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One aspect of the Rule of Law requires that all persons adhere to the rules prescribed by law. When one enters into the realm of business, laws which have been promulgated by the Courts (called the “Common Law”) and by the legislature (called “Statutory Law”) can leave one in a flummoxed state.
This may be in part because whilst some of the laws may consist of common sense to some, such as a promise should be kept; other laws are more technical and difficult to grasp, for example, the statutory duty to pay Central Provident Fund (CPF) contributions and rate.
Obviously, the experienced business person would know more about legal rules than the less experienced business person. However, in the eyes of the law, all persons ought to adhere to the legal rules.
This article describes some different heads of law that a person ought to be aware of, when doing business in Singapore.
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First, one must determine the statutory law in relation to the entity by which the business is carried out. It is now almost impossible to do any business without undertaking it through an entity. The exceptions are taxi drivers, hawkers and some other tradesmen.
When doing business in Singapore, in most cases, you will have to establish an entity, such as a company or partnership. Such entities need to comply with various statutory laws, in terms of registration governance, operations, book-keeping, etc.
These are internal rules that affect the business person, and specifically, the statute may affect contracts between the entity and outsiders. For example, a contract is not enforceable against a partnership if the parties lack authority and capacity to be bound by the legal document.
But there are other rules that can have an impact on those operating behind the entity. For instance, a company that is in a state of insolvency should no longer trade as commercial transactions might lead to a reduction of the assets available to creditors; a director may be held personally liable for those losses.
A third, and perhaps crucial point, is that corporate governance is built into the Companies Act. Hence the general rule is that a director should not take a loan from the company to avoid any conflict of interests.
Be aware of the laws which govern the business vehicle
Second, there is statutory law that governs the relations between the business and the government. One example of this is the tax law under the Income Tax Act.
The Central Provident Fund Act is another example where employers are required to make CPF contributions to their employees.
Be aware of the laws which govern employee contracts
Third, the Common Law and Statutory Law (i.e. the Employment Act) govern the relations between employers and employees.
Similar to the Employment Act that applies certain provisions (Part IV of the Act) to certain employees, the Common Law also has an effect on the relationship between the employer and employee.
For example, the law implies a term in contracts whereby the employer will not require the employee to do anything that is illegal.
Be mindful of laws that govern the business dealings of the entity
Fourth, there is an entire field of private law governing the relations between the business and outsiders, which are essentially contract law based.
Such an example is an order of goods to be sold and bought. As a contract may be applied for the sale of goods defined under the Sale of Goods Act, which was administered into Singapore law under the Application of English Law Act, it is therefore controlled by the Act.
Notwithstanding the application of the said Act, concepts like “Offer” and “Acceptance” remain the linchpin of contract law and are applicable.
There is another area of law that affects the business’s trade and financing facilities. We may call that “international trade law”. If the international sale of goods is contemplated, there would be a need to issue a Letter of Credit in support of “f.o.b” or “c.i.f” (or variations thereof) contracts.
As the documents used in the international sale of goods consist of the Bill of Lading and the insurance policy for the goods, the rights of parties are hence dependent on the law governing these documents.
For instance, in the event that goods are damaged during transit, and assuming that the “risk” has been transferred to the buyer at the time of the damage, the buyer will then have to call on the insurance provider to make good any losses. At this point, the buyer enters into the realm of insurance law.
Be aware of duties in tort
If one’s business is not in the sale of goods, but in offering services (such as construction work), then that business must cope, not only with the contractual duties and obligations that are stipulated in the contract, but also with the duty of care as imposed by tort law.
Therefore, professionals who make negligent mis-statements in the contract will usually be liable for resulting losses, which are subject to the rules of “remoteness” and “causation”. In construction work, it is always clearly the case that poor workmanship can give rise to liability in contract and in tort.
The above heads of law are by no means exhaustive. There are other existing rules that do not come clearly as a matter of law. For example, if one runs an architecture firm, he/she would also need to conform to any professional rules in that vocation.
When doing business in Singapore, an entrepreneur needs to be aware of his obligations and duties, and more importantly, his legal rights. This is to ensure that commercial activities are carried out in accordance with the law and in the most profitable way.
This article originally appeared in the Entrepreneur's Digest print edition #84 and has been edited for clarity, brevity and for the relevance of this website.
About the Author
Glen Koh | Consultant | Farallon Law Corporation
Glen is a lawyer with 17 years of experience in commercial work, ranging from corporate secretarial to company disputes. Specifically, he possesses legal experience in disputes pertaining to industrial accidents, contractors work, claims for contractual debts and breaches of contract, hire purchase, insurance claims, product defects, and other aspects of commercial undertakings. Glen also provides companies with legal advice relating to banking and financial services, such as listings on the stock exchange and to those who are seeking to raise capital funds.