Corporate Law Assignment Based On Company & Tort Law Cases
Question
Task:
The corporate law assignment is based on the following questions:
Question 1
Allison has just graduated from the university with a degree in computing engineering and has plans to set up a fintech business in Singapore.
Allison intends to rope in her best friends to assist her in the administrative matters of the company while she will provide the core technical solutions for customers. It is contemplated that Allison will maintain more than 50% equity interest in the company notwithstanding the possible injection of capital by investors. She will also be the chief executive officer and executive director and expects not more than two other friends to join her on the board.
Separately, Allison wishes to set up a foundation, which will be a separate arm of her business, to drive her favourite charitable causes.
Allison has determined that she should incorporate a company to pursue each of her business and charity ideas. Allison knows that she needs to commit significant time and effort in the initial development of the business, so she wishes to reduce the administrative burden on the company during this stage. She can foresee that once the company has established some track record in its business, she may need to raise funds by bringing in new investors.
Allison has come to you for advice:
(a) Define the types of companies that may be incorporated in Singapore. What are the differences in these companies and their compliance requirements? Advise Allison on the appropriate form of company that is suitable for pursuing her business and charitable interests. Assume that a different company will be established for each purpose.
(b) Allison feels that as she is the founder, she needs to hold more than 50% equity interest in the company and have control over the management of the company. With the introduction of new investors, she is concerned that there will be interference with management by shareholders and possibly new investors. As a start-up, her company may not be able to achieve profitability and declare dividends in the short-term. Launches of new products may be delayed due to uncertainties caused by the unforeseen pandemic and (the expected but nevertheless) real competition with the digital banks which have recently been granted licences. However, the company may still have to pay recurring costs, which includes the payment of “fat” salaries to Allison and her management team as executive directors of the company.
- Outline the rights of minority shareholders against Allison as the majority shareholder and her management team in the situation above. You do not have to consider or discuss the right to commence derivative actions under s 216A of the Companies Act.
- Describe the ways in which Allison can protect herself against any interference from the new investors whom she invites.
Answer
(a) Ans. Section 17 of the Companies Act lays down the different types of companies that may be incorporated in Singapore and are the following:
- A limited company by shares
- A limited company by guarantee
- Unlimited company
- Private Limited Company u/s 18(1) of the Companies Act
- Public Company u/s 4(1) of the Companies Act
The above companies stated in the corporate law assignment are the major forms of companies that can be incorporated in Singapore. Each of these companies differs from one another based on their nature and primary characteristics as laid down under the provisions of the Companies Act. These companies mainly differ based on their minority and majority shareholder's rights. For each type of company, the liability of the shareholders is different and therefore the legal proceedings with regards to this are also different (Wang, 2018). For instance, in the first type of company, the shareholders have their shares invested in the company but in the second type, there are no shares of the shareholders invested in the company. Moreover, the liability of the shareholders in the first instance is more than the second instance. The shareholders possess absolute liability in the case type of company.
Further, in the case of an unlimited company, the liability of the shareholders with regards to the asset of the company is not limited but whole. However, at the same time, a private limited company has a share capital and each shareholder possess the right to transfer their shares. Furthermore, a public company is a company that mainly has more than 50 shareholders and is not counted under the characteristics of a private company (Lin, 2019).
In the present case, it would be advisable for Allison to have a private shareholders company as Allison will be investing approximately 50% of her equity shares. Allison will be able to make profits with the help of such a structure of her company. This form of company will be the most suitable form of company for her charitable interests.
(b) (i) Ans. The minority shareholders play an important role in the structure of the company and are imminent personalities. The following are the rights of minority shareholders:
- A shareholder can bring any legal proceeding against Allison at any time Allison breach any particular interest of the person. According to Singapore law, the shareholders of the company have several rights that provide the shareholders to bring legal proceedings against the owner i.e. Allison. Any one of the shareholders may bring legal proceedings against the owner on behalf of the company or behalf of the other shareholders. The shareholders also possess other legal rights that help them to protect their rights against the company.
- A shareholder will also have access to the audited financial statement of the company and receive all the related information’s based on this. This will help the shareholders to know the financial activities of the company (Ganguli et al., 2020). This right ensures that the shareholders will possess knowledge of all the financial happenings of the company and may therefore become a part of the financial decisions that are usually taken during the course.
(ii) Ans. There are various rights of the shareholders in the company but there are also equal rights of the owner of the company. Similarly, even though the minority shareholders will have their rights in the company and will have their share of access to the functioning of the company. Allison being the majority shareholder of the company will have further rights over the company and other shareholders (Hu, & Loh, 2018). These rights are laid down under the provisions of the Companies Act which will be thoroughly followed in Singapore. The Companies Act will mention the major rights of the owner therefore Allison will enjoy maximum rights such as regulating the decisions of the company, taking and deciding the major decisions of the company and so on (Li et al., 2018). For instance, the company will also take further measures and take important measures for the company in every aspect. Therefore, Allison has the right to rescind the partnership at any time by providing reasonable explanations to the shareholders. This acts as one of the major safeguards for Allison. Another important safeguard for Allison is to have full access to the information’s of the company and have full access to the financial statement of the company. Moreover, another important safeguard for Allison is to take the charge of the company and its decisions and save herself from any major legal proceeding by taking the defence of ownership privileges.
References
Ganguli, S. K., Dawar, V., & Arrawatia, R. (2020). Corporate dividend policy, minority shareholders right and equity value of firm: Evidence from Singapore. Journal of public affairs, 20(2), e2039. https://doi.org/10.1002/pa.2039
Hu, M., & Loh, L. (2018). Board governance and sustainability disclosure: A cross-sectional study of Singapore-listed companies. Sustainability, 10(7), 2578. https://doi.org/10.3390/su10072578
Li, Y., Taeihagh, A., & De Jong, M. (2018). The governance of risks in ridesharing: A revelatory case from Singapore. Corporate law assignment Energies, 11(5), 1277. https://doi.org/10.3390/en11051277
Lin, L. (2019). Code of corporate governance: lessons from Singapore to China.
Wang, Y. (2018, July). The Evolutionary Analysis on the Expropriation of Large Shareholders on Minority Shareholders. In International Conference on Frontier Computing (pp. 1298-1305). Springer, Singapore. https://doi.org/10.1007/978-981-13-3648-5_169
