd party
rights must be protected & cannot be interfered
with)
o By refusing to re-elect the directors of whose
actions they disapprove. (by ordinary resolution)
Shareholders cannot themselves usurp the powers which
by the articles are vested in the directors any more than the
directors can usurp the powers vested by the articles in the
general body of shareholders.
Distribution of powers is a matter of contract as embodied in the company’s
constitution, and depended on a proper construction of the constitution
A significantly different interpretation of the English case law on the question was taken
by the High court in Credit Development Pte Ltd v IMO Pte Ltd [1993] 2 SLR (R) 370.
However, this decision gave rise to some concern that shareholders could too easily
interfere with management decisions
In 2003, the CA was amended to reverse the position reached in Credit Development
Pte Ltd v IMO Pte Ltd
Section 157A was introduced
Article 73 of Table A was also amended to reflect the same position
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“Being not inconsistent with the aforesaid Regulations or provisions”
The regulations you provide thus cannot be inconsistent with the
CA (s157A)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Powers of directors
157A.—(1) The business of a company shall be managed by, or under the direction or
supervision of, the directors.
(2) The directors may exercise all the powers of a company except any power that this Act
or the constitution of the company requires the company to exercise in general meeting.
““Except any power” does not refer to just ANY management power, it is only for
SPECIFIC powers and hence ultimately the general meeting is not given the liberty to
just overwrite anything
Matters typically allocated to general meeting for approval (as referenced in section
157A)
Under the CA: see e.g. ss 26, 76C-76E, 78B, 149B, 152, 160, 161, 205, 290
etc.
Under the constitution: see e.g. Table A Articles 40, 98 etc.
Under the SGX listing rules (listed companies only): e.g. rules 805-806, 906
etc.
The apparently mandatory choice of expression suggests a statutory allocation of
powers
This means that legislation governs the division of powers
Unless the CA or the constitution (as permitted by section 157A(2)) allows for
shareholders to make the decision in a general meeting, the board has power
to make all other decisions
What sort of decisions do companies have to make?
Mergers – structural decision
Investments – commercial and management decision (bulk of decisions that
companies have to make – these decisions will often be vested in the directors,
structural decisions which affect shareholding and the future of the business
will be vested in the general meeting)
Director’s duties are towards the company as a separate entity and not towards the
shareholders
Shareholders do not own the company – they are an organ of the company,
which is similar to that of the board
If powers of management are vested in the directors only they alone can exercise
these powers and the general meeting cannot intervene (so whatever powers are
vested in one organ, the other organ cannot intervene)
However, general meeting can remove the board (hence ultimate control of
who is on the board is vested in the shareholders)
Page 90 of 153
2.2 RESERVE POW ERS OF THE SHAREHOLDERS
At common law, it was generally thought that the general meeting has a reserve power
to act when the board is unable or unwilling to do so itself
When does this residual power devolve?
A matter of necessary implication
Board is unwilling or unable to act
No other way to break deadlock
What determines the scope of this residual power?
Also a matter of necessary implication – important to restrict the scope
Deadlock relates to performance of bona fide obligation of company to
third party
Nothing to suggest honoring obligation not in the company’s best
interest
Wide view of general meeting’s reserve powers was stated in Barron v Potter
Facts
The two directors of the company were not on speaking terms,
so that effective board meetings could not be held. The plaintiff,
Canon Barron, had requisitioned a members’ meeting at which
additional directors had purportedly been appointed. The
defendant objected that the power to make such appointments
was vested by the company’s articles in the directors. It was
held that, in view of the deadlock, the power in question reverted
to the general meeting, and so the appointments were valid
Held
Where “if directors having certain powers are unable or
unwilling to exercise them – are in fact a non-existent body for
the purpose – there must be some power in the company to do
itself that which under other circumstances would be otherwise
done” and that therefore the company in general meeting may
exercise that power
o Criticised as convenient but difficult to reconcile in
principle with the strict theory of a division of powers
Narrow view of general meeting’s reserve powers is credited to Massey v
Wales
Facts
Massey concerned a company which had two directors. One
director, Yaqob Rajwan, wanted to appoint Baruch Rajwan to
the board of the company but a quorum for a board meeting
could not be reached as the board was deadlocked. Yaqob
Rajwan nonetheless held a board meeting in the absence of
the other director and Baruch Rajwan was appointed as a
director. This appointment was invalid. The Rajwans then gave
instructions to solicitors to commence legal proceedings on the
company’s behalf. Thereafter, a shareholders resolution was
passed to ratify the appointment of the solicitors. The issue
Page 91 of 153
before the court therefore was whether the shareholders had
the power to do so.
Judgement
Narrow view that if the general meeting can APPOINT another
director to make the decision then there is no need for the
general meeting to make the decision and hence you are still
being true to the doctrine that management decisions are
reserved for the board
Where the question as to whether general meeting had any
reserve power to ratify the commencement of legal proceedings,
it was held that this had to be considered as a matter of
implication from the constitution, on the basis of business
efficacy or necessity
o However, where there is express or even a general
power vested in the general meeting to remove and
appoint additional directors, the implication of such
reserve power to remove and appoint additional
directors is generally displaced
Page 92 of 153
The High Court held that there was a limited shareholder power to appoint solicitors but
there was no implied term as contended for by the company, no breach of that implied term
and no breach of fiduciary duty. Both the company and Ms Chan appealed.
Issue
Whether, in what circumstances and to what extent the management powers of a company
may be reserved to the shareholders when the board is deadlocked
Will an express term conferring management powers upon the shareholders be deemed
invalid as a matter of law? Or does s 157A establish a default rule which may be varied?
Use the case of TYC to state that division of powers is still a default rule – structure is that
you generally vests but there are specific instances of exceptions to this rule
Held
The analysis of whether there was a reserve power vested in the general meeting
was one that had to be situated in the context of implied terms. The division of
power between the board of directors and the shareholders in a general meeting
was a matter of contract which was set out in the company’s constitution. As with
implied terms in general, the basis for doing so was necessity
Before it may be implied that the general meeting is possessed of reserve powers
to act, two further cumulative requirements had to be met:
o The dispute must relate to the performance of a bona fide obligation
owed by the company to a third party; and
o There is no material suggesting that it will not be in the company’s best
interest to honour these obligations.
The predicate of such necessity would generally be the existence of a deadlock
within the board. The need to invoke even these limited reserve powers would
therefore not arise where there was either (a) no deadlock; or (b) the deadlock could
be broken by the appointment of additional directors and/or the removal of existing
directors in a general meeting. If the case proceeded to the point where it was
necessary to imply a reserve power, a litigant would still need to be satisfied that the
intended resolution was likely to be carried at a general meeting with the requisite
majority prescribed by the company’s constitution.
High Court
Stated that 157A was a default rule and the reason for this is that we have always
proceeded on basis that a division of powers was a matter of contract
What was parliamentary intention behind 157A with respect to the division of
powers?
157A says “shall” which suggests that it is a statutory division of powers
If the general meeting does not have any power then what happens when there is a
deadlock and we have to go back to the reserves of power?
Page 93 of 153
157A is from Australia from a section which is under “replaceable rules” and hence
it is still CONTRACTUAL but in our statute it is a default rule which means that there
is a statutory division of powers
Court of Appeal
Stated that it was most likely contractual and this seems to contradicts the Act
Limited circumstances where courts will imply a necessity to resort to reserve
powers
Justification is that a company should not be held back by a deadlock
Limitations to shareholder’s reserve powers
Bare minimum to keep the company going
Summary
Need for implication for reservation of management powers arise when there is a
deadlocked block and you must meet the TWIN CRITERIA – refer also to limitations
of S216A
Courts really want to restrict reserve powers and the ability of the general meeting
to control the management decisions of the board
3. DIRECTORS – GENERALLY
The board of directors is conferred with the powers to manage the company
According to section 145 of the Companies Act, every company must have at least
one director who is ordinarily resident in Singapore
Company’s constitution will normally stipulate the number of directors on the board
Directors are also by definition “officers” of the company upon whom much of the
responsibility for compliance with the requirements of the Companies Act fall
Officers – Refers to anyone who is employed in a professional capacity
Director
Company secretary
Person employed in executive capacity
Receiver and manager
Liquidator in a voluntary winding up
While the Companies Act does not define a director in any specific terms, section 4 of
the Companies Act provides for a general description of the term “director”
COMPANIES ACT
Cap 50, 2006 Rev Ed
Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“director” includes any person occupying the position of director of a corporation by
whatever name called and includes a person in accordance with whose directions or
Page 94 of 153
instructions the directors or the majority of the directors of a corporation are
accustomed to act and an alternate or substitute director
Directors
Formally appointed
Deemed by law
Non-executive:
Executive: Does not work on a full
time basis. Not to run the Shadow directors:
Works for company
on a more or less full company but watch Influence of the person must be such
time basis, possibly managers and EDs that the directors are 'accustomed' to
under contract for act in accordance with his directions
service or instructions. Should be able to
Outside directors or influence a majority of board.
