SINGAPORE INSTITUTE OF TECHNOLOGY

BACHELOR OF ACCOUNTANCY (WITH HONOURS)

ACC2003 COMPANY LAW

TUTORIAL #2
For this tutorial, please read:
Chapters 10, Singapore Business Law (Benny Tabalujan, Valerie Du Toit-Low, Julie L.Y.
Huan, Chen Meng Lam and Alvin W.L. See) 8th Edition.

Questions:

1. Consider the advantages and disadvantages for a small or medium sized business enterprise
of adopting the corporate status.
 Profit
o If it’s profit-oriented, best to switch to corporate.
o But if doing social work/ non-profit making activities, sme is ok.
 Size
o Small = sme
o Big = thinking of growing, receiving loan etc., corporate
 Formalities and expenses
o Lesser = sme
o Ok w more = corporate
 Taxation
o Does it help w ur tax planning ? (depends on company)
Advantages Disadvantages
- Easier to source capital (access to - Not easy to operate
public market) - Higher taxation
- Limited Liability
- Ownership transfers
- Business exposure
-
2. Discuss your understanding of Section 19(5) of the Companies Act as well as Section 4
of the Limited Liability Partnership Act.

It states that:
- a corporate is a separate legal entity from its partners/shareholders
- has perpetual succession
- can be sued and sue in its own name
- can contract, acquire, own and hold property in its own name
- partners/shareholders have limited liability

3. Barry, a foreign national residing in New York, U.S.A. is a promoter dealing with the
formation of a private limited company in Singapore. You are required to advise him on
the following matters:

a) The legal and/or procedural restriction, which may exist upon the choice of a corporate
name.
 Not the same name as others, under the same industry
 Not carrying “Singapore” name
 Certain words such as “Tourism/Academy/Education/etc” must be
approved beforehand
b) Explain to Barry, by drawing a flow chart, on the process of incorporating a company
at ACRA.

Have the company’s Complete

Choose a company
constitution ready registration on
name & address
for submission BizFile+

c) The personal liability of Barry in the event that he enters into any contracts on the
company’s behalf before the issue of the Certificate of Incorporation.
Pre-incorporation contracts:
Barry’s personal liability would be unlimited before the issuance of the certificate
as the company is not a separate legal entity at that point of time.

d) The definition of the term “exempt private company”, “small company” and “holding”
and “subsidiary” company, within the context of company law, especially having regard
to the changes brought about by recent legislative amendments.

Exempt private company

- Employees <20
- Annual revenue <5mil
Small Company
- It’s a private company
- Meets at least 2 out of 3
 o Total annual revenue <10mil
o Total assets <10mil
o Employees <50
Holding & Subsidiary Company
- Controls the composition of subsidiary’s BoD
- Controls more than half of subsidiary’s voting power

e) What a “company limited by guarantee” is and the utility or usefulness of such an entity
in a practical context in the real world.
- Carries out non-profit making activities that have some basis of national or
public interest
- It is a separate legal entity as well and it offers tax benefit

4. Wonder Flights Pte Ltd is a company in which Lim Ah Cheng holds 90% of the issued
share capital. The remaining 10% is held by his wife Dolly Poon. Lim is the managing
director of the company and is employed by the company in the capacity of its chief pilot.
Recently, Lim was killed in an accidental air crash somewhere in Sumatra. Dolly is very
distraught and is planning to sue Wonder Flights Pte Ltd for damages to compensate for
her husband’s death. Advise her on her rights.

Similar case: Lee v Lee’s Air Farming

Yes, she is able to claim the damages to compensate his death. Even though he is a
director, he is still employee of the company and will have rights under the
Employment Rights Act 1996.

