Order 5, rule 6 of the Rules of Court (which are rules regulating procedures in the civil court, require that a body corporate (this includes a company) be represented in court only by a lawyer and no one else.
This means that even if the managing director is an experienced lawyer but is not practising at that time, he cannot represent the company. The logic of this rule escapes me. Surely it should be up to the directors and members whether they insist of professional legal representation or are willing to accept an alternative which may be second best.
This appears to be a important but overlooked advantage of using partnerships for business - as a partner, you can represent the firm in court if you are daring enough, but with a company, you must use a practising lawyer.
Friday, March 27, 2009
Monday, March 23, 2009
Partnerships - Audit firms
The Limited Liability Partnership or LLP is meant to combine the best of both worlds - the protection of company with the legal convenience of a partnership.
The newspapers recently reported that audit firms have taken this route.
KPMG is the latest of the major audit firms to have converted from a partnership to an LLP. Ernst and Young, and Deloitte and Touche were reported to have converted earlier this year.
(original post - October 2008)
The newspapers recently reported that audit firms have taken this route.
KPMG is the latest of the major audit firms to have converted from a partnership to an LLP. Ernst and Young, and Deloitte and Touche were reported to have converted earlier this year.
(original post - October 2008)
Company law - entrenchment of articles 2
Why would a company wish to entrench some of its articles? The following provides an example of why a company founder may wish to do so.
A businessman, R Wong, sets up a company and wishes for it to remain family owned. The company's articles restrict members to only his children, their descendants, and the spouses of both these groups. Normally, the restrictive article can be amended by special resolution. Wong is worried that his children might get greedy and allow non-family members to buy shares. So he tells his lawyers to make the restrictive article amendable only if all members agree.
His lawyers warn Wong that his children or descendants might not be good at business. To deal with this event, the restrictive article allows amendment with special resolution if the company loses money for 3 consecutive years. This allows the members to bring in outsiders to inject capital and management expertise into the company.
A businessman, R Wong, sets up a company and wishes for it to remain family owned. The company's articles restrict members to only his children, their descendants, and the spouses of both these groups. Normally, the restrictive article can be amended by special resolution. Wong is worried that his children might get greedy and allow non-family members to buy shares. So he tells his lawyers to make the restrictive article amendable only if all members agree.
His lawyers warn Wong that his children or descendants might not be good at business. To deal with this event, the restrictive article allows amendment with special resolution if the company loses money for 3 consecutive years. This allows the members to bring in outsiders to inject capital and management expertise into the company.
Monday, March 9, 2009
Directors' duties - de facto directors
The National Kidney Foundation (NFK) case was one case which cast the spotlight on de facto directors - please see the posting on 3rd March, 2009.
Another case which will again turn the spotlight on such directors is the Raffles Town Club case against its former directors. Included among the defendants is former top remiser Peter Lim. He is being sued as a de facto director and the allegations are that he and the others breached their directors' duties to the company.
Who can be held to be a de facto director? Some possible persons - major shareholders, and major creditors. It should be noted that being a major shareholder or major creditor does not make one automatically a de facto or shadow director. It is inteference with the management of the company that may. So watch out if you are not a director but you often give instructions to the directors or even attend board meetings. However, professional advisers like auditors or lawyers will normally not be classified as de facto directors.
Another case which will again turn the spotlight on such directors is the Raffles Town Club case against its former directors. Included among the defendants is former top remiser Peter Lim. He is being sued as a de facto director and the allegations are that he and the others breached their directors' duties to the company.
Who can be held to be a de facto director? Some possible persons - major shareholders, and major creditors. It should be noted that being a major shareholder or major creditor does not make one automatically a de facto or shadow director. It is inteference with the management of the company that may. So watch out if you are not a director but you often give instructions to the directors or even attend board meetings. However, professional advisers like auditors or lawyers will normally not be classified as de facto directors.
Alternatives to using companies
For those seeking to do business but need the protection of limited liability, there are 2 important alternatives to using companies. They are limited liability partnerships (LLPs) and limited partnerships (LPs).
Both offer the informality of partnerships with none of its disadvantages of unlimited personal liability and complex regulation.
The difference between an LLP and an LP is the with the former, all partners have limited liability whereas with an LP, at least 1 partner, known as the general partner, must have unlimited liability. Only this partner is allowed to take part in the management of the partnership business with the limited partners being silent partners.
Both offer the informality of partnerships with none of its disadvantages of unlimited personal liability and complex regulation.
The difference between an LLP and an LP is the with the former, all partners have limited liability whereas with an LP, at least 1 partner, known as the general partner, must have unlimited liability. Only this partner is allowed to take part in the management of the partnership business with the limited partners being silent partners.
Tuesday, March 3, 2009
NKF 2 - Type of company
The NKF saga was also interesting in that the type of company involved was not a normal company limited by shares, a class to which perhaps 99% of Singapore companies belong. Rather, it was a company limited by guarantee. In this type of company, members have their liability limited to the amount stated in the company's Memorandum of Association.
This type of company is often used for non-profit groups such as churches, charities like the NKF, cultural and sometime political associations. It is thought that instead of registering as a society which these groups can also do, forming a company limited by guarantee is easier procedurally and less subject to bureaucratic red tape when the constitution of the organisation is altered.
This type of company is often used for non-profit groups such as churches, charities like the NKF, cultural and sometime political associations. It is thought that instead of registering as a society which these groups can also do, forming a company limited by guarantee is easier procedurally and less subject to bureaucratic red tape when the constitution of the organisation is altered.
Monday, March 2, 2009
NKF 1 - Why was Durai sued?
TT Durai, well-known National Kidney Foundation (NKF) head was sued for breaches of director's duties. The interesting thing about the whole matter was that he was not even a director.
However, under the Companies Act, section 4, the definition of a director reads as a " 'director' includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act and an alternate or substitute director."
This type of person is normally referred to as a shadow director or a de factor director - one who on the facts, has the powers of a director. A person found to be a de facto director is also subject to provisions relating to directors duties under the Companies Act.
However, under the Companies Act, section 4, the definition of a director reads as a " 'director' includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act and an alternate or substitute director."
This type of person is normally referred to as a shadow director or a de factor director - one who on the facts, has the powers of a director. A person found to be a de facto director is also subject to provisions relating to directors duties under the Companies Act.
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