Nominated by employees
Managing /shareholders De facto directors:
director
Acts by him show that he assumed the
Chairman status and functions of a company
Nominee director by participating in the affairs
Other
director of the company on equal footing with
executive
directors the other direcotrs. Although never
Alternate /Substitute director:"alter formally appointed
egos" of people appointing them
De facto director refers to a person who is not so formally appointed but who
nevertheless acts as a director
Treated as a director under the Companies Act
Real influence is effectuated through his assumption of the directorial
responsibilities so as to make him part of the corporate governing
structure
Exercises discretionary power
Re Hydrodam (Corby) Ltd: In order to establish that a person is a de facto director of
a company, it must be shown that he undertook functions in relation to the
company which could properly be discharged only by a director
Re Richborough Furniture Ltd: In cases where the dividing line between mere
management and an assumptions of directorship is unclear, it would appear that the
court should give the person in question the benefit of the doubt
Raffles Town Club Pte Ltd v Lim Eng Hock Peter: The court should look at the
aggregate acts of the person in question (and must show that the person had
assumed the status and functions of a company director by participating in the affairs
of the company on an equal footing with the other directors)
Page 95 of 153
3.1.2 SHADOW DIRECTOR
The purpose of the extended idea is to identify those with real influence in the corporate
affairs of the company and to prevent their escape of duty or liability by the easy
step of declining formal appointment
Page 96 of 153
How is a shadow director distinguished from a de facto director?
Executive directors: play a day-to-day role in running the company
Non-executive directors: do not play such a day-to-day role, but works more in
the background, setting targets for the company etc. They play more of a
supervisory role
Are de facto and shadow directors treated as directors for all legal purposes? If not,
then for which purposes?
Heap Huat Rubber Company Sdn Bhd v Kong Choot Sian [2004] SGCA 12, at
[67] (CA):
Be that as it may, the judge never expressly held that as a “shadow
director”, Kong had to comply with Art 73 which dealt with directors’
remuneration. Similarly, it is our view that the fact that a party is
adjudged to be a “shadow director” does not mean that he is a
“director” for the purposes of articles of association which
stipulate or set out formal requirements, such as Art 73. It would
simply make no sense for a party who is a “shadow director” to have
his remuneration determined by the company in general meeting on the
basis that he is a director. Indeed, if the HHR companies’ argument is
taken to its logical extreme, this would require all board resolutions
passed during the period when the party was a “shadow director” to be
signed by him
3.3 APPOINTMENT
Page 97 of 153
Articles 63 – 68 of Table A
COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 63 – 68 of Table A
63. At the first annual general meeting of the company all the directors shall retire from
office, and at the annual general meeting in every subsequent year one-third of the directors
for the time being, or, if their number is not 3 or a multiple of 3, then the number nearest
one-third, shall retire from office.
64. A retiring director shall be eligible for re-election.
65. The directors to retire in every year shall be those who have been longest in office since
their last election, but as between persons who became directors on the same day those to
retire shall (unless they otherwise agree among themselves) be determined by lot.
66. The company at the meeting at which a director so retires may fill the vacated office by
electing a person thereto, and in default the retiring director shall if offering himself for re-
election and not being disqualified under the Act from holding office as a director be deemed
to have been re-elected, unless at that meeting it is expressly resolved not to fill the vacated
office or unless a resolution for the re-election of that director is put to the meeting and lost.
67. The company may from time to time by ordinary resolution passed at a general meeting
increase or reduce the number of directors, and may also determine in what rotation the
increased or reduced number is to go out of office.
68. The directors shall have power at any time, and from time to time, to appoint any person
to be a director, either to fill a casual vacancy or as an addition to the existing directors, but
so that the total number of directors shall not at any time exceed the number fixed in
accordance with these Regulations. Any director so appointed shall hold office only until the
next following annual general meeting, and shall then be eligible for re-election but shall not
be taken into account in determining the directors who are to retire by rotation at that
meeting.
As per section 149B, the power to appoint directors to the board is usually vested in
the members and directors are generally appointed by ordinary resolution and
typically at the annual general meeting
Hence a member who controls a majority of the voting shares should therefore
be fairly confident of being able to control the composition of the board
COMPANIES ACT
Cap 50, 2006 Rev Ed
Appointment of directors by ordinary resolution
149B. Unless the constitution otherwise provides, a company may appoint a director by
ordinary resolution passed at a general meeting.
Page 98 of 153
Right to appoint a director may be expressly conferred on some other person
such as a specific member or even a third party such as a lessor
Company’s constitution will usually prescribe the procedure for appointment of
directors
Section 150(1) prohibits the appointment of two or more directors in a single
resolution unless this has been first unanimously agreed to by the meeting
(applicable to public companies only)
Note: The now-repealed section 153 used to provide for an age limit of 70 years
for directors of public companies
Where constitution of company confers the power to fill casual vacancies or to appoint
additional directors on the board, the directors must exercise such power bona fide in
the interests of the company
3.4 QUALIFICATION
Apart from the requirement that directors should be natural persons of full age and
capacity, the Companies Act does not mandate any positive qualification
requirements for the position
COMPANIES ACT
Cap 50, 2006 Rev Ed
Directors
145.—(2) No person other than a natural person who has attained the age of 18 years
and who is otherwise of full legal capacity shall be a director of a company.
Page 99 of 153
newspapers, the Singapore Exchange Limited (“SGX”) asked Airocean to confirm the
veracity of the news and explain why they did not disclose this to the public.
The appellant could not be physically present for the preparation of the reply to SGX
because he had to attend a golf event. The appellant told Airocean’s company secretary
that he would agree to any announcement issued by Airocean if Peter Madhavan
(“Madhavan”) approved of it. Madhavan was an independent director on the Board who was
also a lawyer. The appellant never asked nor saw the announcement before it was
announced. The appellant pleaded guilty to having breached his duty of reasonable
diligence as a director under s 157(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“the
Act”). The trial judge sentenced him to a fine of $4,000 in default, four weeks’ imprisonment
and a disqualification order barring him from taking part in the management of a company
for 12 months.
The appellant only appealed against the disqualification order on the basis that it was
unwarranted or manifestly excessive. The Prosecution also cross-appealed on the basis
that the length of the disqualification order was manifestly inadequate.
Held
COMPANIES ACT
Cap 50, 2006 Rev Ed
Restriction on undischarged bankrupt
148.—(1) Every person who, being an undischarged bankrupt (whether he was adjudged
bankrupt by a Singapore Court or a foreign court having jurisdiction in bankruptcy), acts as
director of, or directly or indirectly takes part in or is concerned in the management of, any
corporation, except with the leave of the Court or the written permission of the Official
Assignee, shall be guilty of an offence and shall be liable on conviction to a fine not
exceeding $10,000 or to imprisonment for a term not exceeding 2 years or to both.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification to act as director on conviction of certain offences
154.—(1) A person shall be subject to the disqualifications provided in subsection (3) if —
(a) the person is convicted of any of the following offences:
i. any offence, whether in Singapore or elsewhere, involving fraud or
dishonesty punishable with imprisonment for 3 months or more;
ii. any offence under Part XII of the Securities and Futures Act (Cap. 289); or
(b) the person is subject to the imposition of a civil penalty under section 232 of the
Securities and Futures Act.
