1. Santa Clara University Law School "Business and the Environment" Singapore Doing Business in Singapore II Corporations: Directors and Shareholders

2. Shareholders (members)
Every company must have at least _____ member/s.
Generally who manages a company: members or directors? (Section 157A)
Though it is the directors who make decisions on behalf of the company, in some specific situations, it may be necessary to get members’ approval (eg: where new shares are sought to be issued) pursuant to provisions of the Companies Act and the company’s constitution.
Also note: section 152 gives the members the power to remove directors by an ordinary resolution. What is the practical effect of this power?

3. Members’ Rights
While members cannot manage the company, they have various rights.
Some of these rights are discussed below:

4. Members’ Rights: Attending Meetings and Voting
There are 2 types of meetings.
The first is the AGM.
Companies must have an AGM once every year; failure results in the commission of an offence.
During the AGM typically members’ approval is sought in relation to issues such as appointment of directors or auditors.
During such meetings, the members also have the opportunity to query the directors on the performance of the company.
However note: there are exceptions where AGMs do not have to be held (ie: in the case of a private company - where members collectively agree to dispense with it or [from 2018] where the company has sent audited financial statements to its members).

5. Members’ Rights: Attending Meetings and Voting
The second type of meeting is the EGM.
All other meetings besides the AGM are classified as the EGM.

6. Members’ Rights: Attending Meetings and Voting
Where decisions are to be made at AGMs and EGMs, the amount of votes necessary to pass a resolution (or decision) depends on the type of resolution.
There are 2 types of resolutions: ordinary resolution and special resolution.

7. Members’ Rights: Others
A member has the right to receive various types of information pertaining to the company. Why?

8. Members’ Rights: Others
A member has the right to the balance (if any) on dissolution.
Generally does a member have a legal right to demand dividends?

9. Difference between Equity Financing and Debt Borrowing
Essentially, the shareholder is providing capital to the company. Another method to raise funds is for the company to borrow from a bank or financial institution. What do you think are some differences between the equity financing and debt borrowing based on what we have discussed so far:
Equity (Share)
Debt
Returns are in the form of:
Returns are typically – guaranteed under the contract?:
Lender can have some say in the management of the company – yes/no?:
On dissolution of the company, the lender may get a bite of what’s left after debts have been paid – yes/no?:

10. DIRECTORS Every company must have at least ___ director/s.
Directors must be at least ___ years of age and be a natural person.
Directors are appointed by the members and can be removed by the members by an ordinary resolution.

11. Disqualification of Directors
Though there are not that many qualifications to be a director, once a person is a director, there are many grounds on which he can be subsequently disqualified.
The reason for this is to offer greater protection to persons such as creditors because of ________________
(Note: for the same reason, there are also similar grounds on which the manager of a LLP can be disqualified).
Note also: in some situations, the disqualifications may be automatic, while in others, they may not be.
Note also: if a disqualification is disobeyed it is an offence, unless the disqualification has subsequently been lifted (such as by the court).

12. Section 148 of CA
Under section 148 an undischarged bankrupt cannot be the director or indirectly take part in the management of the company. Why?
The disqualification is automatic.

13. Section 149 of CA
Under section 149 a director may be disqualified, if he was a director of a company which became insolvent while he was a director or within 3 years of him ceasing to be one, provided the director’s conduct was such as to make him unfit to be a director.
Example:
X was a director of Z Pte Ltd.
X left Z Pte Ltd in 2015.
X then became a director of Y Pte Ltd.
Z Pte Ltd was made insolvent in 2016.
Can X continue as a director of Y Pte Ltd?
Disqualification is not automatic.
Disqualification order, if issued, may be up to 5 years.

14. Section 154 of CA
Pursuant to section 154(1) if a director is guilty of an offence involving fraud or dishonesty, punishable on conviction with imprisonment of 3 months or more, or if he has been convicted of any offence under Part XII of the Securities and Futures Act, he is automatically disqualified for 5 years.
Pursuant to section 154(2) if a director has committed offence in relation to management of the company (eg: breach of section 157 of the CA), he may be disqualified up to 5 years. Disqualification under this part is not automatic.
What is the difference between the two sections
and why is there a difference?

15. What is the reason for this?
Section 155 of CA
The Companies Act requires various documents/accounts/reports to be filed with ACRA.
What is the reason for this?
If these have not be filed that could result in the commission of an offence.

