All companies and business associations in Singapore are mainly governed by the Companies Act. Additionally, specific types of companies may be regulated by other statutes and/or regulations as well eg. Limited Liability partnerships are governed by the Limited Liability Partnership Act; other examples are: Insurance companies (further regulated by the Insurance Act), financial advisers (the Financial Advisors Act as well as the Securities and Futures Act where applicable), and banks (the Banking Act). Further, these statutory provisions governing companies are supplemented by case law (what has been decided by the courts in matters that go to litigation).
COMPANY INCORPORATION AND ITS CONSEQUENCES
Registration of a Singapore Company
Under the Companies Act, a business organization with more than 20 members must be incorporated as a company.
To incorporate a Singapore company, you will be required to lodge the requisite documents and payment of the prescribed fee to the Accounting and Corporate Regulatory Authority of Singapore (ACRA). Among these are the Memorandum and Articles of Association (collectively, the M&AA), being the constitutional documents and regulations of the company, containing provisions on the government of the company. Under the Companies Act, the M&AA must prescribe the name of the company, the amount of its share capital (if any) and whether the liability of the members of the company is limited or unlimited. Where the Memorandum and the Articles are in conflict, the former will prevail.
When you register the Memorandum of the company, the Registrar will issue a notice of incorporation stating that the company has been incorporated from the specified date, specifying the type of company, i.e. whether limited or unlimited company and where if a private company.
Rikvin can assist you with all these steps of incorporating your company and the ensuing steps, based on the information you provide us with regarding your projected business activities.
Effects of Singapore Company Registration
The general effect of incorporation is that the company is a body corporate that may sue and be sued in its own name, has perpetual succession in that it can survive indefinitely until it is wound up, may hold land, and the liability of its members is limited in the event the company is wound up.
Upon incorporation, a company has a distinct personality recognized by law – the company’s existence and identity is therefore separate from that of its members. The most important consequence of this is that the debts and obligations incurred by the company are its own and its members do not share the company’s liabilities. Creditors of the company can only seek payment of debts from the company, thus if the company cannot pay its debts, the creditors will have to bear that loss (even if the company’s individual members may be solvent).
The members of a company are merely obliged to contribute the amount that remains unpaid on the shares for which they have subscribed. This obligation is owed to the company, not the creditors of the company. As such, if the shares were issued on a fully paid basis, or have already been fully paid, the members have no further liability to the company. Thus, it is important to note that it is not that the company’s liability is limited but that the members’ liability to contribute to the company is limited to the share capital for which the members have agreed to subscribe.
Lifting the Corporate Veil
However, while an incorporated company has a separate personality, in some circumstances the courts will view the company and its members (or officers) as one and the same for some purposes. For example, sometimes the courts may hold the members of a company liable for debts incurred by the company, in other words, the courts would lift (or pierce) the veil of incorporation either by an interpretation of statute or common law.
1. Accruing debts and financial obligations
The first statutory limitation on the separate personality doctrine is that, where debts are contracted without any reasonable or probable expectation that the company would be able to pay the debts, an officer of the company who was a party to the contracting of such debts is guilty of an offence and may, upon conviction by the courts, be made personally liable for part or all of those debts.
Under the common law, the following interpretation would apply. One of the reasons why people incorporate companies is to insulate themselves from personal liability should the business fail; however, where the members or officers of a company abuse the corporation for improper purposes, the common law is inclined towards the piercing of the corporate veil. Thus, if an individual already has existing legal obligations, but attempts to use the corporate vehicle to evade such obligations, the courts will ignore the company’s separate personality. An example of this application is that the common law has held a person who has agreed to sell a house cannot avoid his contractual obligations by transferring the house to a company— both he and the company were ordered to specifically perform the contract even though the company was not a party to the contract.
2. Fraud and illegality
As a statutory exception, if in the course of the winding up of a company, it appears that any business was conducted with the intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the law may declare that the person who was knowingly a party to carrying on said business to be personally liable for all or any of the company’s debts to those creditors.
Similarly, under common law, if a company is used to perpetrate a fraudulent act, the courts will treat the company and those behind it as one and the same. Thus, if a company has been incorporated to defraud innocent investors, the court may hold the promoter of the company liable even though the promoter and company are separate persons.
3. Unauthorised payment of dividends
Finally, if dividends are paid even though there are no available profits out of which to pay them (therefore a breach of the responsibility to not unduly prejudice creditors of the company), a director or manager of a company who wilfully pays or permits the payment of such dividends will be liable to the creditors of the company for the amount of the debts due to them to the extent by which the dividends exceed the profits.