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Published: Fri, 02 Feb 2018
What is a partnership business
A partnership business is a relationship which subsists between people carrying on a business with the same or common view of making profits; the relationship amongst members of any association or company that is registered by the act of parliament or under the Companies Act 1862. In general partnership, this business is viewed as an entity existing on its own as its owners. In Singapore, Limited Liability partnerships, are regarded as companies, thereby are administered under the Limited Liability Partnership Act of 2005. Furthermore, Partnership businesses are guided by the Companies Act. The statutory provisions governing companies in Singapore are anchored or supplemented by the common law. Any Company or Partnership has its own identity independent from that of its members thus debts and obligations incurred by the firm are owned by it and members do not share the liabilities of the company.
Under the Singapore Common Law section 157A of the Act clearly stipulates that the company businesses will be managed by the board of directors and that they will exercise every power of the company except those powers that can be executed by shareholders in a general meeting.
Small companies like partnerships with less than 10 members, members are allowed to directly be involved in the management as directors or even taking up the executive positions. Section 151(1) of the Common law Act prescribes that company directors ought to perform their duties diligently in the execution of their roles. Consequently, section 157(2) requires that anyone acting on behalf of the company shall not make use of information that get through performing their duties as agents of the organization so as to take a due advantage at the expense of the company.
The common law was designed to make the companies directors to act in a manner that propels the interest of the company. In excising their duties directors must act as bona fide in undertaking company duties that are seen to be beneficial to the company as a whole. If the decision made by the company is not inclusive of all directors, courts allover Singapore are concerned to whether the involved directors have acted honestly in what they feel to be the best for the company and the shareholders. In addition, director’s overriding duty is to the company, provided for by section 159 of the Act, in excising their powers they must take into consideration the members of the company.
The Common Law has the duty to avoid conflicts of interest. As a fiduciary, that is the loyalty imposed on a director to the company. With regard to this, a director is not supposed or obliged to impose himself or herself into a situation where his performance of duties to the company conflicts with his own interests. The director is not entitled without the due permission of the company to make profits in connection with his or her position in the company. This implies that when the director comes across an opportunity while discharging his company duties, he/she cannot personally proceed and take the advantage of the situation unless with full knowledge of the company about the facts thereby permitting him to do so. The director can only be allowed by the rest of the board members or by all members in the general meeting.
The Common Law also acts for proper purposes. Management of the company are wholly vested in the board of directors the have specific powers; for instance section 161 of the common law Act, provided that the directors have obtained specific or general mandate to do so. These powers must be executed in honest and fro proper purposes. For example, in cases where the issue of shares was used to assist a take over initiative by the concerned company, then that was not the correct use of powers even if the directors were of the opinion that they acted to the best interest of the company.
Breaching fiduciary duties where the director places his duties above those of the company, such director is completely liable for any loss incurred by the company. Nevertheless, in the case where a director makes profits without the authority of the company by virtue of his position, such a director will have to give an account to the company of such profits.
From the above description of company laws, prior to the formation the partnership in 2005, Anne was an entrepreneur managing her business as a sole proprietor, enjoying all the benefits and paying for all the loses her business incurred. In 2007, she entered in a partnership business with her friends; Bart, Carl, and David completely a different business from what she was doing initially. This came with new laws rather rules and regulations. For instance, profits were shared equally amongst the four partners, they all dedicated their energies and duties to make sure that their business thrive. Makhan Lah Pte ltd (ML) expanded and all the four partners continued to hold their positions; the four were the primary and original directors of the company with Anne as the Executive Chief, Bart the financial manager, Carl the operations manager, and David as the marketing manager.
The action by Bart, Carl and David to confide behind Ann, and the acquiring of Shiok Claws Pte ltd (SC) was un-procedural, and this surmounts to legal actions to be taken against then. They went against the company agreement not to bid for and take over the properties of SC. They also made personal profits while on ML’s duties as the executive officers by ordering many crabs Cakes from SC to help Ed managing director of the latter while still acting on behalf of ML. Although the move was to the best interest of ML, it was not all inclusive and also the deal was outside ML’s regulations.
