Law of Business

Organisations
SUMMARY 2010

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BUSINESS ORGANISATIONS LAW

TABLE OF CONTENTS

1 :Types Of Business Organization.................................................... 9

1.1 Sole Proprietorships .......................................................................................... 9
1.2 Partnerships ..................................................................................................... 10
1.3 Limited Liability Partnerships ......................................................................... 11
1.4 Limited Partnerships........................................................................................ 11
1.4 Companies........................................................................................................ 12
1.4 Joint-Ventures .................................................................................................. 12
1.5 Business Registration Act [Cap 32, Rev Edn 1985] ...................................... 13
1.5.0 Purpose of registration:................................................................................ 13
1.5.1 Consequences of Non- Registration ........................................................... 13
1.5.2 Power to grant Relief .................................................................................... 14

2 Nature and Definition of A Partnership ..........................................16

2.1 Carrying on of a Business............................................................................... 16
2.2 Business carried on in Common .................................................................... 17

3 Determining the existence of a Partnership ..................................18

3.1 Matter of Construction..................................................................................... 18
3.2 Guidelines under S 2 of Partnership Act........................................................ 19
3.3 Exceptions to the Profit Sharing guideline .................................................... 20
3.4 Other relevant factorsContribution of capital ............................................ 20
3.5 Other relevant factorsSharing of losses..................................................... 20
3.6 Other relevant factorsManagement and Control........................................ 21

4 Forming a Partnership.....................................................................24
4.1 Nature................................................................................................................ 24
4.2 Capacity ............................................................................................................ 25

5. Agency powers of partners...........................................................25

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5.1 Common law Agency ....................................................................................... 25

5.2 S 5 (first limb) Actual Authority...................................................................... 26
5.3 S 5 (second limb) Apparent Authority ........................................................... 26
5.3.1 Scope of the kind of businesses.................................................................. 27
5.3.2 Acting on Behalf of the Firm ........................................................................ 27
5.3.3 Restriction on partners authority................................................................ 27
5.4 Partners to whom the section wont apply to ................................................ 27
5.5 Ratification........................................................................................................ 28
5.6 Liability of Non-Partners in Holding Out: Section 14 .................................... 28
5.7 Liability of Outgoing Partners- Section 36..................................................... 29
5.7.1 Change in the constitution: .......................................................................... 29
5.8 Liability of Incoming / Outgoing Partners ...................................................... 30
5.8.1 Nature of Liability [Contractual S 9] .......................................................... 30
5.8.2 Nature of Liability [Tortious S 10] .............................................................. 31
5.9 Important cases dealing with Partners agency powers............................... 31

6. Fiduciary Obligations ....................................................................36

6.1. Rule: ................................................................................................................. 36
6.2 . Nature of Fiduciary Duty: .............................................................................. 36
6.3. Duration of Duty .............................................................................................. 37
6.4. Content of Duty (Fiduciary Duty) ................................................................... 37

7 Relation of Partners to One Another (Partnership Terms) ...........39

7.1 Management rights and control ...................................................................... 39
7.2 Management differences ................................................................................. 39
7.3 Capital and Profits............................................................................................ 40
7.4 Indemnity .......................................................................................................... 41
7.5 Access to partnership books .......................................................................... 41
7.6 Introduction of new partner............................................................................ 42

8 Partnership Property .......................................................................42

8.1 Distinguishing between Partnership and Individual Property and its
Consequences........................................................................................................ 43
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8.1.1 Creditors ........................................................................................................ 43

8.1.2 Partners.......................................................................................................... 43
8.2 Nature of Partners interest in partnership property..................................... 43
8.3 Identifying Partnership Property/Determining the status of assets ............ 43
8.3.1 Implied Intention............................................................................................ 44
8.3.2 Ownership of property.................................................................................. 44
8.4 Presumptions of the Act.................................................................................. 44
8.4.1 Property owned before commencement of partnership ............................ 45
8.4.2 Property acquired for business purpose .................................................... 45
8.4.3 Property bought with Partnership Funds.................................................... 46
8.4.4 Property bought with Individual partners fund.......................................... 47
8.5 Important Cases dealing with partnership properties .................................. 47

