Chapter 11 Flashcards
1
Q
What does the choice of business organisation depend on?
A
The needs of a particular business.
2
Q
A sole proprietorship is carried out by ____.
A
One person.
3
Q
Under the ____ Act, how does one carry out a business as a sole proprietor?
A
Business Names Registration. The business must be registered with the Accounting and Corporate Regulatory Authority Singapore (ACRA).
4
Q
What other formalities are required in some instances?
A
A license to conduct certain types of businesses.
5
Q
Who are exempted from registration of sole proprietorship? (2)
A
(1) certain types of business- taxi drivers and hawkers
(2) individuals carrying on business under only their full names
6
Q
Who controls and manages the sole proprietorship?
A
The sole proprietor.
7
Q
How should the sole proprietor manage his sole proprietorship? Give an example of what he can do.
A
He is free to operate his business in any way such as by hiring a manager.
8
Q
What happens to the profits in a sole proprietorship? Why?
A
The sole proprietor receives all of it because the entire business is wholly owned and operated by him.
9
Q
What happens to the liabilities in a sole proprietorship? What kind of liability is this?
A
The sole proprietor is solely liable for any liabilities that the business incurs. Unlimited liability.
10
Q
When is a sole proprietorship dissolved? (3) This is also known as _____.
A
(1) sole proprietor becomes bankrupt
(2) sole proprietor dies
(3) sole proprietor gives notice to ACRA of his intention to dissolve the sole proprietorship
Dissolution of the sole proprietorship.
11
Q
Is there succession of sole proprietorship once dissolved?
A
No.
12
Q
What are the laws regarding partnerships in Singapore? (2)
A
(1) laws found in the Partnership Act
(2) common law
13
Q
What must every partnership do under the law?
A
Register with ACRA before commencing business.
14
Q
What is a registered partnership known as?
A
Firm.
15
Q
What happens when a business is conducted without registering first?
A
A criminal offence is committed.
16
Q
What can the law do even if a partnership has not been registered with ACRA? What is needed?
A
It may treat 2 or more persons as being in a partnership agreement in the event of a dispute if there is evidence to support it.
17
Q
What is the result of treating 2 or more persons as being in a partnership agreement in the event of a dispute?
A
One person may be made responsible for certain debts incurred by the other(s)
18
Q
What does a firm require?
A
At least 2 and a maximum of 20 persons.
19
Q
What is the exception to the maximum partners allowed in a firm? Give examples.
A
If the firm is a professional body of persons, the number of partners may exceed 20. Architects, lawyers. doctors or accountants.
20
Q
How does the Partnership Act define a partnership?
A
The relation which subsists (exists) between persons carrying on a business in common with a view of profit.
21
Q
In other words, what is the definition of a partnership?
A
A contract among the several persons engaged in a business with a view of profit.
22
Q
How does the Partnership Act define a business?
A
Every trade, occupation or profession, the aim of which is to make money.
23
Q
What are type of firms? (2) What do they do?
A
(1) trading firm- buy and sell goods
(2) non-trading firm- provide services
24
Q
Does 2 or more people running a business together = partnership? What does it depend on?
A
No, it does not necessarily mean that. It depends on whether the business arrangement between the parties fall within the guidelines set out in the Act.
25
What do the guidelines in the Partnership Act set out?
The guidelines require more substantive evidence to show that a partnership exists
26
Where parties share gross returns, is there a partnership according to the guidelines?
No, there must be further evidence to show that all parties were carrying on a business in common with a view of profit.
27
Where parties share profits and a presumption that a partnership exists, can it still be overturned?
Yes, if there was other evidence proving the contrary.
28
What do partners often have?
A partnership agreement.
29
What is a partnership agreement for? (2)
(1) to expressly spell out certain terms
| (2) to modify the implied terms that would apply under the Partnership Act or the common law
30
What format should the partnership agreement be in?
It need not be in writing.
31
Who can be a partner in a partnership?
Anyone with capacity to enter into a binding contract.
32
Can a company be a partner?
Yes.
