IQS LOCAL VARIATIONS ICSA PROFESSIONAL PROGRAMME PART 1 CORPORATE LAW Aim The Chartered Secretary is, within the organisation, the first point of authority and reference on the requirements of corporate law. A pivotal role is also played in corporate compliance, and the body of law is the basis and framework for corporate secretarial practice. The aim of the module is therefore to provide a thorough grounding in, and knowledge and understanding of the sources and principle provisions of corporate law in the structure, management and performance of the business entity. Learning outcomes At the conclusion of this module, candidates will be able to: Understand and advise on the provisions and application of corporate law appropriate to the constitution, formation and performance of the business entity. Perform the role of principal compliance officer. Understand and advise on the impact of law on the role of Directors, the Secretary, and the audit function. Pre-requisite Learning This module is a component of the ICSA Professional Programme Part I. It is designed to enable aspiring Chartered Secretaries to demonstrate required standards of competence for professional practice in a key discipline, and acquire essential knowledge and skills to underpin the relevant components of the Professional Programme. Evidence of assessed knowledge and understanding must be demonstrated through the examinations, or those of equivalent qualifications which have been approved as meeting the Institute s required curriculum and standards. 1
The module specification is based on the assumption of some relevant prior certificated knowledge, and candidates will find it helpful to have familiarised themselves particularly with: An introduction to the principles of law, and Business law. Syllabus There are six main areas within the Corporate Law syllabus: formation and constitution of companies; comparison with sole traders, partnerships, limited liability partnerships, limited partnerships, governmental and not-for-profit organisations; the corporate veil; types of companies; the corporate capacity of companies and their transactions; a company s capital: shares, share capital, allotment of shares, the maintenance of capital rule, borrowing, charges and administrative receivership; appointment, retirement and disqualification of directors; directors common law and statutory duties; the appointment and duties of auditors and the company secretary; minority protection and government inspections; reconstruction of companies, takeovers, schemes of arrangements; compulsory and voluntary winding-up; directors liability on insolvent liquidation; administration and other voluntary arrangements. Company law is a distinctive subject because it has several unusual characteristics: Companies are entirely artificial creations Companies have no tangible existence: they only exist because governments permit them to do so. This means that much company law, like tax law, is statutory, and therefore subject to the benefits of statute, such as certainty, clarity and availability, but also subject to its failings, such as slowness to react to changing circumstances, poor drafting and inflexibility. Company law is both self-referential and connected to other areas of law It is quite difficult to separate any one part of company law from any other, since all the parts are interconnected. But at the same time, for a good understanding of company law, it also helps to have some knowledge of contract law, conveyance law, banking law, bankruptcy law and accounting practice. Company law states that, provided certain procedural requirements are fulfilled, a company will exist irrespective of the motives of the persons behind the company. Once a company has its certificate of incorporation, it has its own separate legal personality, irrespective of the personal behaviour of the directors who manage the company, the reasons, honest or otherwise, for which they it set up, or the manner in which they run it. Company law is pragmatic Company law attempts simultaneously to promote commerce and to deter fraud. It promotes commerce by allowing entrepreneurs to set up in business with a predetermined estimate of the amount of capital they will lose if the business fails. 2
Without the security of that knowledge, entrepreneurs would either not bother to set up businesses, thus reducing employment prospects and tax revenues, or would go else-where to a more entrepreneur-friendly country. At the same time, the knowledge that an entrepreneur has a ceiling on his liabilities may serve as an incentive to dubious and illegal activity, which the law must try to deter. Company law also tries to find a balance between allowing entrepreneurs the opportunity to manage the company as they see fit, while making them accountable to the company s members and, under limited circumstances, both to the company s creditors and to the wider world. Learning content The Nature and Formation of a Company The nature of a company: definition of a company, the essential characteristics of a company, separate legal personality and the veil of incorporation, the criminal and civil liability of a company Sources of company law and the impact on local jurisdictions Types of company: public and private, limited by shares and guarantee, unlimited companies, holding and subsidiary companies and undertakings, comparison with sole, general partnerships, limited liability partnerships, limited partnerships, voluntary and charitable organizations. The corporate veil; types of companies; the corporate capacity of companies and their transactions. Company formation: the registration documents, the registration procedure, the role of ACRA, the commencement of business and the regulatory environment The promotion of a company: the company promoter, the duties owed by a promoter and the remedies for breach, the enforcement and liability on pre-incorporation contracts