9 Dissolution of Partnership ..............................................................50

9.1 Terminating Events .......................................................................................... 50
9.1.1 By expiration or notice ................................................................................ 50
9.1.2 By death ......................................................................................................... 51
9.1.4 By Bankruptcy ............................................................................................... 51
9.1.5 Illegality.......................................................................................................... 52
9.2 Dissolution by Court Order ............................................................................. 52
9.2.1 Physical / Mental Incapacity......................................................................... 52
9.2.2 Breach of partnership Agreement ............................................................... 53
9.2.3 Loss making business.................................................................................. 53
9.2.4 Prejudicial conduct affecting the business ................................................ 53
9.3 Important cases dealing with terminating events ......................................... 53

10. Introduction to Company Law [Veil lifting] .................................56

10.1 Characteristics of a Company....................................................................... 56
10.2 Concept of Limited Liability .......................................................................... 60
10.3 Advantages of Limited Liability: ................................................................... 60
10.4 DISADVANTAGES/CRITICMS of Limited Liability ....................................... 61
10.5 LIFTING THE CORPORATE VEIL .................................................................. 62
10.5.1 Statutory Exceptions to corporate Veil lifting: ......................................... 62
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10.5.2 Common law exceptions- Agency ............................................................. 63

10.5.3 Common law exceptions- Sham or Faade .............................................. 64
10.5.4 Common law exceptions- Fraud ................................................................ 64
10.5.5 Common law exceptions- Evasion of Legal obligation............................ 65
10.5.6 Common law exceptions- Groups ............................................................. 65
10.6 Liability for Crimes......................................................................................... 66
10.7 Liability for Tort .............................................................................................. 68
10.7.1 Directors Liability for Corporate Torts .................................................... 68

11 .Memorandum of association........................................................69
11.1 .Articles of association .................................................................................. 69
11.2 .Alteration of Memorandum / Alteration of articles of association ............ 70
11.2.1 Alteration of Object Clause ........................................................................ 70
11.2.2. Alteration of articles................................................................................... 71
11.2.3 Application of the bona fide test: Various Approaches ........................... 72
11.3 Effect of Memorandum and Articles ............................................................. 74

12.Shares.............................................................................................77
12.1 Nature of Shares: ........................................................................................... 77
12.2 Variation of class right: ................................................................................. 77
12.3 Allotment and Issue of Shares:..................................................................... 80
12.4 Ownership and Transfer of Shares............................................................... 81
12.5 SHARE TRANSFERS...................................................................................... 82
12.6 Share Certificate Estoppel............................................................................. 83
12.7 Blank Transfer ................................................................................................ 83

13 Board of Directors .........................................................................84

13.1 Who is a Director? ...................................................................................... 84
13.2 Appointment of Directors .............................................................................. 86
13.2.1 Age Limit:..................................................................................................... 86
13.3 Qualifications.................................................................................................. 87
13.4 Dis-qualifications ........................................................................................... 87
13.4.1 Automatic disqualification: ........................................................................ 87
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13.4.2 Court ordered disqualification: .................................................................. 88

13.5 Vacation & Removal....................................................................................... 89
13.6 Remuneration of directors............................................................................ 90
13.7 Loans to directors and to Companies which directors have an interest .. 90
13.8 Loan to Companies which directors control................................................ 91
13.8.1 Effect of being in contravention of S 162:................................................. 91
13.9 Compensation for loss of office................................................................... 92

14 Fiduciary Duties of Directors ........................................................92

14.1 Acting in the Companys interest(Duty of Good Faith) ............................. 93
14.1.1 Companys interest ..................................................................................... 93
14.2 . Duty to avoid Conflicts of Interest ............................................................ 95
14.2.1 Competing with the company/Usurping corporate opportunities/No
profit rule ................................................................................................................ 96
14.2.2 Cross directorships .................................................................................... 97
14.2.3 Nominee Directors ...................................................................................... 97
14.3 Duty to Act for proper purpose ..................................................................... 99
14.4 Duties of Skill, Care and Diligence ............................................................ 100
14.4.1 Delegating duties: ..................................................................................... 100
14.5 Statutory Duties........................................................................................... 101
14.6 Indemnity and Release ................................................................................ 101

