A presentation specifically for entrepreneurs. Find out what a company is, how it is structured, what are a shareholder's rights, a director's rights and obligations and as a bonus, how to skim a contract quickly.

1. By Yuying Deng
5 Things Every Business
Owner Should Know About
The Law
13 January 2018

3. 1. What is a company?
“Peugeot is a figment of our collective imagination… It
can’t be pointed at; it is not a physical object. But it exists
as a legal entity. Just like you or me, it is bound by the
laws of the countries in which is operates. It can open a
bank account and own property. It pays taxes, and it can
be sued and even prosecuted separately from any of the
people who own or work for it.”
–Yuval Noah Harari

4. Separate legal entity
❖ Effect of incorporation is that a company is a body corporate,
capable of suing and being sued, and having perpetual
succession
❖ Effects:
❖ can own property and this does not belong to shareholders
❖ can sue and be sued
❖ can enter into contracts with members
❖ only company can sue to enforce obligations owed to it

5. Limited liability
❖ In cases of insolvent liquidation
❖ As company is separate from shareholders, a creditor
use sue company and cannot sue shareholders for
unpaid debt by company
❖ In a limited company, shareholders are only liable up to
amounts unpaid on their shares or on amount
guaranteed
❖ But there are exceptions

6. Lifting the corporate veil

7. 2. How is a company structured

8. Company
Shareholders Directors
Shareholders’
Agreement
Constitution
AGM EGM Board meetings
(executive, non-executive,
de facto, shadow, alternate)

9. 3. Your rights as a shareholder

10. ❖ Fundamental rights:
❖ Attend, vote and speak at meetings
❖ Access to company’s records and have certain information
provided to you (financial info)
❖ Right to be treated fairly
❖ Minority shareholders’ remedies:
❖ Oppression remedy. 4 tests: oppression; disregard of
interests; unfair discrimination and prejudice. Test is
“commercial unfairness”
❖ Just and equitable winding up

11. 4. Your rights and obligations as a director

12. Rights of a director
❖ Rights:
❖ Manage the business of the company
❖ May exercise all the powers of the company except
any power that the Company Act or constitution
requires to be exercised in general meetings
❖ Shareholders cannot instruct the directors
❖ But shareholders’ approval required in some cases

13. Liabilities of a director
❖ Fiduciary duties:
❖ Duty to act honestly / bona fide in interests of
company
❖ Duty to avoid conflicts of interest
❖ Duty to act for proper purposes
❖ Tort of negligence
❖ Criminal liability

14. Fiduciary duty to act honestly
❖ A director shall:
❖ at all times act honestly and use reasonable diligence in the
discharge of the duties of his office
❖ not make improper use of any info acquired by virtue of his position
to gain an advantage for himself or cause detriment to the company
❖ What does this mean?
❖ act in what the director honestly considers to be in the best interests
of the company
❖ Interests of the company as (a) corporate entity (b) interests of
shareholders and employees (c) interests of creditors

15. Fiduciary duty to avoid conflicts of interest
❖ Director may not benefit personally from a transaction in which the
company is interested.
❖ Director should not divert property, contracts or business opportunities
to other persons or companies.
❖ For example:
❖ Not to use company’s money to make a profit for himself
❖ Not to use info acquired due to his position to make profit for
himself
❖ Unless these are disclosed to and approved by shareholders in
general meeting

16. Fiduciary duty to act for proper purposes
❖ Abuse of powers - court will examine the substantial
purpose for which the purpose was applied
❖ Example:
❖ Misapplies company’s assets
❖ Misapplies company’s funds

17. Tort of negligence
❖ Directors owe a duty of care to the company and are liable if they breach
the standard of care
❖ Test:
❖ Skill - How skilful a director is depends on whether he’s an ED
(objective standard of skilfulness) or NED (minimal standard of skill).
❖ Care - Director should take as much care in affairs of company as he
would reasonably take in his own affairs. Note a duty to supervise if
you delegate.
❖ Diligence - a director shall at all times act honestly and use reasonable
diligence in the discharge of his office.

18. Criminal liability
❖ Criminal misappropriation of property: dishonest misappropriation
or conversion to one’s own use or wrong person’s use
❖ Criminal breach of trust: where director is entrusted with property
and has dominion over it and:
❖ commits criminal misappropriation of property
❖ uses / disposes of it in violation of law or contract
❖ allows third party to do so
❖ Accepting or receiving bribe
❖ Fraudulent trading to defraud creditors or for fraudulent purpose

19. 5. When can a company sue and be sued

20. Be sued
❖ Agency:
❖ A company acts through human agents and is bound
if its agent has authority
❖ Types of authority: express, implied, apparent
❖ Vicarious liability
❖ Corporate criminal liability

21. Agency
❖ Express:
❖ by statute, constitution, corporate document
❖ by shareholders’ resolution or board resolution
❖ by delegation (most common), orally or in writing
❖ Implied:
❖ Incidental authority
❖ Usual authority (job position, unless expressly limited)
❖ By acquiescence (common in small companies)
❖ Apparent:
❖ Principal made representation to 3rd party that agent has actual authority

22. Vicarious liability
❖ Company can be liable for acts of employees and agents
if there’s sufficiently close connection between acts done
and employees’ functions
❖ Test: Is wrongful conduct so closely connected with
what the employee is authorised to do that it would be
fair and just to hold employer vicariously liable?

23. To sue
❖ The proper plaintiff in respect of a wrong alleged to be
done to a company is the company itself
❖ Board or authorised executives have power to authorise
litigation to enforce company’s rights
❖ If the board will not act, shareholder may bring an
action in his own name to enforce the company’s rights
(derivative action)

24. Bonus: How to read a contract in 10 mins

25. Quick glance
❖ Who are the parties
❖ What is the purpose
❖ What are each parties’ obligations
❖ Price, payment terms, penalties
❖ Duration and termination
❖ Representations and warranties
❖ Limitation of liability

26. Parties
Date
Purpose
Price and
payment terms

27. Commercial
agreement

28. Indemnification
clause
No limitation of
liability!

29. Warranty
clause