(4) The disqualifications in subsection (3) shall —
(a) in a case where the disqualified person has been convicted of any offence referred
to in subsection (1) or (2) but has not been sentenced to imprisonment, take effect
COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification for persistent default in relation to delivery of documents to Registrar
155.—(1) Where a person has been persistently in default in relation to relevant
requirements of this Act and that person, within a period of 5 years after he has last been
adjudged guilty of any offence or has had made against him an order under section 13 or
399 in relation to any such relevant requirements of this Act, without the leave of the Court,
is a director or promoter of, or is in any way directly or indirectly concerned or takes part in
the management of a company, he shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $10,000 or to imprisonment for a term not exceeding 2
years or to both.
Where individual was a director of at least three defunct companies who had
their names struck off the register within a five-year period
COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification for being director in not less than 3 companies which were struck off
within 5-year period
155A.—(1) Subject to subsection (5), a person —
(a) who was a director of a company (Company A) at the time that the name of Company
A had been struck off the register under section 344; and
(b) who, within a period of 5 years immediately before the date on which the name of
Company A was struck off the register under section 344 —
i. had been a director of not less than 2 other companies whose names had
been struck off the register under section 344; and
ii. was a director of those companies at the time the names of the companies
were so struck off the register,
COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification under Limited Liability Partnerships Act
155C.—(1) Subject to any leave which the Court may give pursuant to an application under
subsection (3), a person who is subject to a disqualification or disqualification order under
section 34, 35 or 36 of the Limited Liability Partnerships Act (Cap. 163A) shall not act as
director of, or in any way (whether directly or indirectly) take part in or be concerned in the
management of, any company or any foreign company to which Division 2 of Part XI applies
during the period of disqualification or disqualification order.
(2) Any person who contravenes subsection (1) shall be guilty of an offence and shall be
liable on conviction to a fine not exceeding $10,000 or to imprisonment for a term not
exceeding 2 years or to both.
Additionally, an order may be made under section 149 of the Companies Act to
disqualify persons who are considered unfit to be directors from being a director or in
any way, whether directly or indirectly, being concerned in the management of a
company
Under section 155B, the Registrar is also empowered to make a debarment order
against a director or secretary of a company which has defaulted in lodging or filing
documents with the Registrar or in failing to notify the Registrar of any matter as
required by the Companies Act
Default must have persisted for a continuous period of at least three months
Basically, a debarment order prevents the subject of the order from acting as a
director or secretary of any other company except the company of which he is
director or secretary of immediately before the order is made
Such a debarment is effective from the date the order is made and continues
in force until the Registrar cancels or suspends the order
Before the order is made, the Registrar must give the director or secretary
concerned an opportunity to show cause why the debarment should not be
made
It will usually be stipulated in the company’s constitution that the office of director is
to be vacated in certain circumstances, such as where the director has resigned, or
has been declared bankrupt
Or director has been absent without permission from board meetings for a
prolonged period, or has become of unsound mind
Unless the constitution provides otherwise, a director may resign by giving to the
company notice in writing, and his resignation cannot be made conditional upon
the company’s acceptance of the same (section 145 (4A) and (4B))
Note: According to section 145(5), a director who is the only director remaining in
the company who is ordinarily resident in Singapore cannot resign or vacate his
office, and any attempt to do so is invalid
3.6.2 REMOVAL
COMPANIES ACT
Cap 50, 2006 Rev Ed
Removal of directors
152.—(1) A public company may by ordinary resolution remove a director before the
expiration of his period of office, notwithstanding anything in its constitution or in any
agreement between it and him but where any director so removed was appointed to
represent the interests of any particular class of shareholders or debenture holders the
resolution to remove him shall not take effect until his successor has been appointed.
(2) Special notice shall be required of any resolution to remove a director of a public
company under subsection (1) or to appoint some person in place of a director so removed
at the meeting at which he is removed, and on receipt of notice of an intended resolution to
remove a director under subsection (1) the company shall immediately send a copy thereof
to the director concerned, and the director, whether or not he is a member of the company,
shall be entitled to be heard on the resolution at the meeting.
(3) Where notice is given pursuant to subsection (2) and the director concerned makes with
respect thereto representations in writing to the public company, not exceeding a
reasonable length, and requests their notification to members of the company, the company
shall, unless the representations are received by it too late for it to do so —
(a) in any notice of the resolution given to members of the company state the fact of the
representations having been made; and
(b) send a copy of the representations to every member of the company to whom notice
of the meeting is sent, whether before or after receipt of the representations by the
company,
and if a copy of the representations is not so sent because they were received too late or
because of the company’s default the director may, without prejudice to his right to be heard
orally, require that the representations shall be read out at the meeting.
(4) Notwithstanding subsections (1), (2) and (3), copies of the representations need not be
sent out and the representations need not be read out at the meeting if, on the application
either of the public company or of any other person who claims to be aggrieved, the Court
In the case of a private company, the right of the company to remove him before his
period of office expires may be qualified by the company’s constitution, otherwise,
the default rule would be by ordinary resolution
COMPANIES ACT
Cap 50, 2006 Rev Ed
Removal of directors
152.—(9) Subject to any provision to the contrary in the constitution, a private company may
by ordinary resolution remove a director before the expiration of his period of office
notwithstanding anything in any agreement between the private company and the director.
Other events that can lead to a director vacating office is stipulated in Article 72 of
Table A
COMPANIES ACT
Cap 50, 2006 Rev Ed
Article 72 of Table A
(a) ceases to be a director by virtue of the Act;
(b) becomes bankrupt or makes any arrangement or composition with his creditors
generally;
(c) becomes prohibited from being a director by reason of any order made under the
Act;
Directors do not have any right to be paid or remunerated for the services which
they perform for the company
Unless there is provision for them to be paid, whether in the constitution or by company
resolution, directors are not entitled to a fee for acting qua director
Shareholders have authority over a director’s remuneration as the CA requires
shareholder approval in respect of payments made to a director in respect of his office
Payments and benefits covered by this section include:
Only payment/benefits received by a director, in his capacity of a
director
As a director is often employed by the company and therefore the
amounts received by the company may derive from his office as director
(director’s fees) and if he is employed in the executive position, from his
service contract with the company (salary)
Payment to the executive is not captured under section 169 of the CA,
for such payment would not be “in respect of [a director’s] office”
COMPANIES ACT
Cap 50, 2006 Rev Ed
Provision and improvement of director’s emoluments
169.—(1) A company shall not at any meeting or otherwise provide emoluments or
improve emoluments for a director of a company in respect of his office as such unless
the provision is approved by a resolution that is not related to other matters and any
resolution passed in breach of this section shall be void.
(2) In this section, “emoluments” in relation to a director includes fees and percentages, any
sums paid by way of expenses allowance in so far as those sums are charged to income
tax in Singapore, any contribution paid in respect of a director under any pension scheme
Where the constitution provides for the determination and payment of remuneration,
the requirements of the particular provision will have to be adhered to
If proper procedure therein provided was not followed, the director in question
will be precluded from claiming in quantum meruit or for an equitable allowance
in respect of the services he had rendered
Under section 168(1), the CA prohibits a company from making any payment of
compensation to a director for loss of office as an officer of the company unless the
particulars with respect to the proposed payment have been disclosed to and
approved by the members of the company
However, note that a payment which is properly referable to the director’s
remuneration package as a whole and is therefore consideration for the
director’s service would not be caught by the provision (section 168(5)(e))
COMPANIES ACT
Cap 50, 2006 Rev Ed
Payments to director for loss of office, etc.
168.—(1) It shall not be lawful —
(a) for a company to make to any director any payment by way of compensation for loss
of office as an officer of the company or of a subsidiary of the company or as
consideration for or in connection with his retirement from any such office; or
unless particulars with respect to the proposed payment, including the amount thereof, have
been disclosed to the members of the company and the proposal has been approved
by the company in general meeting and when any such payment has been unlawfully made
the amount received by the director shall be deemed to have been received by him in trust
for the company.