The general extra ordinary shareholders meeting that declared Ann not one of the directors and deleting the Articles 2 and 3 of Partnership Article of Association. In addition the subsequent meeting between the three directors unanimously resolving to remove Ann as an executive chief, ratify the Crab contract and reconfirm that ML has and had no interest in purchasing any SC shares was unlawful. Ann is completely right to claim her position as the executive chief ML, failure by the three directors to reinstate her; the partnership should be wound up. Winding up will ensure all the four directors gain equal benefits as stated by section 334(1) of the Act.
Through section 254(1) of the Act Ann can file a petition that may wind up the partnership in such circumstances since the directors of the company acted in their own interest, rather than that of the company or of the members as a whole. Bart, Carl and David acted to fulfill there own interests instead of the interests of the partnership at large, the law binds them.
Ann is also entitled to Oppression Remedy. Her interests were prejudiced by her fellow directors. Section 216(1) of the Act requires that anyone who holds a position or a debenture in the company may have to apply for an order that the dealings of the company are being executed in a way that is repressive to one or all the debenture holders.
The procedure against partnership property for partner’s separate judgment debt is that a writ for execution shall not issue against any partnership property except on a judgment against the firm or partnership. ABC Pte ltd is not in any case involved in the transaction between X and the bank and therefore the bank is not legible to register the mortgage or the charge. ABC Pte ltd is an independent entity from X, although X is a member of ABC Pte ltd it does not mean that the personal actions undertaken by X are binding to ABC Pte ltd.
Consequently, the court may on the application by summons of any judgment creditors of a partner make an order charging that partner’s interest in the partnership property and profits with payment of the amount of judgment debt and interest thereon, and may, by the same or a subsequent order, appoint the receiver of that partner’s share of profits ( either declared or accruing), and any other that may be coming to him in respect of the partnership, and direct all the accounts and inquiries, and give all other orders and directions which might have been directed by the partner, or given the charge is given had been in the favor of the judgment creditor by the partner, or which the circumstances of the case may require. With this regard the bank was not supposed to take partnership property but it was only required to get hold X accountable by blocking any withdrawals from his accounts. In addition the bank is to communicate with ABC Pte ltd to make sure that all the monetary benefits of X are deposited into X’s account at the bank. The Bank should hold X legible to pay for the debt.
Following the rules of partnership, all the partners in the business are permitted to distribute equally in the capital and profits of the firma, and must continue equally towards the losses, either capital or otherwise, sustained by the firm. Taking into consideration this rule, when the bank takes over the mortgage Y and Z will have been deprived their right of ownership and with this; the bank is not legible to register the charge. With regard to the law the bank had no other obligation after X defaulted the payments and they can not at any case file or register X shares in its name.
16 Dec 2009 Paper – Q1
The partnership business between the three friends Albert, Cathy and Benny was formed in good faith to earn benefits to the core shareholders. The Singapore Common Law has an elborate set of laws and regulations that administer the operations of the partnerships and companies at large. For instance each and every company of partnership has its own identity and it exits independently from its owners. This implies that the activities of the partnership are strictly for the partnership not for an individual. The partnership business is bound to the Companies Act (Cap 50, 1994 Rev Ed). Accordingly section 157A of the act says that a partnership or a company shall be run by or under the stewardship of the directors thus the PGP partnership was exercising their constitutional rights to head their business.
The statutory duties as laid down in the common law, directors owe their fiduciary duties to the partnership or company hence they are regarded as fiduciaries. In this case Albert as marketing manager, Benny as the culinary manager and Cathy as financial manager were all exercising their company rights as they were the main shareholders. Section 157 (1) Act of the common law requires all directors to act honestly and use logical attentiveness in executing the duties or activities of his/her office. The officer or the director in such a position should not use information or knowledge by virtue of his/her position to directly or indirectly profit himself or any other person or causes damage to the company. In the first place Albert went against this critical rule by accepting commission of 10% from ORU Pte ltd the sole supplier of organic ingredients to PGP without the knowledge of the other two shareholders. He contravened section 157(1) and 157(2) of the common law Act makes the director or agent liable to any profit or damage incurred by the company due to the breach.
