Company Law Flashcards
Key features of companies, general partnership, limited partnership and limited liability partnership.
Company: A company is a separate entity. There is a separation of ownership and control, as shareholders do not manage the company.
General partnership: A partnership is not a separate legal entity: the ‘partnership’ refers to the joint legal entities of all the partners. As such, each partner is presumed to be acting as an agent on behalf of all the partners, and all the partners share joint liability (for contracts entered by the partnership) and joint and several liability (for tortious actions).
Limited partnership: A LP is not a separate legal entity: the ‘limited partnership’ refers to the joint legal entities of all the partners. However, there is a distinction between general and limited partners, with the latter having some limited liability. Limited partners however do not and cannot partake in management of the business.
Limited liability partnership: The LLP is a separate legal entity.
Note: All partnerships need a minimum of two partners to start, whereas a company can be incorporated by a single shareholder.
Why would a LLP be preferred over a LLC, and vice versa?
Less Reporting Requirements
Companies have more intensive yearly reporting requirements.
Tax Savings
The LLP will not be taxed as a separate entity, but rather each partner will be taxed on his/her share of income from the LLP. Personal tax rate in Singapore is capped at 22%.
Company will be taxed as a separate entity, at the corporate tax rate which is capped at 17% (Note: Dividends paid to shareholders by a Singapore company are not subject to personal income tax)
Key features of companies limited by shares vs** limited by guarantee**
Limited by shares: In the event of winding up, members stand to lose no more than the amount the original amount of their shares
Limited by guarantee: In the event of winding up, members stand to lose no more than the company debt they guaranteed.
Companies limited by guarantee tend to be non-profit or charitable companies, as such companies have no share capital and cannot give members a right to participate in the company’s profits.
Private vs public companies
Public company: Can offer shares to the public and seek listing on stock exchange and no limit on number of shareholders.
Private company: Less cumbersome formalities (e.g. can dispense with AGMs) but a maximum of 50 shareholders and cannot offer shares to public. However you still do a private offering.
Exempt private company: A private company that has less than 20 members and does not have a company as its shareholder. Does not have to file any financial statements, thus preserving privacy. Can also make loans and financial assistance to directors and director-related companies.
Who is a promoter and what duties does he or she have?
A promoter is someone who undertakes to form a company with reference to a given project, and who takes the necessary steps to accomplish that purpose.
A promoter is a fiduciary to the company, even if the company has yet to exist.
What is the law on pre-incorporation contracts?
Section 41(1) of the Companies Act states that a company may, upon incorporation, ratify a pre-incorporation contract.
Section 41(2) states that until such ratification, a person (e.g. promoter) who purported to contract on behalf of the coy would be personally bound by the contract.
What is the qua-member rule?
The effect of s 39(1) CA is to turn the constitution into a multi-party contract binding the company and all its members.
The qua-member rule is one of three ways in which this multi-party contract differs from ordinary contracts (the other two being the mere internal irregularity rule and the no-reflective loss rule)
The rule states that only rights given to a member in his *capacity as a **member* (and not as a promoter, director or solicitor etc.) may be enforceable.
However, there is local dicta in PNG Sustainable which supported Lord Wedderburn’s proposition that a shareholder may enforce any article because shareholders always have the right to have the company’s constitution observed.
What is the internal irregularity rule?
The effect of s 39(1) CA is to turn the constitution into a multi-party contract binding the company and all its members.
The internal irregularity rule is one of three ways in which this multi-party contract differs from ordinary contracts (the other two being the qua-member rule and the no-reflective loss rule)
The rule states that where a breach of the constitution occurs, it is for the company to remedy it, rather than the members acting personally to enforce it.