As to payments to directors
(5) Any reference in this section to payments to any director of a company by way of
compensation for loss of office or as consideration for or in connection with his retirement
from office shall not include —
(a) any payment under an agreement entered into before 1st January 1967;
(b) any payment under an agreement particulars of which have been disclosed to and
approved by special resolution of the company;
(c) any bona fide payment by way of damages for breach of contract;
(d) any bona fide payment by way of pension or lump sum payment in respect of past
services, including any superannuation or retiring allowance, superannuation
gratuity or similar payment, where the value or amount of the pension or payment,
except in so far as it is attributable to contributions made by the director, does not
exceed the total emoluments of the director in the 3 years immediately preceding
his retirement or death; or
COMPANIES ACT
Cap 50, 2006 Rev Ed
Payments to director for loss of office, etc.
168.— (1A) The requirement for approval by the company in subsection (1) shall not apply
in respect of any payment to a director holding a salaried employment or office in the
company by way of compensation for termination of employment pursuant to an existing
legal obligation arising from an agreement made between the company and the director if
—
(a) the amount of the payment does not exceed the total emoluments of the director for
the year immediately preceding his termination of employment; and
(b) the particulars with respect to the proposed payment, including the amount thereof,
have been disclosed to the members of the company upon or prior to the payment.
Listed-company directors
The remuneration and other benefits accorded to directors and senior executives of listed
companies have become a controversial topic around the world in recent decades. One big
question is how to link these to the listed company’s financial performance, so as to
incentivise directors to focus on returns to shareholders. SGX-listed companies are now
subject to rules and procedures for setting remuneration in both the SGX Listing Manual
and the MAS’s Code of Corporate Governance. However neither of the latter give
shareholders the right to vote on remuneration of directors or executives.
Why do you think s 169 by itself has proven inadequate in this regard?
Note: Credit requires a time gap between the performance of one party and the
performance of another
Loans by all companies, with the exception of exempt private companies (section
162(2)), to their directors, or directors of related companies, are subject to statutory
control
The rationale for such prohibitions, where the CA prohibits companies from making
such loans, is so as to guard against the risk of directors acting in their own
interests
In this case, a restricted transaction extends beyond loans in the conventional sense;
not conventional loans in that no funds move directly to the director, but they are
nevertheless analogous to loans in practical effect (section 162(1))
Conventional loan definition can be found in Creanovate Pte Ltd v Firstlink
Energy Pte Ltd
A contract of loan of money is a contract whereby one person lends or agrees to lend a sum
of money to another, in consideration of a promise express or implied to repay that sum on
demand, or at a fixed or determinable future time, or conditionally upon an event which is
bound to happen, with or without interest.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(1) For the purposes of this section, a company makes a restricted transaction if it —
(a) makes a loan or quasi-loan to a director —
i. of the company; or
ii. of a company which by virtue of section 6 is deemed to be related to that
company,
(referred to in this section as a relevant director);
(b) enters into any guarantee or provides any security in connection with a loan or quasi-
loan made to a relevant director by any other person;
Certain arrangements are prohibited even if not entered into by the company
Idea is to prevent the company from circumventing the prohibition by getting a
third party to provide the benefits to the director
These are arrangements that are entered into for the benefit of the director,
but in respect of which that other person obtains a benefit from the company,
or a related company
Such arrangements are caught if, had they been entered into by the
company, they would fall to be treated as restricted transactions
Section 162(3) expressly states that the restrictions do not apply in 4 specific situations
COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(3) Subject to subsection (4), nothing in this section shall apply to any transaction
which would otherwise be a restricted transaction that is —
(a) made to or for the benefit of a relevant director to meet expenditure
incurred or to be incurred by him for the purposes of the company or for the
purpose of enabling him to properly perform his duties as an officer of the
company;
(b) made to or for the benefit of a relevant director who is engaged in the full-
time employment of the company or of a corporation that is deemed to be
related to the company, as the case may be, for the purpose of purchasing or
otherwise acquiring a home occupied or to be occupied by the director,
except that not more than one such restricted transaction may be outstanding at
any time;
(c) made to or for the benefit of a relevant director who is engaged in the full-
time employment of the company or of a corporation that is deemed to be
related to that company, as the case may be, where the company has at a
general meeting approved of a scheme for the making of such transaction
to or for the benefit of employees of the company and the restricted
transaction is in accordance with that scheme; or
(d) made to or for the benefit of a relevant director in the ordinary course of
business of a company whose ordinary business includes the lending of
money or the giving of guarantees in connection with loans, quasi-loans
or credit transactions made or entered into by other persons if the activities
of that company are regulated by any written law relating to banking,
finance companies or insurance or are subject to supervision by the Monetary
Authority of Singapore.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(4) Subsection (3)(a) or (b) shall not authorise the making of any restricted
transaction, except —
(a) with the prior approval of the company given at a general meeting at which the
purposes of the expenditure and the amount or extent of the restricted transaction
are disclosed; or
COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(8) For the purpose of subsection (1), a reference to a director or relevant director
therein includes a reference to the director’s spouse, son, adopted son, step-son, daughter,
adopted daughter and step- daughter.
The consequences of contravening section 162(2) is laid out in sections 162(6) and
(7)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(6) Where a company contravenes this section, any director who authorises the
making of the restricted transaction shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $20,000 or to imprisonment for a term not exceeding 2
years.
(7) Nothing in this section shall operate to prevent the company from recovering the amount
of any loan, quasi-loan, credit transaction or arrangement or amount for which it becomes
liable under any guarantee entered into or in respect of any security given contrary to this
section.
A company, apart from an exempt private company, is also not permitted to enter into
restricted transactions where the counterparty is a company or limited liability
partnership in which its directors have an interest amounting to at least 20% or
more of the total voting power in the counterparty unless there is prior approval by
the company in general meeting
Interested directors and their family members are required to abstain from
voting on this resolution
The definition of “company connected with the directors” is stipulated in section 163(1)
and (3)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(1) Subject to this section and sections 163A and 163B, it shall not be lawful for a
company (other than an exempt private company) —
(a) to make a loan or quasi-loan to another company or a limited liability partnership;
(b) to enter into any guarantee or provide any security in connection with a loan or quasi-
loan made to another company or a limited liability partnership by a person other
than the first-mentioned company;
(c) to enter into a credit transaction as creditor for the benefit of another company or a
limited liability partnership; or
(d) to enter into any guarantee or provide any security in connection with a credit
transaction entered into by any person for the benefit of another company or a
limited liability partnership,
if a director or directors of the first-mentioned company is or together are interested in 20%
or more of the total voting power in the other company or the limited liability partnership, as
the case may be, unless there is prior approval by the company in general meeting for the
making of, provision for or entering into the loan, quasi-loan, credit transaction, guarantee
or security (as the case may be) at which the interested director or directors and his or their
family members abstained from voting.
(3) For the purposes of subsection (2), a director or directors of a company —
(a) have an interest in the other company if —
a. in the case of a company with a share capital, the director or directors is or
together are interested in 20% or more of the total voting power in the
other company; or
b. in the case of a company without a share capital, the director or directors
exercises or together exercise control over the other company (whether
by reason of having the power to appoint directors or otherwise); or
(b) have an interest in a limited liability partnership if the director or directors is or
together are interested in 20% or more of the total voting power in the limited
liability partnership.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(3D) For the purposes of this section —
(b) “interest in shares” has the meaning assigned to that expression in section 7;
(c) a person who has an interest in a share of a company under section 7 is to be
treated as having an interest in the voting power conferred on the holder by that
share;
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(3D) For the purposes of this section —
(a) where a company makes a loan or quasi-loan to another company, enters into a
credit transaction for the benefit of another company, gives a guarantee or
provides security in connection with a loan, quasi-loan or credit transaction made
to or entered into for the benefit of another company, or enters into an
arrangement referred to in subsection (3A), a director or directors of the first-
mentioned company shall not be taken to have an interest in shares in that other
company by reason only that the first-mentioned company has an interest in
shares in that other company and a director or directors have an interest in
shares in the first-mentioned company;
(b) “interest in shares” has the meaning assigned to that expression in section 7;
(c) a person who has an interest in a share of a company under section 7 is to be
treated as having an interest in the voting power conferred on the holder by that
share;
(d) a reference to prior approval of the company in subsection (1) shall not include
any approval of the company that is given after the loan, quasi-loan, credit
transaction, guarantee or security referred to in that subsection has been made,
provided for or entered into (as the case may be); and
(e) a reference to prior approval of the company in subsection (3A) shall not include
any approval of the company that is given after the arrangement referred to in
that subsection has been entered into.