33
What happens when an express partnership agreement is absent?
Certain terms will be implied by law to govern the relationship between the partners.
34
How are partners expected to act within the partnership?
In utmost good faith.
35
What does utmost good faith mean? (3)
(1) must NOT act with malice or collateral motive
(2) should NOT make profits or gains without the other partners' consent
(3) should NOT participate in a similar business in competition with the partnership
36
What happens to the profits in the partnership? Any exceptions?
All partners share the profits equally regardless of their contribution, unless stated otherwise in the partnership agreement.
37
What happens to the liabilities in the partnership?
Each partner is liable to contribute equally towards the losses of the firm.
38
What is indemnity (compensation) like in a partnership?
The firm is required to indemnify every partner.
39
When are partners indemnified (compensated)? (2)
(1) for any liability incurred by the partner
| (2) anything the partner did to preserve the firm's property or business
40
What is partnership property? (2)
(1) all property originally brought into the firm's stock
| (2) all property acquired/bought for the purposes of the firm
41
How should partnership property be applied (used)? (who, what)
By the partners exclusively for the purposes of the firm.
42
How can a new partner be admitted to the firm? Any exceptions?
With the unanimous consent of all partners, unless otherwise stated in the partnership agreement.
43
Once admitted, a new partner is NOT liable for ___.
Firm's prior debts.
44
How does a partner retire?
By giving notice to the other partners.
45
What is the retiring partner liable for? Any exceptions?
He remains liable for the firm's prior debts, unless the other partners agree to release the retiring partner from those past debts.
46
Who manages the firm in a partnership?
Every partner may do so.
47
What does the law assume of each partner in terms of management? What is it usually like in practice?
They will contribute equally to the business. In practice, it is common to have sleeping partners.
48
What are sleeping partners?
Partners who have provided capital but take no active part in its management.
49
Who makes decisions in a partnership?
All partners
50
Is it practical that all partners make decisions in a partnership? Why?
No, it is difficult for all partners to be involved in all of the partnership's decisions.
51
Since it is impractical, how are decisions made in a partnership? What are they called?
Firms delegate certain decisions to one of the partners. Managing or Administrative partner.
52
What is the exception to relying on the Managing/Administrative partner?
There are certain decisions where the unanimous agreement of all partners is necessary.
53
What are the decisions where the unanimous agreement of all partners is necessary? (3)
(1) altering the partnership agreement
(2) changing the partnership business
(3) introducing a new partner or substituting a partner for one who wishes to retire
54
What is agency like in a partnership?
A partner is an agent of the firm and his co-partners of the firm.
55
What is the partner's authority like as an agent?
If one partner enters into a contract in the ordinary course of business and incurs debts or liabilities, that partner is deemed to have acted on behalf of the firm and all his co-partners and will also be equally responsible for the contract, debt or liability.
56
What is the power of the partner to bind the firm and his co-partners dependent on? (2)
(1) whether he has acted in his capacity as a partner and dealt with a third party who either believed or knew that he was a partner; and
(2) whether he has acted within his actual authority or apparent authority
57
Although a firm is NOT a legal entity, the firm may sue _____.
In its own name.
58
Who starts the action of suing in a partnership? (2)
(1) by the partners, or
| (2) by one partner on behalf of the others.
59
A firm may be sued _____. What does this prevent?
In its own name. Having to name all of the partners individually.
60
Who are judgements obtained against the partnership against as well?
All partners.
61
Who can the judgements obtained against the partnership be enforced against? (5)
(1) one partner
(2) all partners
(3) firm's property
(4) one partner's property
(5) all partners' property
62
What type of liability do partners have?
Unlimited liability for the debts owed by the business.
63
Also known as the disadvantage to partnerships for all the partners, what happens when a partner dies?
His estate remains liable for any unpaid debts of the firm.
64
How can a partner avoid having his property liable to the firm's unpaid debts when he dies?
By using a limited liability partnership or company.
65
The partners of a firm are _____ liable for the debts of the partnership
Jointly and severally.
