BSP1004 Lecture 3 - 2010 - COMPANY LAW: MEMBERS &...

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Unformatted text preview: COMPANY LAW: MEMBERS & DIRECTORS LECTURE 4 Members (ie: Shareholders) •  Every company must have at least _____ member/s. •  Generally who manages a company: members or directors? •  Though it is the directors who make decisions on behalf of the company, in some specific situaTons, 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 arTcles of associaTon. •  Also note: the arTcles of associaTon of a company typically would give the members, the power to remove directors by an ordinary resoluTon. What is the pracTcal effect of this power? Members’ Rights •  While members cannot manage the company, they have various rights. •  Some of these rights are discussed below: Members’ Rights: AWending MeeTngs and VoTng •  There are 2 types of meeTngs. •  The first is the AGM. •  Subject to an excepTon, all 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 relaTon to issues such as appointment of directors or auditors. •  During such meeTngs, the members also have the opportunity to query the directors on the performance of the company. Members’ Rights: AWending MeeTngs and VoTng •  The second type of meeTng is the EGM. •  All other meeTngs besides the AGM are classified as the EGM. Members’ Rights: AWending MeeTngs and VoTng •  Where decisions are to be made at AGMs and EGMs, the amount of votes necessary to pass a resoluTon (or decision) depends on the type of resoluTon. •  There are 2 types of resoluTons: ordinary resoluTon and special resoluTon. Members’ Rights: Others •  A member has the right to receive various types of informaTon pertaining to the company. Why? Members’ Rights: Others •  A member has the right to the balance (if any) on dissoluTon. •  Generally does a member have a legal right to demand dividends? 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 resoluTon. DisqualificaTon of Directors •  Though there are not that many qualificaTons 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 protecTon 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 situaTons, the disqualificaTons may be automaTc, while in others, they may not be. •  Note also: if a disqualificaTon is disobeyed it is an offence, unless the disqualificaTon has subsequently been li_ed (such as by the court). SecTon 148 of CA •  Under secTon 148 an undischarged bankrupt cannot be the director or indirectly take part in the management of the company. Why? •  The disqualificaTon is automaTc. SecTon 149 of CA •  Under secTon 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 le_ Z Pte Ltd in 2007. -   X then became a director of Y Pte Ltd. -   In the meanTme, Z Pte Ltd was made insolvent in 2008. -   Can X conTnue as a director of Y Pte Ltd? •  DisqualificaTon is not automaTc. •  DisqualificaTon order, if issued, may be up to 5 years. SecTon 154 of CA •  Pursuant to secTon 154(1) if a director is guilty of an offence involving fraud or dishonesty, punishable on convicTon with imprisonment of 3 months or more, he is automa9cally disqualified for 5 years. •  Pursuant to secTon 154(2) if a director has commiWed offence in relaTon to management of the company (eg: breach of secTon 157 of the CA), he may be disqualified up to 5 years. DisqualificaTon under this part is not automa9c. •  What is the difference between the two secTons and why is there such a difference? SecTon 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. SecTon 155 of CA •  SecTon 155 provides that if a person is persistently in default he will be automaTcally 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. 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 posiTon of conflict of interest (this duty is also referred to as a “fiduciary duty”). 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? SOME DIRECTORS’ DUTIES IMPOSED BY CA •  In addiTon to the duTes imposed by case law, directors may be subject to duTes imposed by the Companies Act. •  Note: many of case law and Companies Act duTes 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. SecTon 156 of CA •  Under secTon 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 enters into a contract with Co B and X is a director of both Co A and Co B. •  What is the reason? •  The secTon provides that a failure to do so would result in the commission of an offence. SecTon 157(1) of CA •  SecTon 157(1) provides that a director must act honestly and use reasonably diligence in the discharge of his duTes. •  This is a very important secTon and it encompasses many of the case law duTes discussed earlier (ie: must act in the best interests of the company, must not place himself in a posiTon of conflict of interest, must exercise due care and skill, etc). •  SecTon 157 provides that if there is a breach, civil liability and/or criminal liability can arise. SecTon 162(1) of CA •  Under secTon 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 excepTons (eg: the company is a bank and it is making a loan to its director). •  If the excepTons are not met, the directors who authorize the loan/guarantee could face civil and/or criminal liability. SecTon 169 of CA •  SecTon 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. LiabiliTes under SecuriTes and Futures Act •  Besides the Companies Act, directors (and others) could face liabiliTes under the SecuriTes and Futures Act. •  The SecuriTes and Futures Act prohibits many types of conduct such as: •  Market Rigging and •  Insider trading. Insider Trading •  -   -   -   -   -   -   -   -   Generally under secTon 218 of SFA where: a person connected to a corporaTon, knows or ought reasonably to know that he: (a) possesses informaTon 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 informaTon 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. Insider Trading •  SecTon 219 of SFA effecTvely provides for a similar sort of prohibiTon in relaTon to persons not connected to a corporaTon. Insider Trading •  Consequences of a breach of these secTons include: -   Criminal Liability -   Civil Penalty InternaTonal Comparisons Minimum Number of Directors Imposi9on of Directors’ Du9es & Liabili9es for Breach Prohibi9on of Insider Trading & Liabili9es for breach China 1 to 3 Yes Yes US 1 to 3 Yes Yes India 2 to 3 Yes Yes Indonesia 1 Yes Yes Thailand 1 Yes Yes Malaysia 2 Yes Yes Summary •  •  •  •  •  Every company must have at least one member and one director. There are not that many qualificaTons 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 obligaTons and duTes. Failure on the part of a director to observe these obligaTons and duTes can result in criminal and/or civil liabiliTes depending on the circumstances Most importantly, it must be realised that limited liability comes at the expense of various statutory duTes, formaliTes and liabiliTes. Readings: •  RC Chapter 11 and/or BT Chapter 11 and case referred to from ...
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This note was uploaded on 11/01/2011 for the course BIZAD BSP 1004 taught by Professor Ravichandran during the Spring '11 term at National University of Singapore.

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