15 Corporate Contracting.................................................................101
15.1 Actual authority:........................................................................................... 101
15.2 Indoor management rule: ............................................................................ 104
15.3 Ratification of Agents acts. ........................................................................ 105
15.4 Capacity of company ................................................................................... 106
15.5 Ultra Vires Doctrine...................................................................................... 106

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Cases
Eley v Positive Security Life Assurance Co Ltd........................................................ 75
Aas v Benham.......................................................................................................... 38
Aberdeen Railway Co v Blaikie Brothers [1854] 1 Macq 461 ................................... 97
Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 ............................................ 70
Badeley v Consolidated Bank (1888) 34 ChD 536 ................................................... 22
BBL v Puvaria Packaging Industries ...................................................................... 103
Bhullar v Bhullar [2003] 2 BCLC 241........................................................................ 98
Canadian Pacific(Bermuda) Ltd v Nederkoorn Pte Ltd [1999] 2 SLR 18: ................. 18
Chan Sau Kut v. Gray & Iron Construction & Engineering Co (1986): ..................... 17
Chee Wan Long v Lam Hong [1993] 2 SLR 120 ...................................................... 16
Chee Wan Long v. Lam Hong (1993) 2 SLR 120..................................................... 14
Chiah Huat Foodstuffs & Packaging v Ng Bin Hua [1993] 1 SLR 626...................... 14
Chiah Huat Foodstuffs & Packaging v Ng Bin Hua(1993) 1 SLR 626 ...................... 13
Chiah Huat Foodstuffs& Packaging v Ng Bin Hua by Selvam JC ............................ 13
Chooi Siew Cheong v Lucky Height Development [1995] 1 MLJ 513 ...................... 19
Chua Ka Seng v Boonchai Sompolong [1993] 1 SLR 482 ....................................... 24
Citco Banking Corporation NV v. Pusser's Ltd [2007] BCC 205, [2007] UKPC 13 ... 72
Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541 ........ 33
Cook v Deeds [1916] 1 AC 554................................................................................ 97
Co-operative Central Bank v Feyen Development Sdn Bhd..................................... 90
Cox v Coulson [1916] 2 KB 177 ............................................................................... 19
Creanovate Pte Ltd v FirstLink Energy Pte Ltd ........................................................ 89
DHN Food Distributors Ltd v Tower Hamlets Borough Council ................................ 64
Dubai Aluminium v Salaam [2003] AC 366 .............................................................. 35
Family Food Court v Seah Boon Lock and Another [2008] SGCA 31 ...................... 31
Foss v Harbottle (1843) 2 Hare 461; 67 ER 89 ........................................................ 59
Freeman &Lockyer v Buckhurst Park Properties [1964] 2 QB 480......................... 102
Gambotto v WCP Ltd (1995) 182 CLR 432, [1995] HCA 12..................................... 73
Gian Singh v. Devraj Nahar:..................................................................................... 44
Glassington v Thwaites ............................................................................................ 38
Greenhalgh v Arderne Cinemas [1946] 1 ALL ER 512............................................. 79
Greenhalgh v Arderne Cinemas Ltd [1951] 1 Ch 286............................................... 73
Grinstead v Britannia Brands (Holdings) Pte Ltd:..................................................... 91
Hickman v Kent or Romney Marsh Sheepbreeders Association [1915] 1 Ch 881.... 75
Howard Smith v Ampol Petroleum [1974] AC 821.................................................... 98
HSBC (Malaysia) Trustee Bhd and Ors v Soon Cheong Pte Ltd [2007] 1 SLR 65:.. 82
In re City Equitable Fire Insurance Company, Limited [1925] Ch 407 at 428 ........... 99
Intraco Ltd v Multi-Pak Singapore Pte Ltd [1995] 1 SLR 313 ................................... 92
Jaya Kumar v Subramaniam Mohanann (1987) SLR 314 ........................................ 14
Jones v Lipman [1962] 1 WLR 832 .......................................................................... 64
Keith Spicer Ltd v. Mansell (CA) [1970] 1 WLR 330................................................ 21
Keith Spicer v. Mansell (1970................................................................................... 16
Khan v. Miah (1998) ................................................................................................. 16
Lee v Lees Air Farming Ltd [1961] AC 12................................................................ 57
Lim Feng Chieh v GS Auto Supply [1993] 2 SLR 489 .............................................. 15
Lim Weng Kee v PP: ............................................................................................... 99
Lo Thu Yun v Wing Chan Textile (1984) .................................................................. 45
Macaura v Northern Assurance Co Ltd [1925] AC 619 ............................................ 58
Meridian Global Funds Management Asia Ltd v Securities Commission ................. 67
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Miah v Khan [2000] 1 WLR 2123 ............................................................................. 21