COMPANIES ACT
Cap 50, 2006 Rev Ed
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(2) Subsection (1) shall extend to apply to —
(a) a loan or quasi-loan made by a company (other than an exempt private
company) to another company or a limited liability partnership;
(b) a credit transaction made by a company (other than an exempt private company)
for the benefit of another company or to a limited liability partnership; and
(c) a guarantee entered into or security provided by a company (other than an
exempt private company) in connection with a loan or quasi-loan made to
another company or a limited liability partnership by a person other than the first-
mentioned company or with a credit transaction made for the benefit of another
company or a limited liability partnership entered into by a person other than the
first-mentioned company,
where such other company or such limited liability partnership is incorporated or formed, as
the case may be, outside Singapore, if a director or directors of the first-mentioned company
have an interest in the other company or the limited liability partnership, as the case may
be.
4.2.1.2 EXCEPTIONS
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(1) Subject to this section and sections 163A and 163B, it shall not be lawful for a
company (other than an exempt private company) —
(a) to make a loan or quasi-loan to another company or a limited liability partnership;
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(4) This section shall not apply —
(a) to anything done by a company where the other company (whether that
company is incorporated in Singapore or otherwise) is its subsidiary or holding
company or a subsidiary of its holding company; or
COMPANIES ACT
Cap 50, 2006 Rev Ed
Exception for expenditure on defending proceedings, etc.
163A.—(1) Sections 162 and 163 shall not apply to anything done by a company —
(a) to provide a director of the company with funds by way of any loan to meet
expenditure incurred or to be incurred by him —
(b) in defending any criminal or civil proceedings in connection with any alleged
negligence, default, breach of duty or breach of trust by him in relation to the
company; or
(c) in connection with an application for relief; or
(d) to enable any such director to avoid incurring such expenditure,
if it is done on the terms provided in subsection (2).
COMPANIES ACT
Cap 50, 2006 Rev Ed
Exception for expenditure in connection with regulatory action or investigation
163B.—(1) Sections 162, 163 and 172 shall not apply to anything done by a company —
(a) to provide a director of the company with funds by way of any loan to meet
expenditure incurred or to be incurred by him in defending himself —
i. in an investigation by a regulatory authority; or
ii. against any action proposed to be taken by a regulatory authority,
in connection with any alleged negligence, default, breach of duty or breach of trust
by him in relation to the company; or
(b) to enable any such director to avoid incurring such expenditure.
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
As noted, the board formally acts through passing resolutions, usually at board
meetings
Generally, there are no mandatory legal rules on how a board should conduct its
meetings or make decisions
Decision-making by the directors is left to be regulated by the company’s
constitution which tends to leave such matters to the discretion of the board
itself’
Board meetings can therefore be as formal or informal as the directors decide
Barron v Potter: However, a casual meeting between directors cannot be
considered a valid board meeting if one or more of the directors present were
not willing participants in the meeting
Majority principle applies to board resolutions
Except where constitution expressly provides otherwise, a simple majority will
carry the motion or proposal
However, note that powers are conferred on the directors for their conscious
and collective decision as a board, and directors owe duties collectively
and individually to the company
No individual director can be improperly excluded by his fellow
directors from board deliberations or from providing his input before a
decision is taken
A board meeting where notice is given only to some directors is
ineffective, and the court will intervene by granting an injunction against
the exclusion
Review Arts 79 to 90A TA; Regs 83-94 MC, which (other than Art 81 TA; Reg 85
MC) are fairly typical of the provisions found in a company’s constitution governing
“Proceedings of Directors”
Note that Art 81 TA; Reg 85 MC is often modified to allow a director to have an interest
in a transaction with the company, so long as he has properly disclosed his interest.
The modified article sometimes also permits the director to vote on such a disclosed
transaction. See further Topic 5 Directors’ Duties
COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 79 – 90A of Table A (Proceedings of Directors)
Meetings to which virtually all members have a right to attend are general meetings
As per section 175, every company is required to at least one general meeting, to be
called the “annual general meeting”, every calendar year
COMPANIES ACT
Cap 50, 2006 Rev Ed
Annual general meeting
175.—(1) A general meeting of every company to be called the “annual general meeting” shall in addition to
any other meeting be held once in every calendar year and not more than 15 months after the holding of the
last preceding annual general meeting, but so long as a company holds its first annual general meeting within
18 months of its incorporation, it need not hold it in the year of its incorporation or in the following year.
(2) Notwithstanding subsection (1), the Registrar may extend the period of 15 months or 18 months referred
to in that subsection, notwithstanding that the period is so extended beyond the calendar year —
(a) upon an application by the company, if the Registrar thinks there are special reasons to do so; or
(b) in respect of any prescribed class of companies.
(3) Subject to notice being given to all persons entitled to receive notice of the meeting, a general meeting
may be held at any time and the company may resolve that any meeting held or summoned to be held shall
be the annual general meeting of the company.
(a) the company and every officer of the company who is in default shall be guilty of an offence and
shall be liable on conviction to a fine not exceeding $5,000 and also to a default penalty; and
COMPANIES ACT
Cap 50, 2006 Rev Ed
Private companies may dispense with annual general meetings
(2) Notwithstanding any other provision of this Act, a resolution referred to in subsection (1)
shall only be treated as passed at a general meeting if it has been passed by all of such
members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy
present at the meeting.
This practice acknowledges the informality often associated with the operations
of private companies and permits the company to effect, by way of written
resolutions, matters which would otherwise have to be done formally held at
AGMs
To look at what items are required to be considered at the AGM, we refer to sections
201, 205(2)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Financial statements and consolidated financial statements
201.—(1) The directors of every company shall, at a date not later than 18 months after the
incorporation of the company and subsequently at least once in every calendar year at
intervals of not more than 15 months, lay before the company at its annual general
meeting the financial statements for the period since the preceding financial statements
(a) in the case of a public company that is listed, not more than 4 months before the
date of the meeting; or
(b) in the case of any other company, not more than 6 months before the date of the
meeting.
205.—(2) A company shall at each annual general meeting of the company appoint an
accounting entity or accounting entities to be the auditor or auditors of the company, and
any auditor or auditors so appointed shall, subject to this section, hold office until the
conclusion of the next annual general meeting of the company.
For other items usually considered at the AGM, we refer to section 161 and Articles
63, 98 of Table A
COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for issue of shares by directors
161.—(1) Notwithstanding anything in a company’s constitution, the directors shall not,
without the prior approval of the company in general meeting, exercise any power of the
company to issue shares.
Article 63 of Table A
63. At the first annual general meeting of the company all the directors shall retire from
office, and at the annual general meeting in every subsequent year one-third of the directors
for the time being, or, if their number is not 3 or a multiple of 3, then the number nearest
one-third, shall retire from office.
Article 98 of Table A
98. The company in general meeting may declare dividends, but no dividend shall exceed
the amount recommended by the directors.
With regards to the issue on whether shareholders are able to add items to the
agenda for an AFM, as long as the matter is one which falls rightly within the
shareholders’ power to decide, any number of members who represent not less
than 5% off the total voting rights of those entitled to vote on the matter may
requisition the company to circulate, with the agenda for the next AGM, notice of
resolutions concerning the matters which the members intend to table at that meeting
COMPANIES ACT
Cap 50, 2006 Rev Ed
Circulation of members’ resolutions, etc.
(a) give to members of the company entitled to receive notice of the next annual
general meeting notice of any resolution which may properly be moved
and is intended to be moved at that meeting or (if the resolution is proposed
to be passed by written means under section 184A) for which agreement is
sought; and
(b) circulate to members entitled to have notice of any general meeting sent to them
any statement of not more than 1,000 words with respect to the matter referred
to in any proposed resolution or the business to be dealt with at that meeting.
