A company is a business vehicle upon which a business is founded to operate. Whilst it is undisputed that a company is accorded legal personality at law, it cannot function as intelligent as nature human like you and I.
A company operates through its “organs’.
It is our opinion that there are at least 2 organs which a company operates through; and these organs are:
- the board of directors; and
- the members.
The board of directors (“the board”) is tasked to govern the company in terms of its policy-
making, objectives and strategic direction. At the operational level, the board may set up
various committees to assist in discharging its role. The board is also tasked to look after the interest of the members of the company.
Under the Singapore Companies Act, a company must have at least one director who is ordinarily resident in Singapore; and the director must attain the age of 18 years old and is of full legal capacity.
A person is ordinarily resident in Singapore if he is either
- a Singapore citizen,
- a Singapore permanent resident, or
- on a valid employment pass issued in Singapore.
By legal capacity, we mean to say that one is capable of entering into a binding contract, to sue and be sued in his or her own name at law.
If a company does not have a director ordinarily resident in Singapore, it is the members’ duties to appoint one. The non-compliance in this respect is an offence at law and members are liable for penalty. If the non-compliance persisted for more than 6 months and/or the company carries on business without a resident director for more than 6 months, the members (or a person who is aware of the company’s non-compliance and is involved in the company’s continue trading) will be liable for the payment of the debt (or part of it) of the company contracted during the period. As a consequence, he or she may be sued in this respect.
The directors are tasked to appoint a company secretary to assist them, as part of their duties, to adopt and comply with the company’s articles of association, statutory requirements in holding the annual general meeting, filings of the statutory returns, etc.. The directors have a duty at law to ensure that the office of the company secretary is not vacant for more than 6 months.
While the directors may not be operationally involved in the company’s business, collectively, the directors are responsible to the board which has the apex decision-making authority. The board decides on the appointment of the company directors, secretary, auditors, the payment of dividends to the members, the issue of additional shares, etc..
As for the members of a company, they are in essence investors. The members generally do not have the locus to interfere the company’s affairs in terms of its management and operations, unless for compelling reasons such as oppression of interest. The members interact with the company in 2 occasions, viz.
• annual general meeting to elect directors and approve directors’ remuneration, to appoint auditors and approve their remuneration, to adopt the accounts, to declare dividends, etc.; and
• extraordinary general meeting to decide amendments to articles of association or object clauses to its memorandum, to decide change in company name, to increase or reduce of capital, to wind up the affairs of the company, to remove liquidator (in the context of voluntary liquidation), etc.
It is therefore said that the board of directors is the governing body of a company and is accountable for the company’s policies, actions (or inactions), success and failures.
We hope this article may achieve its purpose of clarifying the confusions about the duties and responsibilities of the directors and members of a company amongst the small and medium sized enterprises for mostly these businesses are owner-managed.