The nature of a company definition of a company, the essential characteristics of a company, separate legal personality and the veil of incorporation, the criminal and civil liability of a company. Sources of company law and the impact on local jurisdictions. Types of company public and private, limited by shares and guarantees, unlimited companies, holding and subsidiary companies and undertakings, comparison with sole traders, general partnerships, limited liability partnerships, limited partnerships, voluntary and charitable organizations. The corporate veil; types of companies; the corporate capacity of companies and their transactions Different rules apply to different forms of companies, according to their status and that status may need to change (for example, when a company wishes to change from being a public company to a private one). The distinctions between the different types of company, their respective advantages and disadvantages, and the methods of conversion, should all be understood. Candidates should also be aware of the commercial advantages of being a registered company, while taking account of the unsuitability of the company limited by shares for bodies that are accountable to wider interests than shareholders, and which do not operate for profit alone. 3
Company formation the registration procedure, the role of the Accounting & Corporate Regulatory Authority (ACRA), the commencement of business and the regulatory environment. The promotion of a company the company promoter, the duties owed by a promoter and the remedies for breach, the enforcement and liability on pre-incorporation contracts. The Constitution of a Company The articles of association: purpose, outline content, the contractual effect of the constitution, alteration and limits to alteration of the articles The external constitution the memorandum of association, purpose, content and alteration. The internal constitution the articles of association, purpose, outline content, the contractual effect of the memorandum and articles, alteration and limits to alteration of the articles. Since the passing of the Companies Act (Cap 50), the corporate capacity of a company, as reflected in the objects clause of the Memorandum of Association, has not been the issue that it was once was but it is not to be ignored. Candidates should be aware of the effect of the rules introduced by that Act and the diminished significance of the ultra vires rule. Articles of Association remain important. Corporate Transactions (a) Corporate capacity and the doctrine of ultra vires and constructive notice The powers of the directors and other officers and employees to bind the company Agency concepts and the rule in Turquand s case Transactions prior to incorporation The company seal (b) Types of meetings and resolutions General meetings, directors meetings and class meetings The use of electronic communications Corporate capacity and the doctrine of ultra vires and constructive notice. The powers of directors and other officers and employees to bind the company. Agency concepts and the rule in Turquand s case. Transactions prior to incorporation. The company s seal. The Capital of a Company (a) Share Capital Capital terminology Types of shares, including treasury shares, class rights and their variation Issuing and the payment for shares The alteration of share capital The capital maintenance rule, purpose and exceptions to it Redemption and purchase of own shares, financial assistance, serious loss of capital and the distribution of profits The concept of membership: transfer and transmission, disclosure and the register of members 4
Public offers of shares: types of public offer, the regulation of public offers and remedies for misleading prospectuses A company s capital: shares, share capital, the maintenance of capital rule, borrowing, charges and administrative receivership Candidates must be aware of the practicalities, procedures, commercial concepts and legislation based on the maintenance of capital principle. Capital terminology: Types of shares, including treasury shares, class rights and their variation. Issuing and the payment for shares. The alteration of share capital. The capital maintenance rule, purpose and exceptions to it. Redemption and purchase of own shares, financial assistance, serious loss of capital and distribution of profits. The concept of membership transfer and transmission, disclosure and the register of members. Public offers of shares types of public offer, the regulation of public offers and remedies for misleading prospectuses. (b) Loan Capital Debentures: the power to borrow, secured and unsecured borrowing, types of debenture and the use of a trust deed, remedies of a debenture holder Fixed and floating charges: characteristics of fixed and floating charges, priority, invalidating charges and registration requirements Debentures the power to borrow, secured and unsecured borrowings, types of debenture and remedies of a debenture holder. Fixed and floating charges characteristics of fixed and floating charges, priority, invalidating charges and registration requirements. This is another topic where the overall principle should be tackled first. If candidates understand that shareholders capital should be available to creditors and not dissipated on the shareholders themselves, and that public companies should adhere to minimum capital requirements, candidates can then learn about the refinements and detail that put that principle into operation. Since most companies borrow and will need to grant various forms of security, candidates will also need to know the law relating to the granting of security and the remedies open to security-holders. Directors, Company Secretaries, Auditors and other Company Officers Directors: types of director, appointment, tenure, remuneration, and disqualification The general duties of a director Transactions with directors requiring approval of members Modification of duty and absolving directors from breach of duty Insider dealing Market abuse Disclosure of interests 5