66
Since partners are jointly and severally liable, what can a plaintiff do? (3)
(1) sue all partners at once
(2) sue some partners at once
(3) sue any of the partners individually
67
What happens when you fail to sue one partner in a particular action?
You can still sue that partner in another action.
68
Each partner is liable for the ____ of the judgement obtained against the partnership.
Whole amount.
69
In a partnership, who will the creditor collect his debt from?
From the personal assets of any individual partner.
70
What if one of the partners pays the entire judgement sum (aka more than his proportion)?
He may obtain contribution from his co-partners if they can be found, and are solvent (able to pay debts).
71
What if the partner who paid the entire judgement sum is unable to obtain/recover any contribution from the other partners?
The creditor is unaffected.
72
What are the main ways in which a partnership is dissolved automatically? (5)
(1) expiry of fixed term
(2) accomplishment of a certain purpose
(3) retirement of a partner
(4) death of partner
(5) bankruptcy of partner
73
Upon application of a partner, how may the court dissolve a partnership? (6) My pretty girl picking five ice-creams
(1) mental disorder
(2) permanent incapacity, making him incapable of performing his part
(3) guilty of misconduct that is prejudicial to the carrying on of partnership
(4) persistently breaching the partnership agreement causing irreparable damage to the mutual trust and confidence of the partners
(5) firm can only continue at a loss
(6) it is "just and equitable" to dissolve the partnership
74
What is a company?
A body corporate through which a group of people conduct a common business
75
How are company businesses conducted? (2)
(1) with a view to making profit
| (2) for non-profit purposes
76
What is the pro and con to companies over sole proprietorship and partnership?
pro- attractive because of its advantages
| con- subject to many more laws and formalities
77
Unlike a partnership, a company is a _____.
Separate legal entity.
78
Who is the company separate from? (2)
(1) owners or shareholders; and
| (2) managers or directors
79
What happens when a company is formed or "incorporated"?
It is as if a new unique person has been created in the eyes of the law.
80
What does 'new unique person' mean?
It takes on a personality of its own.
81
What are the characteristics of a separate legal entity? (4)
(1) perpetual (everlasting) succession
(2) ability to own property in its own name
(3) limitation of liability for investors
(4) ability to sue in its own name to enforce rights
82
What does perpetual succession mean?
The company's life is not dependent on the lives of its shareholders. It continues to exist until it is wound up.
83
If all the shareholders die, who are the new shareholders?
The people who inherited the shares from each of the original shareholders.
84
What does ability to own property in its own name mean?
The assets of the company belong to the company, even if the company is under the control of a particular person.
85
Since all assets belong to the company, what happens to the profits earned? What do shareholders get?
They go entirely to the company and are not received by the shareholders.
86
How can shareholders receive profits from the company?
If the company issues dividends to its shareholders.
87
What does limitation of liability for investors mean?
The company's liabilities are its own.
88
What does it mean for the shareholders when the company's liabilities are its own?
A shareholder is NOT liable for his company's debts and liabilities.
89
What are shareholders liable for then?
Their contribution towards the capital of the company.
90
What is a company limited by shares? (aka, what)
AKA private limited company. The shareholder is only liable to pay or contribute up to the full value of the shares he holds.
91
What does ability to sue in its own name to enforce rights mean?
A company has the right to sue a third party in its own name.
92
Who does the decision to sue come from? (2)
(1) From the Board of directors
| (2) From the proper authorization of the BOD
93
Who is NOT permitted to use the company's name to commence legal action? What is this rule known as?
Individual shareholders. Proper plaintiff rule.
94
What are the exceptions to the proper plaintiff rule? (2)
A shareholder may successfully apply to court and show
(1) it is in the company's interest to sue; and
(2) there was no legitimate reason for the BOD to refrain from suing
95
Who sets out the main body of laws relating to companies in Singapore?
Companies Act and its subsidiary legislation.
96
What does the Company Act contain? (2)
(1) provisions to regulate the rights and duties of shareholders and directors
(2) protect the interests of persons dealing with the company
97
Where does Singapore refer to cases from? Why?
