Choosing the Right Form of Business Entity and Director's Duties: A Legal Analysis

Question 1: Choosing the Right Form of Business Entity for Online Grocery Sale

Question 1 

Arnold and Bella, who are friends since university days, wish to set up a business selling groceries online. Arnold and Bella had both graduated with an Accountancy degree several years ago, and had studied about incorporation and business organisations. Arnold and Bella want to avoid the risk of personal liability arising from the proposed business as much as possible. Arnold owns his own home, and Bella rents an apartment. Arnold and Bella will each invest $20,000 and $10,000, respectively, into the business. Both of them want to be active in running and managing the business. Arnold and Bella also would like minimal hassle in dealing with paperwork arising from the running of the proposed business. They have in mind the following forms of business entities: general partnership, limited liability partnership, and company. 
Arnold and Bella are unsure of the form of business entity to adopt, and have come to you for advice. 

(a) 
Describe the advantages of incorporation. 

(b) 
Select the form of business entity that is most suitable for them. In your answer, you should consider the extent to which their liability for debts will be limited; the degree of management and control they will each be able to exercise in the business; and the formalities in maintaining the entity and public disclosure requirements. 

(c) 
State your reasons why the other two business entities are not as suitable as the one which you have chosen. 

Cite relevant statutory provisions and/or case law to support your answer. You are NOT required to discuss limited partnership in your answer.

For Question 1, The total length of the report should be no more than 3 pages with font as Times New Roman.

Section 2

Hyflux Ltd (“Hyflux” or the “Company”), a specialist in water treatment, was listed on the Singapore Stock Exchange (“SGX”) in January 2001. At one time, it employed more than 2,500 staff in Asia Pacific, the Middle East and the rest of the world, in its operations and research laboratories. 

In 2008, the Hyflux group reported net profits of S$59 million. By end of 2016, the group had net profits of S$3.8 million. 

In 2011, Hyflux won the tender to build and operate a desalination plant in Singapore (and the largest in South East Asia) which is integrated with a power plant (collectively known as the “Tuaspring project”). As the first integrated water and power project in Asia, it was envisaged that the Tuaspring project would provide Hyflux with revenues from selling the desalinated water and the electricity generated. 

On 21 May 2018, the Company suspended its shares on SGX and applied for court supervision to reorganise liabilities and businesses the next day. The company's earnings had been hit b "prolonged weakness" in the local power market due to the Tuaspring project, when electricity tariffs fell by more than 60% over the span of seven years. 

The founder of Hyflux is the Executive Chairman of the Board of Directors, the Group Chief Executive Officer and a shareholder of the Company. 

As a group, review the following news articles and conduct further research (where relevant) before answering the questions below: 

Question 2
(a) 
Describe three (3) possible scenarios in which one or more directors may breach their duties under common law and/or the Companies Act, Cap. 50 of Singapore, based on the facts and possible scenarios contemplated above. In your answer, you should explain why the details of the scenarios result in a breach of directors’ duties, with reference to the relevant statutory provisions and/or case law. 

(b) 
Comment on possible actions which the directors should take to ensure that there is no breach of directors’ duties in relation to the scenarios described in your answer to Question 1(a) above. Support your answers with specific details which are relevant to each of such scenarios. 

Question 3
(a) 
Discuss one (1) appropriate option available to Hyflux under the Companies Act, Cap. 50 of Singapore, given its current insolvency. In your answer, you should explain why Hyflux is considered insolvent and provide a well-balanced consideration of why your proposed option is feasible, compared to other available options. 

You can conduct further research, including reviewing Pages 12 and 13 of the affidavit dated 1 March 2019 and filed in relation to Hyflux’s consolidated financial position 

(b) 
Based on your proposed option in Question 2(a) above, explain the procedures and steps required to be taken under the Companies Act to obtain approval of the shareholders and creditors (where relevant). 

For Questions 2 and 3, The total length of the report should be no more than 8 pages with font as Times New Roman, size 12.