Miles v Clarke [1953] 1 WLR 537............................................................................. 49
Moss v Elphick [1910] 1 KB 846............................................................................... 53
Newstead v. Frost (1980 .......................................................................................... 17
Ng Chu Chong v Ng Swee Choon [2002] 2 SLR 368 ............................................... 48
Northside Developments Pty Ltd v Registrar General (1990)................................. 104
Peso Silver Mines v Cropper [1966] 58 DLR (2d) 1 ................................................. 97
Ponnukon v Jebaratnam [1980] 1 MLJ 282.............................................................. 49
Popat v Shonchhatra................................................................................................ 40
Popat v Shonchhatra [1997] 1 WLR 1367 ................................................................ 47
Rabiah Bee bte Mohamed Ibrahim v Salem Ibrahim [2007] 2 SLR 677 ................... 21
Ratna Ammal v Tan Chow Soo (1964) 30 MLJ 399 ................................................. 18
Ratnal Ammal v Tan Chow Soo: .............................................................................. 44
Re Darby [1911] 1 KB 95 ......................................................................................... 64
Re FG (Films) Ltd [1953] 1 WLR 483 ....................................................................... 62
Re Noel Tedman Holdings Pty Ltd [1967] Qd R 561................................................ 56
Re Siew Inn Steamship Company............................................................................ 29
Re Wragg [1897] 1 Ch 796....................................................................................... 80
Re Yenidje Tobaccor [1916] 2 Ch 426 ..................................................................... 53
Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378................................................. 96
Ryder v Frolich [2004] NSWCA 472 ......................................................................... 55
Salomon v Salomon & Co Ltd [1897] AC 22 ............................................................ 55
Shuttleworth v Cox Bros & Co (Maidenhead) Ltd [1927] 2 KB 9 [Subjective]........... 72
Sigma Cable Co (Pte) Ltd v NEI Parson Ltd [1992] 2 SLR 1087.............................. 31
Smith, Stone & Knight Ltd v Birmingham Corporation [1939] 4 All ER 116 .............. 62
Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 ......................................... 74
SPP Ltd v Chew Beng Gim [1993] 3 SLR 393 ....................................................... 101
Stekel v Ellice [1973] 1 WLR 191 ............................................................................. 23
Swabey v Port Darwin (1889) 1 Meg 385................................................................. 75
Tay Guan Ho v Chin Guat Hin Co: ........................................................................... 45
Teng Meow Chong v. Chia Ngim Fong (1991) 3 MLJ 452 ....................................... 14
Tesco Supermarkets Ltd v Nattrass [1972] AC 153 ................................................. 66
The Saudi Al Jubail [1987] SGHC 71 ....................................................................... 63
Tower Cabinet v Ingram [1949] 2 KB 397 ................................................................ 32
TV Media Pte Ltd v De Cruz Andrea Heidi [2004] 3 SLR 543 .................................. 68
Watteau v Fenwick [1893] 1 QB 346 ........................................................................ 34
Weiner v Harris [1910] 1 KB 285.............................................................................. 18
White v Bristol Aeroplane: [1946] 1 ALL ER 512...................................................... 78
Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830.................................... 67
Win Line (UK) Ltd v Masterpart [2002] 2 SLR 98 ..................................................... 65
Winkworth v Edward Baron Development Co Ltd .................................................... 93
Xiamen International Bank v Sing Eng (Pte Ltd ....................................................... 82

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1 :Types Of Business Organization

1.1 Sole Proprietorships
Definition: A business that is carried on by an individual on his or her own without the use of
a separate and distinct business form.
-Individual has full control over
o
o
o
o
o
o
o

