17. Formation of companies Flashcards
- Formation of companies
- types of cos that may be incorporated :
(a) a co limited by shares;
(b) a co limited by guarantee; and
(c) an unlimited liability co
General overview
[17.01] This section provides that any person, including a corporation, by himself or with another person, may incorporate a company. It lists three types of companies that may be formed under the Act under s 17(2). More importantly, it provides that any association, company or partnership of more than 20 persons will be illegal unless it is registered as a company under the Act, except the professions or calling which are governed by other written law.
[17.02] Section 17(1) provides that a person whether by himself or with another person may incorporate a company. The types of companies that may be incorporated are:
(a) a company limited by shares;
(b) a company limited by guarantee; and
(c) an unlimited liability company.
Companies limited by shares
- Upon a winding up of the company, the liability of the members to contribute to the assets of the company is limited by the extent of share capital that they have subscribed (ring-fence personal wealth)
- company is liable to the full extent of its debts in a liquidation of the company.
[17.03] In a company limited by shares, the company has a share capital which is subscribed by the first shareholders. Upon a winding up of the company, the liability of the members to contribute to the assets of the company is limited by the extent of share capital that they have subscribed. In this way, they can ring-fence their personal wealth from the creditors of the company in a winding up. This is one of the fundamental advantages of carrying on business as a company rather than as a sole proprietorship or partnership. On the other hand, the company is liable to the full extent of its debts in a liquidation of the company.
Companies limited by guarantee
- shall not hv share capital
- member’s liability is limited to the amount he has guaranteed in the constitution
- Usually not formed for trading purposes but to carry out non-profit
[17.04] Under s 17(5), a company limited by guarantee shall not have a share capital. In a company limited by guarantee, a member’s liability is limited to the amount he has guaranteed in the constitution (previously the memorandum of association). Usually, guarantee companies are not formed for trading purposes but to carry out non-profit activities whilst enjoying the advantages of the corporate form. For example, they are engaged in charitable (e.g. CDAC, Mendaki, SINDA and the AMP), scientific (e.g. Singapore Zoological Gardens and Jurong Bird Park), religious (e.g. some Christian churches incorporate as guarantee companies to avoid registration as a society under the Societies Act (Cap 31)), or artistic activities (e.g. Wild Rice Ltd is a company limited by guarantee that was incorporated by Ivan Heng. It is one of the professional theatre companies in Singapore). Section 17(6) preserves the existence of companies that have been incorporated as companies limited by guarantee with a share capital before August 15, 1984 but provides that they shall elect within two years of that date to convert into a company limited by guarantee or a company limited by shares.
Unlimited companies
- members have unlimited liability for the debts of the company in a winding up.
- usually incorporated to satisfy the requirements for the exercise of some profession
[17.05] An unlimited company, as the name suggests, is a company where its members have unlimited liability for the debts of the company in a winding up. Such companies are usually incorporated to satisfy the requirements for the exercise of some profession, for example, s 20 of the Professional Engineers Act (Cap 253) provides that professional engineers may practise as an unlimited company or as a limited company if the minimum paid up capital is not less than $500,000. Similarly, s 20 of the Architects Act (Cap 12) provides that architects may practise their profession as an unlimited company or as a limited company if they have a minimum paid up capital of $1 million. The court may order security for costs against an unlimited company: Jirehouse Capital (an unlimited co) & Anor v Beller & Anor [2008] EWCA Civ 908; [2009] 1 WLR 751, CA . An unlimited company is entitled not to disclose the identities of its members when applying to transfer a licence to its manager under s 3 of the Licensing Act 1964 (UK)
Compulsory registration as company
[17.06] Section 17(3) prohibits the formation of any company, association or partnership consisting more than 20 persons that has a profit motive unless it is registered as a company under the Act: see Soh Hood Beng v Khoo Chye Neo (1897) 4 SSLR 115 at 119, HC , affirmed by the Court of Appeal in (1897) 4 SSLR 122. As such, a partnership of more than 20 persons is an illegal entity and the court will not allow such a partnership to bring an action
Unregistered companies (s 17(3))
[17.07] As regards the legal relationship amongst the incorporators, it has been held that the incorporator may not recover property he has contributed to the illegal association as the loss lies where it falls in an illegal contract: see Shim Fatt v Leila Road Bus Co [1957] SCR 3, HC ; cf Soh Ah Suan v Ang Huat Chwee [1937] SSLR 56, HC where the court ordered the incorporators to account notwithstanding that the partnership was not registered as a company. No winding up of unregistered companies: see Re Arthur Average Association for British, Foreign, and Colonial ships, Ex p Hargrove & Co (1875) 10 Ch App 542 ; Re Padstow Total Loss and Collision Assurance Association (1881) 20 Ch D 137. Deed that established a freehold land society was not an illegal association: see Re Siddall (a person of unsound mind) (1885) 29 Ch D 1 ; cf The Colonial building and Investment Association v The AG of Quebec (1883) 9 App Cas 157, PC . A society for the purpose of investment was held not to require registration: Smith v Anderson (1880) 15 Ch D 247 ; Crowther v Thorley (1884) 32 WR 330 ; Wigfield v Potter (1881) 45 LT 612. The official liquidator of an unregistered company which is being wound up under the Companies Act 1862 (UK), has power in his own name, and on behalf of the company, to institute a suit in equity against directors of the company, for the purpose of compelling them to make good losses occasioned by their misconduct in the management of its affairs
Professions or calling exempted
[17.08] Subsection (4) exempts the registration of professions or calling of more than 20 persons as a company under the Act, see separate legislations such as the Accountants Act (Cap 2), Architects Act (Cap 12), Professional Engineers Act (Cap 253) and Legal Profession Act (Cap 161).
Company limited by guarantee with a share capital
- not allowed
[17.09] Subsections (5), (6) and (7) prohibit the incorporation of a company limited by guarantee with a share capital after August 15, 1984. Existing companies may elect to convert into either a company limited by shares or a company limited by guarantee within two years of that date by way of a special resolution. A new notice of incorporation shall be issued by the registrar accordingly.