16. Section 155 of CA
Section 155 provides that if a person is persistently in default he will be automatically disqualified for 5 years.
The term persistently in default is defined as having been convicted of 3 or more offences within a period of 5 years.

17. SOME DIRECTORS’ DUTIES IMPOSED BY CASE LAW
A director has the duty to act in the best interests of the company and should not place himself in a position of conflict of interest (this duty is also referred to as a “fiduciary duty”).
What are some ways in which a director can breach fiduciary duties?
Can a director be a director of two companies – is there a conflict of interest?

18. Discussion Question
X, his wife and daughters are directors of company Z. They have been siphoning off the company’s money for their own benefit. For instance, they used the company’s money to fund personal investments. Z is now in financial difficulties and is in the process of liquidation:
Have the directors breached any duties?
Whose loss is it?
Who can sue to recover the loss?

19. SOME DIRECTORS’ DUTIES IMPOSED BY CASE LAW
A director should act with due care and skill (ie should not be negligent).
What are some ways in which a director can be negligent?

20. SOME DIRECTORS’ DUTIES IMPOSED BY CA
In addition to the duties imposed by case law, directors may be subject to duties imposed by the Companies Act.
Note: many of case law and Companies Act duties overlap.
Note also: breach of some of the provisions of the Companies Act would result in civil liability, some would result in criminal liability and some would result in both.

21. Section 156 of CA
Under section 156(1) if a company is entering into a contract and a director knows of that and he has a material interest in that, he must disclose that to the Board.
Eg: Co A is entering into contract with Co B and X is a director of Co A and a shareholder of Co B.
What is the reason?
The section provides that a failure to do so would result in the commission of an offence.

22. Section 157(1) of CA
Section 157(1) provides that a director must act honestly and use reasonably diligence in the discharge of his duties.
This is a very important section and it encompasses many of the case law duties discussed earlier (ie: must act in the best interests of the company, must not place himself in a position of conflict of interest, must exercise due care and skill, etc).
Section 157 provides that if there is a breach, civil liability and/or criminal liability can arise.

23. Section 162(1) of CA
Under section 162(1) generally a company cannot make a loan or guarantee a loan given to a director.
What is the reason?
However, this is subject to several exceptions (eg: the company is a bank and it is making a loan to its director).
If the exceptions are not met, the directors who authorize the loan/guarantee could face civil and/or criminal liability.

24. Section 169 of CA
Section 169 provides that emoluments given to directors such as directors’ fees and allowances, have to be approved by members.
What is the reason?
Failure to do so can result in civil liability.

25. Liabilities under Securities and Futures Act
Besides the Companies Act, directors (and others) could face liabilities under the Securities and Futures Act.
The Securities and Futures Act prohibits many types of conduct such as:
Market Rigging and
Insider trading.

26. Insider Trading Generally under section 218 of SFA where:
a person connected to a corporation,
knows or ought reasonably to know that he:
(a) possesses information which is not generally available to the public and
(b) which can have a material effect on the price/value of a security;
He should not:
(a) buy/sell,
(b) get another person to buy/sell or
(c) directly or indirectly communicate the information to another person if he knows or ought reasonably to know that the other person would buy/sell or get another person to buy or sell.

27. Insider Trading
Section 219 of SFA effectively provides for a similar sort of prohibition in relation to persons not connected to a corporation.
Eg: an in-house company lawyer gives confidential information to her husband who sells off his shares in that company and also passes the information to his mistress who does the same. Would there be liability and if so – under what sections?

28. Consequences of a breach of these sections include: Criminal Liability
Insider Trading
Consequences of a breach of these sections include:
Criminal Liability
Civil Penalty

29. International Comparisons
Minimum Number of Directors
Imposition of Directors’ Duties & Liabilities for Breach
Prohibition of Insider Trading & Liabilities for breach
China
1 to 3
Yes US
India
2 to 3
Indonesia 1
Thailand
Malaysia 2

30. Summary Every company must have at least one member and one director.
There are not that many qualifications to be a director, but once a person is made a director, he can be disqualified on numerous grounds.
Directors manage the company, but are subject to various obligations and duties.
Failure on the part of a director to observe these obligations and duties can result in criminal and/or civil liabilities depending on the circumstances
Most importantly, it must be realised that limited liability comes at the expense of various statutory duties, formalities and liabilities.

31. Readings:
Ravi Chandran Chapter 11