UK and Australia because their laws are very similar to our own laws.
98
What is the process of forming a company called?
Incorporation.
99
Who are companies in SG registered with?
ACRA.
100
As certain legal formalities must be carried out with incorporation, what is advisable?
To engage professional services when incorporating a company.
101
What is the first stage to registration?
Reservation of a suitable name for the proposed company.
102
What names are rejected in incorporation? (2)
(1) undesirable
| (2) identical or similar names to that of existing companies
103
What is the second stage to registration? (2)
(1) Lodging certain documents
| (2) Paying the necessary fees
104
What are the documents to be lodged? (3)
(1) proposed company's constitution
(2) particulars- first director, shareholder, share capital (for private limited companies)
(3) address of the company's registered company
105
What is the nature of incorporation in comparison to the registration of a sole proprietorship or partnership?
More complicated and slightly more costly.
106
What are the fees payable during incorporation? (3) (what, to who)
(1) registration fees, $300- ACRA
(2) filing fees for every document lodged with ACRA- ACRA
(3) professional assistance fees, if sought- professional firm
107
What else must the company do asides from fulfilling the formalities for registration of the company?
File annual returns.
108
What is the purpose of filing annual returns?
To inform ACRA of the financial position and well-being of the company.
109
What must non-exempt companies also attach? What do these companies incur?
Audited financial statements. Auditor's fees.
110
What are the types of companies? (3)
(1) limited and unlimited liability companies
(2) public and private companies
(3) exempt private companies
111
For limited/unlimited liability companies, what does liability refer to?
Liability of the company's shareholders.
112
What is the liability of a shareholder in a 'company limited by shares'? (type, what)
Limited liability up to the full value of the shares that he holds and nothing more.
113
How can you distinguish a limited liability company from an unlimited one in SG?
Limited liability companies include 'Limited' or 'Ltd' in its name.
114
Can limited companies be converted into an unlimited company (and vice versa)?
Yes.
115
Among limited and unlimited, which company is rare?
Unlimited liability companies.
116
Asides from being limited to shares, what else can a company be limited to?
Guarantee.
117
What does limited by guarantee mean? Is it rare?
The company does not issue shares and does not have a share capital. Extremely rare.
118
What can a company having a share capital, whether limited or unlimited do?
Be incorporated as a private company.
119
How can a limited/unlimited company be incorporated as a private company? (2)
(1) company's constitution contains a restriction on the shareholder's right to transfer shares; and
(2) company's constitution contains a limit on the number of shareholders to not more than 50.
120
What does a restriction on the shareholder's right to transfer shares mean?
The shareholder must offer his shares to existing shareholders before selling them to outsiders
121
For private companies, what does the Certificate of Incorporation state? What does its name include?
That the company is a private company. 'Private' or 'Pte'.
122
What are companies that do not meet the requirements of being incorporated as a private company called? What is NOT in its name?
Public companies. 'Private' or 'Pte'.
123
Where does a public company raise finance from?
Public
124
How does a public company raise finance?
Apply to be listed on the stock exchange so that their shares can be easily issued and traded.
125
What are public companies subject to? Why?
Tighter control- Companies Act and other relevant laws. To protect the members of the public who 'invest' in the shares of these companies.
126
What is an exempt private company?
A private company where all of its shareholders, numbering not more than 20, are natural persons, not corporations.
127
What are the usual exempt companies?
Small, family-owned businesses.
128
According to ACRA statistics, __% of exempt private companies have directors as shareholders.
80
129
What does the exempt private company resemble when all shareholders are directors? (more than?)
Partnerships more than other types of companies.
130
What exempt private company is exempt from audit requirements for that financial year?
Those that fall within the definition of a small company under the Companies Act.
131
How does a company qualify as a small company? (2)
(1) it is a private company in the financial year in question
(2) it meets at least 2 of the 3 criteria for the immediate past 2 financial years
132
What are the 3 criteria to qualify as a small company?