The company secretary: appointment, qualification and authority of the company secretary The auditor: appointment and removal of an auditor, rights and duties of an auditor and audit exemptions A perennial issue in company law is when members or directors may be identified with their companies, so that they may be liable for their companies debts. Some decided cases indicate that members or directors are not responsible for their companies debts, assuming that the company is properly formed and there is no evidence of impropriety a view that sometimes can seem harsh for creditors. In other cases, the courts have looked at the substance of a company and chosen to lift or pierce the corporate veil when the company form has been, in the eyes of the court, abused. The cases form no coherent body of law from which unambiguous conclusions may safely be drawn. The potential liability of directors is a very significant issue and directors often seek guidance on this matter from their company secretaries: candidates should therefore be well aware of this issue. Directors types of director, appointment, tenure, remuneration, retirement and disqualification of directors. Common law, fiduciary and statutory duties. Absolving directors from breach of duty. Insider dealing, Market abuse, Disclosure of interests. Company Secretary appointment, qualification, authority and duties of the company secretary. Advising directors is also a core function of the company secretary. Although the Corporate Law paper looks mainly at the law relating to directors and the Corporate Governance and Corporate Secretaryship papers address issues of procedure and best practice, candidates should be aware that non statutory corporate governance is increasingly being seen as pertinent to the law relating to company directors. Auditors, - appointment, removal, rights, liabilities and duties of an auditor. Audit exemption. Shareholder Remedies (a) The general position of a minority shareholder within a company: the division of power between the Board of directors and the shareholders, the rule in Foss v Harbottle, the common law exceptions Statutory shareholder remedies: the use of just and equitable winding up and locus standi The alternative statutory remedy of unfairly prejudicial conduct, locus standi, the meaning of unfairly prejudicial conduct, limits and remedies available Derivative actions Government investigations Minority protection The general position of a minority shareholder within a company the division of power between the board of directors and the shareholders, the rule in Foss v Harbottle, the common law exceptions. Candidates often see minority protection as one of the more human sides of company law. Historically it was very difficult for minority shareholders to assert their minority rights, but gradually the pendulum began to swing more in their favour. 6
(b) (c) Statutory shareholder remedies the use of just and equitable winding up and locus standi. The alternative statutory remedy of unfairly prejudicial conduct, locus standi, the meaning of unfairly prejudicial conduct, limits and remedies available. Government investigations.a company secretary would be expected to cooperate with any properly authorised governmental investigation and candidates might be required to advise shareholders and directors on the ramifications of such an investigation. Companies in difficulty (a) (b) Reconstruction of companies, takeovers and schemes of arrangements; compulsory acquisition of shares on a takeover. Insolvency and winding up grounds, locus standi, compulsory and voluntary winding up; the role and powers of the liquidator, swelling the assets available by setting aside transactions and seeking contributions towards the assets of a company, order of application of assets of insolvent companies. Consequences of winding up, striking off and restoration of companies to the register. Directors liability on insolvent liquidation. Companies sometimes find themselves in a financial muddle, perhaps through misfortune, perhaps through their directors incompetence. Where humans become bankrupt, companies are wound up by a liquidator. The liquidator has to salvage as much from the company s assets to repay creditors, or, if the company is actually solvent, repay the members their capital after payment of the creditors. This may involve the liquidator in examining the directors actions in the period leading up to the winding up. The liquidator may be able to have certain transactions set aside and/or apply to the court to make the directors personally liable for some of their actions. Liquidation is a very drastic step. (c) Alternatives to winding up there is an alternative procedure administration- which may be available under certain circumstances and which may be more appropriate than liquidation - administrative receivership, administration and company voluntary arrangements. Candidates should be aware of the differences between and the usefulness of liquidation, administrative receivership and administration. Candidates should also be aware of the less-well-known voluntary arrangements, even though they are not greatly used. Study Materials and Resources Recommended Study Text Tan C.H. (2009) Walter Woon On Company Law, Revised 3 rd Edition, Sweet & Maxwell Asia: Singapore Statutes and Regulations Companies Act (Cap 50) Limited Partnership Act (163B) 7
Limited Liability Partnership Act Securities and Futures Act (Cap 289) The Singapore Exchange Listing Manual The Code on Takeovers and Mergers of Singapore Web Resources Singapore Legislations Update www.egazette.com.sg Ministry of Finance, Singapore www.mof.gov.sg Accounting & Corporate Regulatory Authority www.acra.gov.sg Singapore Exchange www.sgx.com Singapore Statutes Online: http://statutes.agc.gov.sg 8