(2) The number of members necessary for a requisition under subsection (1) shall be —
(a) any number of members representing not less than 5% of the total voting rights
of all the members having at the date of the requisition a right to vote at the
meeting to which the requisition relates; or
(b) not less than 100 members holding shares in the company on which there has
been paid up an average sum, per member, of not less than $500.
The holding in Credit Development v IMO Pte Ltd stated that section 183(1)
requires the company to give notice of “any resolution which may properly be
moved”
Directors need not act on a requisition for a meeting if the object of the
meeting is to do that which cannot legally be carried into effect or to
pass a resolution which is ultra vires the meeting
If such a meeting was in fact held and a resolution passed, the directors
are not bound to comply with it
Company cannot be required to include such a resolution in the agenda
of an annual general meeting and such a resolution is one which may
not be properly moved
All other general meetings additional to the annual general meeting are usually
referred to as “extraordinary general meetings”
COMPANIES ACT
Cap 50, 2006 Rev Ed
COMPANIES ACT
Cap 50, 2006 Rev Ed
Convening of extraordinary general meeting on requisition
176.—(1) The directors of a company, notwithstanding anything in its constitution, shall, on
the requisition of members holding at the date of the deposit of the requisition not less
than 10% of the total number of paid-up shares as at the date of the deposit carries the
right of voting at general meetings or, in the case of a company not having a share capital,
of members representing not less than 10% of the total voting rights of all members
having at that date a right to vote at general meetings, immediately proceed duly to
convene an extraordinary general meeting of the company to be held as soon as
practicable but in any case not later than 2 months after the receipt by the company of the
requisition.
Calling of meetings
177.—(1) Two or more members holding not less than 10% of the total number of
issued shares of the company (excluding treasury shares) or, if the company has not a
share capital, not less than 5% in number of the members of the company or such
lesser number as is provided by the constitution may call a meeting of the company.
The court may also direct a meeting to be held and conducted in a manner it thinks fit
where it is “impracticable” to call or conduct a meeting in the usual manner
Impracticability provides the threshold requirement for the exercise of and
underpins the court’s jurisdiction
In deciding whether to exercise its discretion, the court takes a holistic
assessment of the circumstances; which entails a consideration of whether
there is, in the first place, impracticability and then whether the impracticability
is such as to call for the court’s intervention
Note: Court will not exercise its jurisdiction under the section to override class
or other substantive rights or to shift the balance of power between
shareholders who have agreed to share control equally
The CA stipulates that a minimum notice period of 14 days must be given for all
meetings except a meeting of a public company for the passing of a special
resolution, for which a period of 21 days is prescribed
It is possible for meetings to be called on shorter notice
Must be agreed to by a majority in number of the members who together hold
not less than 95% of the total voting rights of all the members having a right to
vote at that meeting
However, AGMs may only be called on shorter notice if this is agreed to by all
the members who are entitled to attend and vote thereafter
COMPANIES ACT
Cap 50, 2006 Rev Ed
Calling of meetings
177.—(2) A meeting of a company or of a class of members, other than a meeting for the
passing of a special resolution, shall be called by notice in writing of not less than 14 days
or such longer period as is provided in the constitution.
(3) A meeting shall, notwithstanding that it is called by notice shorter than is required by
subsection (2), be deemed to be duly called if it is so agreed —
(a) in the case of a meeting called as the annual general meeting, by all the
members entitled to attend and vote thereat; or
(b) in the case of any other meeting, by a majority in number of the members
having a right to attend and vote thereat, being a majority which together holds
not less than 95% of the total voting rights of all the members having a right
to vote at that meeting.
(4) So far as the constitution does not make other provision in that behalf, notice of every
meeting shall be served on every member having a right to attend thereat in the manner in
which notices are required to be served by the model constitution prescribed under section
36(1) for the type of company to which the company belongs, if any.
The calculation for notice period is laid out in Articles 45 and 108 of Table A, and
their counterparts Regulations 49 and 113 of the Model Constitution respectively
COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulation 49 of Model Constitution
49.—(1) Subject to the provisions of the Act relating to special resolutions and any
agreement amongst persons who are entitled to receive notices of general meetings from
a company, at least 14 days’ notice (exclusive of the day on which the notice is served
or treated to be served, but inclusive of the day for which notice is given) of any
general meeting must be given to persons entitled to receive notices of general meetings
from the company.
(2) A notice of a general meeting must specify the following:
(a) the place at which the general meeting is held;
(b) the date and time of the general meeting;
(c) in case of special business to be transacted at the general meeting, the general
nature of that business.
Regulation 113 of Model Constitution
113.—(1) A notice may be given by the company to any member either personally or by
sending it by post to the member —
(a) at the member’s registered address; or
(b) if the member has no registered address in Singapore, to the address, if any, in
Singapore supplied by the member to the company for the giving of notices to
the member.
(2) Where a notice is sent by post, service of the notice is treated as effected by properly
addressing, prepaying, and posting a letter containing the notice.
(3) Where a notice is sent by post, service of the notice is treated as effected —
COMPANIES ACT
Cap 50, 2006 Rev Ed
Removal of directors
152.—(1) A public company may by ordinary resolution remove a director before the
expiration of his period of office, notwithstanding anything in its constitution or in any
agreement between it and him but where any director so removed was appointed to
represent the interests of any particular class of shareholders or debenture holders the
resolution to remove him shall not take effect until his successor has been appointed.
Resolution requiring special notice
185. Where by this Act special notice is required of a resolution, the resolution shall not be
effective unless notice of the intention to move it has been given to the company not less
than 28 days before the meeting at which it is moved, and the company shall give its
members notice of any such resolution at the same time and in the same manner as it gives
notice of the meeting or, if that is not practicable, shall give them notice thereof, in any
manner allowed by the constitution, not less than 14 days before the meeting, but if after
notice of the intention to move such a resolution has been given to the company, a meeting
is called for a date 28 days or less after the notice has been given, the notice, although not
given to the company within the time required by this section, shall be deemed to be properly
given.
Appointment and remuneration of auditors
205.—(1) The directors of a company shall, within 3 months after incorporation of the
company, appoint an accounting entity or accounting entities to be the auditor or auditors
of the company, and any auditor or auditors so appointed shall, subject to this section, hold
office until the conclusion of the first annual general meeting.
(4) An auditor of a company may be removed from office by resolution of the company at a
general meeting of which special notice has been given, but not otherwise.
As the notice serves to give “fair warning” of the business intended to be transacted, it
should contain enough detail to enable the members to make informed choices as to
whether or not to attend the meeting or to take other steps
Depends on the particular circumstances of each case and the specific context
of the matters to be transacted at the meeting will have to be considered in light
of the circumstances of the company concerned
However, take note of Regulation 49 of the Model Constitution (stated above), where
certain details had to be specified in the notice (place at which the general meeting is
held; the date and time of the general meeting; and in case of special business to be
transacted at the general meeting, the general nature of that business)
COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulations 51 – 66 of Model Constitution (Proceedings at General Meetings)
51.—(1) No business is to be transacted at any general meeting unless a quorum of
members is present at the time when the meeting proceeds to business.
(2) Except as otherwise provided in this Constitution, 2 members present in person form a
quorum.
(3) In this regulation, “member” includes a person attending as a proxy or as representing
a corporation or a limited liability partnership which is a member.
52. If within half an hour after the time appointed for a general meeting a quorum is not
present, the meeting —
(a) in the case where the meeting is convened upon the requisition of members, is
dissolved; or
(b) in any other case, is adjourned to the same day in the next week at the same
time and place, or to another day and at another time and place as the directors
may determine.
53. The chairman of a general meeting is —
(a) where the board of directors has appointed a chairman amongst the directors,
the chairman; or
(b) where —
i. the chairman of the board of directors is unwilling to act as the chairman of
the general meeting;
ii. (ii) the chairman is not present within 15 minutes after the time appointed for
the holding of the general meeting; or
iii. (iii) the board of directors has not appointed a chairman amongst the
directors,
the member elected by the members present for the purpose of being the
chairman of the general meeting.
54.—(1) The chairman may, with the consent of a general meeting at which a quorum is
present, and must if so directed by a general meeting, adjourn the general meeting from
time to time and from place to place.