(1) total annual revenue not more than $10 mil
(2) total assets not more than $10 mil
(3) number of employees not more than 50
133
What does the audit exemption for small companies aim to do?
Help reduce regulatory and compliance costs as they do not have a wide market impact.
134
Do small companies still need to keep proper accounting records?
Yes.
135
How are 2 companies deemed to be related? (2)
(1) parent company exercises control over the composition of the BOD of the other company; or
(2) parent company controls more than half of voting powers of the other company
136
The parent company is known as the ____ while the other company is known as the _____.
Holding company, subsidiary company.
137
Can a subsidiary company have its own subsidiary company? It then becomes the ____ of the subsidiary company.
Yes, parent company.
138
The final subsidiary company is also a subsidiary company of the ____.
Original parent company.
139
Is there such things as a grandparent company?
No.
140
What are the subsidiary companies deemed to be if there are several of them under the parent company?
They are related- affiliates or sister companies.
141
Prior to 3 Jan 2016, what does the constitution of the company comprise of? (2)
(1) memorandum
| (2) articles of association
142
From 3 Jan 2016, these 2 documents were merged into a single document called ____.
Company constitution.
143
What are some information included in the company constitution? (3)
(1) company name
(2) particulars of first shareholders
(3) share capital of the company
144
What can companies do to restrict the company's ability to do certain things?
Expressly include in the constitution an objects clause.
145
What is an objects clause for?
To spell out the main purposes of the company and its powers.
146
What happens if there is no objects clause in the constitution?
The company can carry on business and enter into any transaction.
147
Asides from the constitution, what powers do companies have? This is aka ___.
Additional powers implied by the Companies Act aka implied powers.
148
Can clauses in the constitution be amended? How?
Yes. Requires a special resolution of the shareholders.
149
What is the special resolution? Any exceptions?
At least 75% majority, unless the constitution states that the clause requires more than 75% or some other condition to be complied with.
150
What does the Companies Act provide? This is aka ___.
A model constitution aka Companies (Model Constitutions) Regulations Act.
151
Who is the Companies Regulations Act for?
For private companies limited by shares or guarantee.
152
Who does the constitution constitute a contract between? (2)
(1) company and shareholders
| (2) among the shareholders
153
What is the consequence of the constitution constituting a contract among shareholders?
A shareholder has the right to insist that the company or other shareholder(s) of the company obeys the constitution.
154
How can a shareholder ensure the company's or other shareholders' compliance?
Take legal action if necessary.
155
What must a company limited by shares have?
Share capital.
156
How does each shareholder hold a proportion of the share capital?
Shares.
157
What are shares?
Each share will have a nominal value which represents the value of each share when it is fully paid up.
158
How does the company raise finance?
Issue more shares to be sold to individuals or the public.
159
What happens when more/new shares are issued? (2)
(1) change in share capital of company
| (2) dilute the rights of existing shareholders
160
With the concerns, how can share capital be increased?
With the approval of majority of the existing shareholders at a general meeting.
161
What are the types of shares? (2)
(1) ordinary
| (2) preference
162
What are ordinary shares? (entitlement, voting rights)
- not entitled to dividends unless it is proposed by the BOD and approved by majority of the shareholders
- one vote a share
163
What are preference shares? (entitlement, voting rights)
- preferential right to dividends and may return these shares for cash
- limited or no voting rights
164
Which shareholder has more priority with dividend payments?
Preference shareholders.
165
Where is the management of the company exercised? (2)
(1) BOD meeting
| (2) General meeting of shareholders
166
How do the BOD/shareholders exercise their management?
Collectively- majority vote
167
Who exercises management of most matters? Why?
BOD. It is unlikely that shareholders want to exercise all the management powers.
168
Since BOD manages most matters, what would the constitution state?
That the responsibility of day-to-day activities rests with the BOD.
169
Why is it unlikely that shareholders want to exercise all the management powers?
It is impractical for the shareholders to convene a meeting to vote on every decision.
170
What must a BOD have?
At least one director-Singaporean, PR or SG Entrepass Holder.
171
What sets out the manner in which directors are appointed?