Management of business
Hiring staffs
Firing staffs
Borrow and raise credits
Enter into contracts in his own name
Sue or be sued personally
Own property

-Law views the sole proprietorship as a single being with the owner and thus no distinction
between the owners business assets and his personal property exists.
-All assets of the business belong to the owner and the profits generated are exclusively for
his personal enjoyment
-He is personally liable for all the debts of the business and the losses incurred will have to
be borne by him alone.
Financing:
--Restricted financing as the sole proprietor has to provide his own funds or use his own
credit worthiness to source for loans.
-Full potential growth is rather hard to achieve. Thus, incorporation has to be considered.
Taxes:
--Based on personal individual rate.
-Any losses incurred can be used to offset against any income from the individuals other
sources.
-If the business generates substantial profits, then the tax will have to be levied at a higher
rate.
Advantages:
-With low start up cost and minimal formality, it is a very easy method.
-Suitable for small-scale businesses
-Allows the individual to be his own boss and offers him a high degree of privacy and
informality
-Tend to be found in the retail and wholesale business, construction and restaurant industry.
Basically, businesses with a low element of risk.

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Disadvantages:
-Exposure of owner to unlimited liability with the risk of him/her losing all her personal
assets.
-Business can be terminated voluntarily and experience has shown that likelihood of the
business continuing to the next generation may not be as high as expected.

1.2 Partnerships
Characteristics:
-Defined by Partnership Act s1 (1). Basically, it is a relationship between two or more
persons carrying on a business with a view to profit.
-When there is no partnership agreement or the agreement is not comprehensive enough, it
is governed by the Partnership Act.
-Minimum requirement of 2 individuals
-Most features of sole proprietorships are also applicable to partnerships:
o
o
o
o
o
o
o

Minimal formalities
Low start up
Ease of dissolution
High degree of privacy
Freedom to change business plans
Loans based on personal credit
Taxation of individual partners

Rights: Each partner has equal managerial right and authority for the partnership. Though
this might lead to confusion for outside parties if too many partners are involved in the
routine administration of the partnership.
-This has led to the restriction of the size of partnerships to 20.
-Exceptions exist for professions, which are governed by their individual statues. These
include professions such as:
o
o
o
o

Medical
Legal (Legal Profession Act, Cap 174)
Accountants
Dentist

Disadvantage:
Liability-Each partner is personally liable for the debts and obligations of the partnership
including the possibility of losing his own personal property.
-Though partners are able to internally agree to the limits of their own liabilities. However,
the outside party must know this agreement or else it would not affect the partners liabilities
against outside parties.
-Thus, the firm and all its partners may be sued for any wrongful act committed by any
partner in the course of the firm or with the authority of his co-owners.

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1.3 Limited Liability Partnerships

Definition: Business organization comprising two or more person associated for carrying on
a lawful business with a view to profit that is registered as under the Limited Liability
Partnership Act 2005.
Characteristics:
i. Has its own separate legal personality
ii. It can
-Sue or be sued
-Own property
-Can be held liable for its own debts & partners and managers of the LLP
cannot be made liable for such debts.
iii. Each partner is regarded as an agent of the LLP and the partners are assessed and
taxed individually on their respective share of the profits in the LLP.
Winding Up:
-LLP will continue to exist until it is dissolved. Dissolution often takes place after a process
called winding up has been completed. Winding up may be effected voluntarily or following a
court order.
-Assets of the LLP will be liquidated and used to pay off all debts and then distributed
throughout the partners in accordance with the LLP agreement.

1.4 Limited Partnerships

-Newly introduced in 2009 and its essentially a business organization with one or more
general partners and one or more limited partners.
- *Essentially they are Partnerships and are cared in pursuant to an agreement between the
partners.
Characteristics:
-Do not have a legal personality that is separate from their constituent partners. Partnership
Act and general law are applicable subjected to the Limited Partnerships Act 208.
-Partners, not a limited partner, are treated as a general partner and they are held liable for
all the debts and obligations.
-Parties have to register themselves under the Limited Partnerships Act and failing to do so
will result in the limited partner being treated as a general partner.

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