Singapore’s Corporate Legal System
Company Law includes commercial and contract laws dealing with the formation and running of a corporation or company, all of which govern the interactions between shareholders, creditors, employees, directors and other business entities. The Singapore Companies Act regulates business formation, company structure, shareholder rights, duties of directors & officers and specifies other compliance requirements.
Companies are defined in the law by two characteristics: Separate Legal Personality and Legal Capacity.
As a Separate Legal Personality, a company is distinct from its owners (shareholders) and operators (directors, officers and employees), and one of the greatest benefits of structuring your business as a limited liability company is that it limits the liability of all shareholders. Because it is its own legal entity, a company:
- Can own property in its own name
- Can enter into contracts with its employees, directors & officers, customers, suppliers & other third parties
- Can litigate & be sued in its own name
- Is responsible for its own liabilities & debts
- Accrues profits in its own name & is taxed at the corporate tax rate
- Has perpetual succession even if its owners or operators change
However, a court may decide to treat the company and one or more of its associated individuals as one and the same and to hold them personally liable in exceptional circumstances, such as:
- Avoidance of legal obligation or duty
- Wrongful trading positions
- Acting as the agent or partner of the person(s) who controls the company
Companies have the right and Legal Capacity to engage in any activity or enter into any transaction to benefit the business. A company can also do things a person cannot do, such as issue shares.
Singapore companies must have at least one shareholder. Shares ownership is documented through share certificates issued to the shareholders. Because a company is a separate legal entity, owning a share in a company does not give the shareholder a legal interest in the company’s property, assets or intellectual property.
Shareholders do not have a say in the day-to-day administration of the company, but they are granted certain powers under Singapore law:
- Vote to elect the board of directors and propose & vote on resolutions
- Receive dividends proportional to shares held
- Awarded assets remaining after the company’s debts and costs are paid, in the case of closure
Other powers may include:
- Veto certain types of capital reduction for a public company
- Modify, adopt, or annul any provision in the Constitution of the company
- Approve auditors for the company
- Remove directors of the company
Under Singapore law, a private company must have at least one director, and a public company must have at three or more. One director must be a local resident of Singapore. Directors are voted in by the shareholders.
Directors have broad powers of management, as defined by Singapore company law and the particular company’s Constitution. In smaller, private companies, the director likely will manage the company’s business, making most of the day-to-day decisions. In larger companies, a director will take on a more supervisory and visionary role while a management team will perform the day-to-day operations.
Directors are charged with two categories of duties: Administrative & Fiduciary
Administrative duties are enforced by the Accounting and Corporate Regulatory Authority of Singapore (ACRA) and include:
- Satisfy the duty to disclose
- Hire an auditor within 3 months ofIncorporation
- Maintain a register of the company members and other statutory books at the Registrar
- Maintain proper accounting records
- Hold the first Annual General Meeting within 18 months of incorporation and every year thereafter, at an interval not to exceed 15 months
- Prepare a financial statement for the company’s Annual General Meeting
- Hold regular shareholder and director meetings to review the company’s trading and financial position
Fiduciary duties include:
- Act in good faith: Directors must act honestly when dealing with shareholders, creditors, employees, customers, other companies and the community.
- Use discretion: Directors must use their freedom in making decisions about the company.
- Avoid conflicts of interest: Directors cannot put themselves in situations where their personal interest conflicts with that of the company.
- Avoid debts that cannot be paid: The Companies Act prohibits directors from incurring debts that it knows the company cannot pay.
- No insider trading: The Companies Act prohibits directors from using information gotten through their position at the company for personal gain or for the detriment of the company
Singapore law requires that every company appoint one officer, the company secretary. The company secretary must be a person who is a local resident of Singapore. A company cannot appoint a director as a Company Secretary if he or she is the sole director of the organisation.
The company secretary’s role is to ensure compliance with Singapore’s regulations for corporations by preparing and filing the required paperwork with ACRA and ensuring all procedural requirements are met. The secretary’s key duties are:
- Organising the mandated meetings of directors & shareholders
- Taking the minutes of those meetings
- Maintaining the company register
- Preparing and filing required paperwork with ACRA
- Assisting in the preparation of the annual reports
- Acting as a liaison with the Stock Exchange to ensure compliance with all of its requirements
- Arranging for the issue and allotment of shares along with handling the transmission & transfer of those shares
- Acting as advisor to and intermediary between directors, officers & other employees, and shareholders
- Taking care of the common seal of the company as well as its legal documents
Singapore encourages pro-market mergers that create product alternatives for buyers by creating rivals to an incumbent vendor, and neutral mergers that have little impact on market. At the same time, it penalises anti-competition behaviour its Competition Act to ensure that its markets operate in a fair, transparent and competitive manner. Business investors and companies will benefit from adhering to the Competition Act well and building a compliance program to reduce the risks of potential business infringement.
Administered and enforced by Competition Commission of Singapore (CCS), the Act restricts the formation of cartels and monopoly activity in trade. CCS also has powers to impose sanctions that include (a) financial penalties, (b) enforcing errant companies to make structural changes, (c) requiring termination of any agreement or conduct that CCS deems will harm competition.
The Act provides three key provisions:
- Section 34: acts against prevention, restriction and distortion of competition in Singapore market,
- Section 47: deals with abuse of dominant position by major undertakings operating in Singapore and
- Section 54: works to prevent mergers and acquisitions that could result in sizable reduction of competition in any market in Singapore.
Singapore companies must follow legal compliance requirements related to hiring, managing and terminating employees. Singapore’s Employment Act is applicable to all full-time, part-time and temporary employees irrespective of nationality. This implies that the Act covers local as well as foreign employees.
The Act is applicable to all employees who the employer appoints by means of an employment contract stating the terms and conditions of employment. However, managers or executives with monthly basic salary exceeding S$4,500, seafarers, domestic workers or statutory board employees or civil servants, as well as independent contractors entering into a client-contractor relationship are not covered by this Act. The Act specifically states that any terms and conditions of the employment contract that are less favorable to the employees in comparison to the relevant provisions of the Act are illegal, and have no legal binding on the parties.
Key Provisions of the Act include:
- Minimum Age
- Minimum Wage
- Hours of Work
- Rest Days
- Public Holidays
- Annual Leave
- Sick Leave
- Maternity & Parental Benefits
To protect consumers, Singapore companies are required to obtain the consent of an individual before they can collect, use, or disclose any personal information related to that individual.
Singapore citizens have the option of registering their telephone numbers with the Do Not Call Registry if they do not want to receive unsolicited marketing. Singapore businesses, therefore, have to check their telemarketing efforts against the DNC Registry before engaging in marketing or else risk penalties. The law is designed to provide a balance between the rights of individuals to protect their personal data, as well as the rights of businesses to use personal data for legitimate purposes. The government has set up a Personal Data Protection Commission specifically to ensure that this law is adhered to. By regulating personal data, the PDPA sets out to make Singapore a leader in digital information management policies and solidify its status as a world-class location for doing business.
The other general provisions of the PDPA legally obligate businesses to use personal data responsibly; the law requires companies to inform citizens why their data is being used, obtain their consent for the use of data and only store the data for as long there is a legitimate, reasonable business or legal case to do so. Corporations must nominate an in-house designated data protection officer to oversee all compliance activity.