The constitution.
172
Generally, who can be a director?
A person of sound mind and is 18 years or above.
173
Who is disqualified being a director? Any exceptions?
Undischarged bankrupts, unless the court gives permissions.
174
Directors need not be ___ of the company, unless the constitution requires them to be.
Shareholders.
175
What can a BOD do?
Delegate their management powers to an individual or individuals.
176
When the BOD delegates powers, the company is bound by the acts of ___, on normal principles of agency.
These individuals whom management powers were delegated to.
177
What are the Directors' duties? (3)
(1) duties of skill, care and diligence
(2) fiduciary duties
(3) statutory duties
178
What is the director's duty of skill, care and diligence? (2)
(1) expected to show the level of skill that a person of his knowledge and experience could be expected to show.
(2) expected to take as much care in the affairs of the company as a reasonably prudent man would take in his own affairs
179
Under the duty of skill care and negligence, what is the Director NOT required to do?
Bring any special qualifications to the job.
180
What are the fiduciary duties of a Director? (3)
(1) to act in the interest of the company;
(2) to exercise powers delegated to him for a proper purpose; and
(3) to avoid a conflict of interest.
181
Under fiduciary duties of a Director, what is an example of avoiding a conflict of interest?
A director may not use information he gained by virtue of his position as a company director, to gain a personal benefit for himself.
182
What are the statutory duties of a Director? (5)
(1) ensuring the company keeps proper accounting records;
(2) holding the company's annual general meeting (AGM) to present a report on the company's activities and results to the shareholders, together with the audited accounts
(3) submitting to ACRA the company’s annual return after the AGM;
(4) disclosing all necessary information to the company to enable it to maintain the register of directors, managers, secretaries and auditors and directors’ shareholding; and
(5) in recommending dividends, ensure that the dividends are paid out of profits and not capital.
183
How does the Companies Act protect the shareholders from any abuse of power by the BOD?
Requires that certain transactions can only be authorised after a vote has been taken at a “general meeting of the shareholders”.
184
What are the certain transactions that require a “general meeting of the shareholders”? (3)
(1) alteration of the company’s constitution;
(2) decisions on the company’s profits;
(3) approval for the directors' exercise of the company's power to issue shares.
185
What is the nature of a “general meeting of the shareholders”? What is discussed?
- once a year
- to transact certain business, including the consideration of the Financial Statements of the company
- election of directors.
186
What does the company do to transact some other urgent business?
Convene an extraordinary general meeting (EGM).
187
How is the “general meeting of the shareholders” carried out? (2)
(1)
- any matter for consideration at the meeting is put into a resolution
- shareholders would vote at the meeting to pass or not to pass the resolution
(2)
- shareholders could approve such
urgent resolutions by circulating a written resolution for them to sign.
- this is provided more than 50% (or 75% in the case of a special resolution) agree that a physical meeting is not necessary.
188
A company does not have ___ and should act through ____.
human abilities, human persons
189
Who are the agents of the company?
All persons who act within the scope of the authority.
190
A company (1) can sue and enforce rights (2) be sued ____.
In its own name.
191
Who is the company liable for?
Its own debts.
192
Is there a limit on the company’s liability?
No.
193
What if the company is unable to pay its debts?
It can be wound up.
194
Is there a limit on the limited company’s liability? If so, what is the limit?
Yes, limited liability for the shareholders. In the case of a company limited by shares, the liability of the shareholders will be limited to the full paid-up value of the shares they hold.
195
The process by which the life of a company is brought to an end is aka? (2)
(1) winding up
| (2) liquidation
196
What happens when the life of a company is brought to an end?
- assets of the company are realised and sold
| - so that the proceeds of sale may be used to pay the company's creditors, in the order of priority stipulated by law.
197
What is the the order stipulated by the law?
The “secured creditors” are paid first, followed by the “unsecured creditors”.
198
What happens when the process of winding up is completed?
The company is dissolved and ceases to exist.
199
How long does winding up last?
Can last for more than a year
200
Who is going to get A for BLAW?
Me!