The common law requires that the directors act to the benefit of the company. The bona fide actions of the directors are not subject to any challenge even in the court of law; the courts are only worried about is whether the company directors have been honest in what they consider to be in the best interest of then company. For this matter, Albert never acted in the best interest of the partnership; he was after fulfilling his personal interests. The action taken by Cathy and Bonny to expel him from the board of directors was ethically right and lawful binding and considerably they acted to the best interest of the company. Albert does not have a tangible case to file a legal suit against the company or any other director or member of the company. In my opinion, Albert should humble himself, pay up the commissions he received divisively to PGP to clear his name from these evil acts and eventually the company will reconsider him as a faithfully member.
The Singapore common law is clear and does not uphold or embrace conflicts rather it provides a platform on which conflicts of interest can be avoided. Loyalty to the company is a must, directors should not place themselves in positions that their duties to the company can conflict with their own interests. With regard to this a director is not is not permitted without full consent of the company to make profits or benefit in connection with his or her director’s position. This implies that when the director encounters an opportunity while executing his duties as a director he can not personally proceed and take advantage of such and opportunity unless the company has the full knowledge of the facts and then permit him to carry on. The permission can be offered by the all members of the board or by all members in a general meeting. Considering Albert’s case, he completely contradicted this particular Act of common law thus when he proceeds to the court and file any legal suit against the PGP he himself will be implicated as a law defaulter. The best thing for him to do is to reconsider his stand and submit faithfully to the company and with time he will be able to recapture his position in the executive committee of PGP.
The common law also has stiffer penalties for any director who breaches the fiduciary duties, for instance if the director places his personal interests above those of the company he or she will be held responsible for any losses incurred by the company. This tells us that if the director enriches himself by use of his post without the permission of the company, the director is entitled to account for these benefits to the company. Consequently, if the director has contracted with the firm in the sell or purchase of assets or materials, if this contract contravenes the fiduciary requirements of the company directors, he can be penalized. In addition, if the third party has engaged himself/herself in bidding contract with the company with the full knowledge that the company director operated n an unlawful manner, and therefore the company may avoid the contract vis-.-vis the third part. Taking this into consideration, if Albert goes a head and file a legal case against PGP, he will be risking his PGP membership and may also break the contract of ORU to supply organic ingredients to PGP. The common law binds him in any legal case that he files, therefore he should content himself as a mere member for the time being.
In my own opinion Albert is not entitled to any remedy as the common law or the statutory derivative actions completely bars him taking any legal against PGP. For instance the laws are after protecting the diverse interests or the company rather than the personal ventures. On the other hand, Albert is to pay for some liabilities; the commissions he acquired illegally should be submitted to the PGP Pte ltd as they are the rightful recipients of the latter.
It is common sense that at one time a company or a partnership business will have to get a loan to finance its business operations. Acknowledgement the act of borrowing a debenture document is created. When a firm borrows money say from a bank, it is mandatory that the debtor gives security to the creditor, as in the creditor is given a proprietary interest in the debtor’s property over which the security has been issued or granted. The proprietary interests allows the creditor allows the creditor to have priority to these assets should the debtor fail to pay the debt. Sam the legal officer of Union Bank should take the legal security package as it is valid and enforceable against LTC when the company becomes insolvent. The common shape of security that companies give to their creditors is the charge over their assets. The debenture will always have the conditions of charge that is created.
Furthermore, the asset used as security by the company can still be used in its factory as the bank need not to take possession of such an asset for the charge to be effective (non-possesory nature of the charge). Union Bank for this matter should register this security package to be sure of not losing their money. The charge is relevant and Sam as the legal officer should spearhead the registration of the security package. Also implies that the security can be taken over intangible assets of the LTC such as shares and book debts.
There is a charge when there is a transaction for value, say the company and the bank (its creditor) show an intent in that property, presently available will be made as a security in clearing the debt, and the creditor will have a current right to have such possessions made available as security even though the present legal right will or can be enforced in the future. The creditor can only obtain the legal right of the property at a future date so as to have the security made available. Considering this, Sam is entitled to file or register the charge on behalf of the Union Bank to make sure that the whole transaction is valid and enforceable.
