Sam was imprisoned for 4 months due to the conviction of driving offence under the influence of alcohol. Alcide was imprisoned for 2 years due to the conviction of cheating offence. After their release, both of them decided to incorporate a private limited company called ABC Pte Ltd. Both of them were the appointed directors. They purchased goods from XYZ Pte Ltd on credit through ABC Pte Ltd at $100,000. Subsequently, the goods were sold at $75,000 and the amount was shared between both of them. When XYZ Pte Ltd approached them for the payment, they told XYZ Pte Ltd that the company is cash-strapped; hence they are unable to fulfill its obligations.
XYZ Pte Ltd wishes to claim their $100,000 and to lodge a complaint with Commercial Affairs Department against both of them.
The legal issues to this case are:
1) What are the effects and liabilities of incorporating a private limited company? 2) What are the qualifications of director?
3) What are the duties of a director?
4) Can XYZ Pte Ltd file a complaint to Commercial Affairs Department (CAD)? 5) Can the court pierce the corporate veil and make Sam and Alcide liable for the $100,000 due to XYZ Pte Ltd?
Application of legal rules and facts
1) Effects and liabilities of an incorporated company
Companies are governed by the Companies Act (CA). Pursuant to the CA, incorporated companies are regulated by Accounting and Corporate Regulatory Authority (ACRA).
As per s 20A CA, there must be at least one member to incorporate the company. At least one director must resident in Singapore. And only natural persons can be directors [s 145(2) CA].
In the case study, there are two members, Sam and Alcide, to form ABC Pte Ltd. Both of them are appointed directors and both are staying in Singapore. Therefore, they are eligible to incorporate ABC Pte Ltd.
According to s 19(5) CA, incorporation creates “personhood”, and it has the ability of suing and being sued. It has a perpetual succession and also has the power to own property under its name. The liabilities of the company are only on the company itself. It does not make the members of the company liable.
Since ABC Pte Ltd is incorporated, the company is considered a separate person. The goods were purchased through ABC Pte Ltd. As such, the legal obligation is on ABC Pte Ltd to repay XYZ Pte Ltd the $100,000. Sam and Alcide, as members of the company, are not obligated to pay for them. Based on this, XYZ Pte Ltd can only take legal action against ABC Pte Ltd on the outstanding payment of $100,000. XYZ Pte Ltd is unable to complaint against Sam and Alcide, as well as to claim the $100,000 from them, because the business transaction was between XYZ Pte Ltd and ABC Pte Ltd but not with the individuals. [Salomon v A Salomon & Co Ltd (1897)].
2) Qualifications of director
Directors are responsible for the management of the company. The exercises of powers are according to the CA or memorandum and article of the association, which is prepared during the process of incorporating the company. [s 35 CA]
Directors must be natural person [s 145(2) CA], at least 18 years of age with full legal capacity. The director does not need to have any formal professional qualification. However, undischarged bankrupts, persons disqualified by the court and persons who have been convicted of fraud and dishonesty are disqualified from acting as directors. [s 148-149 and s 154 CA].
Alcide was convicted for an offence of cheating under section 420 of the Penal Code. Since he has been convicted of fraud and dishonesty previously, he is not eligible to be appointed as director. Despite the lawyer’s advice on the qualification and disqualification of being a director, he disregards his advice. He knew that he is disqualified to be a director, but he lied to the lawyer that he does not have any previous...
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6. Tabalujan, B. S. & Du Toit-Low, V. (2009). Singapore Business Law, 5th Edition.
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