(2) No business is to be transacted at any adjourned meeting other than the business left
unfinished at the general meeting from which the adjournment took place (called in this
regulation the original general meeting).
(3) There is no need to give any notice of an adjourned meeting or of the business to be
transacted at an adjourned meeting unless the adjourned meeting is to be held more than
30 days after the date of the original general meeting.
55.—(1) At any general meeting, a resolution put to the vote of the meeting must be
decided on a show of hands unless a poll is (before or on the declaration of the result of
the show of hands) demanded —
6.1.4.1 QUORUM
A quorum is basically the minimum number of members entitled to vote who must
be present in order for the meeting to be properly constituted and the proceedings
thereat valid
While the constitution of the company will normally specify the quorum for meetings of
the company, where the constitution does not specify, refer to section 179(1) below
or Regulation 51 of the Model Constitution above
COMPANIES ACT
Cap 50, 2006 Rev Ed
Quorum, chairman, voting, etc., at meetings
179.—(1) So far as the constitution does not make other provision in that behalf and subject
to sections 64 and 64A —
(a) 2 members of the company personally present shall form a quorum;
(b) any member elected by the members present at a meeting may be chairman
thereof;
(c) in the case of a company having a share capital —
(i) on a show of hands, each member who is personally present and entitled to
vote shall have one vote; and
(ii) on a poll, each member shall have one vote in respect of each share held by
him and where all or part of the share capital consists of stock or units of
stock each member shall have one vote in respect of the stock or units of
stock held by him which is or are or were originally equivalent to one share;
and
(d) in the case of a company not having a share capital every member shall have
one vote.
Re Hartley Baird Ltd: No legal requirement for the quorum to be present throughout,
subject of course to there being at least two persons throughout
6.1.4.2 PROXIES
While members have a right to attend any general meeting of the company (section
180(1)), they need not attend a meeting in person and may appoint a proxy and
authorise him to represent and vote for the member (section 181(1))
The proxy need not be another member, and as a general rule, a member is
not entitled to appoint more than two proxies for the same meeting (section
181(1A))
COMPANIES ACT
Cap 50, 2006 Rev Ed
Quorum, chairman, voting, etc., at meetings
179.—(3) A corporation may by resolution of its directors or other governing body —
(a) if it is a member of a company, authorise such person as it thinks fit to act as its
representative either at a particular meeting or at all meetings of the company or
of any class of members; or
(b) if it is a creditor, including a holder of debentures, of a company, authorise such
person as it thinks fit to act as its representative either at a particular meeting or
at all meetings of any creditors of the company,
and a person so authorised shall, in accordance with his authority and until his authority is
revoked by the corporation, be entitled to exercise the same powers on behalf of the
corporation as the corporation could exercise if it were an individual member, creditor or
holder of debentures of the company.
As to member’s rights at meetings
180.—(1) A member shall, notwithstanding any provision in the constitution of the company,
have a right to attend any general meeting of the company and to speak on any resolution
before the meeting.
Proxies
181.—(1) Subject to this section, a member of a company entitled to attend and vote at a
meeting of the company, or at a meeting of any class of members of the company, shall be
entitled to appoint another person, whether a member or not, as his proxy to attend and
vote instead of the member at the meeting and a proxy appointed to attend and vote instead
of a member shall also have the same right as the member to speak at the meeting.
(1A) Subject to this section, unless the constitution otherwise provides —
(a) a proxy shall not be entitled to vote except on a poll;
(b) a member shall not be entitled to appoint more than 2 proxies to attend and
vote at the same meeting; and
(c) where a member appoints 2 proxies, the appointments shall be invalid unless he
specifies the proportions of his holdings to be represented by each proxy.
However, a member who has appointed a proxy for a particular meeting may
nonetheless turn up at the meeting and vote in accordance with his own wishes even
if the proxy was in attendance
In such a case, the votes, if any, that have been tendered by the proxy will be
rejected
6.1.4.3 VOTES
As a general rule, a share in a company confers on the holder of the share to one
vote on a poll at a meeting of the company on any resolution
But this may be negated, altered or added to by the company’s constitution
Constitution may therefore provide for certain classes of shares to have
weighted voting right, or to be without voting rights at all
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Cap 50, 2006 Rev Ed
Rights and powers attaching shares
64.—(1) Subject to subsections (2) and (3), sections 21 and 76J, and any written law to the
contrary, a share in a company confers on the holder of the share the right to one vote on
a poll at a meeting of the company on any resolution.
(2) A company’s constitution may provide that a member shall not be entitled to vote unless
all calls or other sums personally payable by him in respect of shares in the company have
been paid.
(3) Subject to subsection (4) and section 64A, a right specified in subsection (1) may be
negated, altered, or added to by the constitution of the company.
(4) Notwithstanding subsection (3), the right of a holder of a specified share of a company
to at least one vote on a poll at a meeting of the company on the following resolutions may
not be negated or altered:
(a) a resolution to wind up the company voluntarily under section 290; or
(b) a resolution to vary any right attached to a specified share and conferred on the
holder.
Issue of shares with different voting rights by public company
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Regulation 55 of Model Constitution
55.—(1) At any general meeting, a resolution put to the vote of the meeting must be decided
on a show of hands unless a poll is (before or on the declaration of the result of the show
of hands) demanded —
(a) by the chairman;
(b) by at least 3 members present in person or by proxy;
(c) by any member or members present in person or by proxy and representing
not less than 5% of the total voting rights of all the members having the right
to vote at the meeting; or
(d) by a member or members holding shares in the company conferring a right to
vote at the meeting being shares on which an aggregate sum has been paid up
equal to not less than 5% of the total sum paid up on all the shares conferring
that right.
(2) Unless a poll is demanded, a declaration by the chairman that a resolution has on a
show of hands been carried or carried unanimously, or by a particular majority, or lost, and
an entry to that effect in the book containing the minutes of the proceedings of the company
is conclusive evidence of the fact without proof of the number or proportion of the votes
recorded in favour of or against the resolution.
(3) The demand for a poll may be withdrawn.
Right to demand a poll
178.—(1) Subject to subsection (1B), any provision in a company’s constitution shall be void
in so far as it would have the effect —
(b) of making ineffective a demand for a poll on any question or matter other than
the election of the chairman of the meeting or the adjournment of the meeting
that is made —
(i) by not less than 5 members having the right to vote at the meeting;
(ii) by a member or members representing not less than 5% of the total
voting rights of all the members having the right to vote at the meeting; or
(iii) by a member or members holding shares in the company conferring a
right to vote at the meeting, being shares on which an aggregate sum has
been paid up equal to not less than 5% of the total sum paid up on all the
shares conferring that right
Minutes of all proceedings of meetings must be kept and entered in minute books
within a month of the date upon which the relevant meeting was held
Minutes serve as records of the proceedings of the meetings and must be signed by
the chairperson of the meeting at which the proceeding were had or by the
chairperson of the next succeeding meeting
Unless contrary is shown, minutes that have been signed and entered into the books
provide prima facie and not conclusive evidence that the meeting was duly
convened and held, and that the proceedings to which the minutes relate have been
duly conducted
An unrecorded resolution may, however be independently proved to have been passed
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Cap 50, 2006 Rev Ed
Registration and copies of certain resolutions
186.—(1) A copy of —
shall, except where otherwise expressly provided by this Act within 14 days after the passing
or making thereof, be lodged by the company with the Registrar.
(2) Where the constitution of a company has not been registered a printed copy of every
resolution to which this section applies shall be forwarded to any member at his request on
payment of $1 or such less sum as the company directs.
(3) In the event of any default in complying with subsection (1) the company and every
officer of the company who is in default shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $1,000 and also to a default penalty.
(4) In the event of any default in complying with subsection (2) the company and every
officer of the company who is in default shall be guilty of an offence and shall be liable on
conviction to a fine of $50 for each copy in respect of which default is made.
Minutes of proceedings
188.—(1) Every company shall cause —
(a) minutes of all proceedings of general meetings and of meetings of its directors
and of its chief executive officers, if any, to be entered in books kept for that
purpose within one month of the date upon which the relevant meeting was held;
and
(b) those minutes to be signed by the chairman of the meeting at which the
proceedings were had or by the chairman of the next succeeding meeting.