5. Frank had formerly been a director and also employed as a General Manager of an IT
company, IPM Corporation. He had agreed and covenanted in a written contract signed
sometime in October 2010 not to solicit customers of the company after leaving its
employment. Recently in the March 2019, his employment was suddenly terminated
because of grave misconduct on his part, as it was alleged that he had taken bribes
connected with an outsourcing contract. After his dismissal, Frank began to set up his own
business in IT. He formed a new company, F & G Pte Ltd, in which his wife, Grace and
his brother, Herbert, were the only shareholders and directors. F & G Pte Ltd thereafter
began to solicit the customers of IPM Corp. Advise IPM Corp. whether it is likely to
succeed in enforcing the covenant contained in the agreement of October 2010. Can Frank
be able to successfully argue that since he and F & G Pte Ltd are separate legal entities
there is therefore no breach of covenant?

- First, must explain that corporate is a separate legal entity

Person cannot use the corporate veil for fraudulent and wrongful trading.
IPM Corp is likely to succeed in enforcing the covenant. Frank would not be able to
argue that he and F&G are separate legal entities. With reference to the Guildford
Motors v Horne case where the employee set up another company and acted through
it to compete with this employer, the court held that the veil of incorporation was
lifted and an injunction was issued against both the employee and the company.
 Similarly, Frank’s fraudulent maneuver would not be tolerated and the veil would be
lifted as well. Court will likely issue injunction against Frank.

6. Consider the Court of Appeal’s decision in Children’s Media Ltd v Singapore Tourism
Board [2009] 1 SLR 524, and answer the following questions:

a) Explain the facts of this case. (see TB)

STB was the main sponsor for the Listen Live event where Children’s Media was the
organiser. However, the organisers failed to deliver their end of the bargain.

b) What was the decision of the High Court? Was the High Court’s decision overruled by the
Court of Appeal?
The High Court ruled that the sum of 6 mil is to be returned to STB. No, it wasn’t
overruled.

c) Explain the Court of Appeal’s decision regarding lifting of the corporate veil.
Court Holding: The Court held that the companies at issue were used as a façade and sham to
siphon off money for the controller. It lifted the corporate veil and made the controller
personally liable for the debts owing to the company. The Court found that the two companies
were “no more than corporate puppets compliantly dancing to the tune” of their common
controller and that the controller “treated their assets as his own”.

d) What are the consequences if the corporate veil is lifted?

7. In June 2018, Prospero Pte Ltd applied for and was successful in launching an IPO (initial
public offer) of its shares to the public. The company issued listing particulars, and in its
prospectus, the company announced that it was seeking finance to embark on gold mining
in Laos. The prospectus contained a report by Korn-man Associates, stating that the area
over which Prospero had the mining concession was rich in easily mined gold and that
enormous profits could be expected. Midas Ma read the listing particulars and subscribed
for 5,000 $2 shares at a total of $10,000. Midas was subsequently allotted his 5,000 shares.
In early July it was reported by the Business Times that a further survey revealed that, while
there was gold in the area, it was extremely difficult to mine, making the project barely
profitable. Following this, the price of Prospero’s shares tumbled to 50₡. Advise Midas as
to any remedies available to him.

Midas can sue Porpero Pte Ltd for misrepresentation. He must show that there is
misstatement of facts. Secondly, that misstatements of facts induced him to enter the
contract. Thirdly, he relied on that statement and led him to make a loss. The
prospectus stated that “the mining concession was rich in easily mined gold and that
enormous profits could be expected”. However, in actual fact, it was extremely
difficult to mine. Hence, the prospectus contained false information which is
criminally liable for a fine up to $15k or imprisonment up to 2 years.
The Elements of Fraudulent Misrepresentation

In order to prevail in a lawsuit for fraudulent misrepresentation, the plaintiff must be able to
prove the following six elements:

1. A representation was made (in contract law, a representation is any action or conduct
that can be turned into a statement of fact).
2. The representation was false.
3. The representation, when made, was either known to be false or made recklessly
without knowledge of its truth.
4. The representation was made with the intention that the other party rely on it.
5. The other party did, in fact, rely on the representation.
6. The other party suffered damages as a result of relying on the representation.