There are two types of company charges i.e. fixed and floating charges. A fixed charge is one that it attached to specified assets that are currently owned by the charger or that may be acquired at a later date. In this case, an organization may grant a permanent charge over all machineries presently in its factory and any other subsequently acquired for the factory by the company. Sam should not fear but should go ahead and file or register the fixed charges over the machinery in LTC Pte ltd factory.
Section 131 of the common law Act states that charges that are instituted by companies have to be recorded with public authority responsible for corporations in Singapore. Neglecting this vital rule will not hold the charge valid or the charge will be rendered void to the liquidator or any other secured creditor of the company. The creditor or the chargee will wish to enforce the charge when the company is insolvent, promisingly, this provides an incentive to the creditor or chargee that the charge created in their favor is registered within the 30 days of creation. I am comfortable and wholly sure that the venture is valid and Sam should register the charge within the 30 days as provided by section 131 of the Act.
Sample Paper (Draft Opinion)
From your information, there is no full knowledge about the share distribution to the directors, you only own 20% of the shares, Baker holds 30%, and Madam Doris Yong has 30%, could you please elaborate on this?
Can you give me the reason to why you were only given or entitled to the 20% share of the company?
You were only, included in the board of directors after your mother claimed for the position, are you wholly interested in management of the company?
Your file says that Eldon Tan is one of the directors; what is the percentage of his shares in the company?
On the death of your father, did he leave behind a will describing how family properties should be distributed amongst his siblings?
The file also says that your step mother “Doris Yong” is also one of the directors, why is it that your mother is not involved in the management of the company as one of the directors?
Just after your father Golden Fortune passed on, you said that the company was in a mess and you helped in clearing the mess and putting the company back to its normal operations, what was this kind of mess and how did you solve it?
Throughout the file, there is no single formal board meeting that was held, why is it like this?
Is your half brother Baker content with the fact the company does not hold frequent board meetings given that he is the managing director of the company?
New Fortune Seafood accounts for over 80% of the total supplies to Golden fortune, have you ever tried to establish as to why the situation is like this? Are there any other credible companies that can provide the same supplies as New Fortune Seafood ltd?
How are the profits and surplus of the company distributed amongst the directors?
From the common law of Singapore Exceptions to the separate personality doctrine, states that if a person or individual has existing legal responsibilities but tries to use the company to evade such an obligation the law will ignore the company’s personality. For this matter if Singapore court establishes that Golden Fortune ltd. does not pay taxes, the company plus its directors will directly be implicated by the Singapore law. Abel for this matter should go back to the company records and establish whether the company has been paying the taxes or not. If not, he should call for the Board meeting within 14 days to solve the matter. This is because if the company will be found to have been executing a deceptive action, the court will take the company including all its directors or investors as one and the same.
In enforcement of the corporate rights, the derivative action is where one member has the exclusive right to bring forward a suit on behalf of the company. A member or director who is in control of the company can use derivative action to defraud then company for instance he can appropriate company assets or funds for himself. The majority shareholders can also use their voting powers to illegitimately defraud the company. With this regard a director or a member who is bona fide file a legal suit against the fraudulent members, where the court will determine the matter in the best interest of the company. With regard to this Abel can go ahead and file a legal suit against his half brother and the step mother, form the operations of the company to be streamlined.
Abel can as well decide to resign as one of the directors of GF Pte ltd. When he completely establishes that his fellow directors are involved in wrongdoings like defrauding the company and evading paying taxes, he can call a board meeting within two weeks and present his resignation letter. In this meeting he should make sure that the minutes of such a meeting well captured and written. If the other directors disagree with him, he should or is entitled to file a legal case. Consequently, he can sue the other directors for involving themselves in using company money and property to their personal benefits rather than for the interests of the company. With facts at hand Abel will be viewed by the court to have taken the right and positive step to ensure that the interests of the company are secured.
The evidence and material at hand as per now are not enough to completely advice you on what you should do. Gives a grace period of two weeks so that we can come up with full report on what you should do with regard to your situation. Nevertheless, if there are additional materials that you can provide us with within two weeks we shall appreciate as it will give us an elaborate case.
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