(2) Any minutes so entered that purports to be signed as provided in subsection (1) shall be
evidence of the proceedings to which they relate, unless the contrary is proved.
Certain important shareholder resolutions that must be filed at ACRA are found in
section 186
Note:
Meetings which involve only a segment, or class, of members are referred to as class
meetings
For public companies limited by shares, there is additionally a “statutory meeting”
which the company is required to hold within a period of not less than one month
and not more than three months after the date at which it is entitled to commence
business (section 174(1))
Prior to the meeting, the directors are required to forward a “statutory report” to
every member of the company
This report is to contain information about, inter alia, the shares allotted and
cash received, as well as details about the officers of the company
The statutory meeting gives the members opportunity to discuss any matter
relating to the formation of the public company or arising out of the statutory
report
Responsibility for ensuring that the statutory meeting is properly held lies with
the directors and every director who failed to take all reasonable steps to
ensure this is subject to criminal sanction
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Statutory meeting and statutory report
174.—(1) Every public company that is a limited company and has a share capital shall,
within a period of not less than one month and not more than 3 months after the date at
which it is entitled to commence business, hold a general meeting of the members of the
company to be called the “statutory meeting”.
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Passing of resolutions by written means
184A.—(1) Notwithstanding any other provision of this Act, a private company or an unlisted
public company may pass any resolution by written means in accordance with the provisions
of this section and sections 184B to 184F.
(2) Subsection (1) shall not apply to a resolution referred to in section 175A(1) or a
resolution for which special notice is required.
(3) A special resolution is passed by written means if the resolution indicates that it
is a special resolution and if it has been formally agreed on any date by one or more
members of the company who on that date represent —
(a) at least 75%; or
(b) if the constitution of the company requires a greater majority
for that resolution, that greater majority, of the total voting rights of all the members who on
that date would have the right to vote on that resolution at a general meeting of the company.
(4) An ordinary resolution is passed by written means if the resolution does not indicate
that it is a special resolution and if it has been formally agreed on any date by one or more
members of the company who on that date represent —
(a) a majority; or
(b) if the constitution of the company requires a greater majority for that
resolution, that greater majority,
of the total voting rights of all the members who on that date would have the right to vote on
that resolution at a general meeting of the company.
(5) For the purposes of this section, a resolution of a company is formally agreed by a
member if —
(a) the company receives from the member (or his proxy if this is allowed) a
document that —
(i) is given to the company in legible form or a permitted alternative form;
(a) the resolution is invalid even though it may have in the
meantime been passed
in accordance with section 184A; and
(b) the directors shall proceed to convene a general meeting for the resolution.
Period for agreeing to written resolution
184DA.—(1) Unless the constitution of a company otherwise provides, a resolution
proposed to be passed by written means lapses if it is not passed before the end of the
period of 28 days beginning with the date on which the written resolution is circulated to the
members of the company.
(2) The agreement to a resolution is ineffective if indicated after the expiry of that period.
Company’s duty to notify members that resolution passed by written means
184E.—(1) Where a resolution of a private company or an unlisted public company is
passed by written means, the company shall —
At common law, an act which is intra vires (within the powers) the company and which
is assented to by every member of the company who is entitled to vote at a general
meeting is a valid act of the company
This holds even if the members gave their assent informally and at different
times
The doctrine, often referred to as the Duomatic principle, allows the company to
override the formal requirements in relation to the passing of resolutions at general
meetings
Principle has also been applied to “cure” non-compliance with certain statutorily
imposed formalities
Jimat Bin Awang v Lai Wee Ngen: Doctrine applied to validate an issue of
shares which had not been first approved by the company in general meeting
as required by the CA
While it may be that there can be no general proposition one way or the other in
respect of such statutory requirements and that the particular provision has to be
examined to determine the underlying purpose and rationale for the particular
formality imposed, whether ordinary or special resolution
If it is possible to discern that the formality is stipulated for the benefit of
some interest group apart from the present members or for a wider policy
reason, the application of the Duomatic principle may be displaced
Re Barry Artist Ltd: Nourse J was uneasy with the application of the principle
to a reduction of capital exercise as the statutory requirements are imposed
to protect the interest of creditors
In Dovechem Holdings Ote Ltd v Ng Joon Soon: CA noted that the alteration
of the particular articles had “a serious impact as it requires all
directors…including its very founder…to retire as directors on attaining the
age of 70”
Other than shareholders’ decisions, this principle has been help to apply to board
decisions
Where all the directors assent informally to a particular agreement, the assent
is tantamount to a resolution of the board and the agreement is binding
Where all the directors are themselves all the shareholders, a unanimous
decision which they take as directors can be treated as having been made as
members
Limitations on this principle include:
Circumstance which special resolution is required
Thio Keng Poon v Thio Syn Pyn: The process of determining substantial injustice
(mentioned in section 392(2)) involves a “holistic weighing and balancing of the various
interests of all the relevant parties”
To determine whether a non-compliance is of a procedural or substantive
nature, one must examine the aim or object of the requirement which was
not complied with
The following principles apply:
1) There must be a direct link between the procedural irregularity and
the injustice suffered
2) Injustice must be of a “substantial” nature – injustice must be real,
rather than theoretical or fanciful; there must be a basis that the
aggrieved party had suffered injustice or would suffer injustice as a
result of the procedural irregularity
3) Aggrieved party must show that there may or could have been a
different result, if not for the occurrence of the procedural irregularity
Common-law principles, such as unanimous consent rule, may also have the effect of
curing defects in procedure
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Cap 50, 2006 Rev Ed
Regulation 92 of Model Constitution (or Article 89 of Table A)
92. All acts done by any meeting of the directors or of a committee of directors or by any
person acting as a director is as valid as if every such person had been duly appointed and
was qualified to be a director, even if it is afterwards discovered that —
(a) there was some defect in the appointment of any director or person acting as a
director; or
(b) the directors or person acting as a director or any of them were disqualified.
8. COMPANY SECRETARY
The company secretary is also an officer of the company, as is a receiver and manager
of any part of the undertaking of the company appointed under a power contained in
any instrument and any liquidator of a company appointed in a voluntary winding up
Being considered the “chief administrative officer” of the company, his main function is
to see to due compliance with the disclosure and other administrative
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Cap 50, 2006 Rev Ed
Secretary
171.—(1) Every company shall have one or more secretaries each of whom shall be a
natural person who has his principal or only place of residence in Singapore and who is not
debarred under section 155B from acting as secretary of the company
(1A) It shall be the duty of the directors of a company to take all reasonable steps to secure
that each secretary of the company is a person who appears to them to have the requisite
knowledge and experience to discharge the functions of secretary of the company.
(1AA) In addition, it shall be the duty of the directors of a public company to take all
reasonable steps to secure that each secretary of the company is a person who —
(a) on 15 May 1987 held the office of secretary in that company and continued to
hold that office on 15 May 2003; or
(b) satisfies such requirements relating to experience, professional and academic
requirements and membership of professional associations, as may be
prescribed.
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Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“officer”, in relation to a corporation, includes —
(a) any director or secretary of the corporation or a person employed in an executive
capacity by the corporation;
(b) a receiver and manager of any part of the undertaking of the corporation appointed
under a power contained in any instrument; and
(c) any liquidator of a company appointed in a voluntary winding up,
but does not include —
(d) any receiver who is not also a manager;
(e) any receiver and manager appointed by the Court;
(f) any liquidator appointed by the Court or by the creditors; or
(g) a judicial manager appointed by the Court under Part VIIIA;
The traditional method of giving notices to members is generally dealt with in the
constitution – see e.g. Art 108 TA
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Article 108 of Table A
A notice may be given by the company to any member either personally or by sending it
by post to him at his registered address, or, if he has no registered address in Singapore,
to the address, if any, in Singapore supplied by him to the company for the giving of notices
to him. Where a notice is sent by post, service of the notice shall be deemed to be effected
by properly addressing, prepaying, and posting a letter containing the notice, and to have
been effected in the case of a notice of a meeting on the day after the date of its posting,
and in any other case at the time at which the letter would be delivered in the ordinary
course of post.
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