Local Pte Ltd company with Related overseas office

[Faster]

Hi All

We have set up Pte Ltd company in Singapore by 3 partners including me and recently 1 of the partner wants to exit and each directors owned equal 33.3% shares. As the buy out price is too high and unreasonable, we might be thinking of liquidation but before this, can we transfer most of our customers or business?

We have registered a HK office many years back for venturing of China business and luckily we are able to get the same company name but during the registration, we have decided to only put 1 of the director's name without any contract binded. All along we have been doing inter company purchased btw Singapore and HK to facilitate China business and keep little margin in HK and major margin to Singapore. Can we say that our HK office is an independent & "related" company of Singapore HQ?

My question is whether we are able to transfer all the customers with AGM or without his knowledge and he cannot sue us as we are allow to get customers to buy from our HK offices and we did not transfer to any outside company?

Last question, can we draw dividend without AGM?

Regards
Faster

[Strong Eagle]

Hi All

We have set up Pte Ltd company in Singapore by 3 partners including me and recently 1 of the partner wants to exit and each directors owned equal 33.3% shares. As the buy out price is too high and unreasonable, we might be thinking of liquidation but before this, can we transfer most of our customers or business?

First of all, directors don't own shares, shareholders own shares. A person may be both a shareholder and director and this is common. The distinction is important because:

The directors can do anything in running the company EXCEPT those things which require, by law or by the articles of incorporation, that the shareholders approve in an AGM or EGM.

Section 160 of the Companies Act says, "Notwithstanding anything in a company’s memorandum or articles, the directors shall not carry into effect any proposals for disposing of the whole or substantially the whole of the company’s undertaking or property unless those proposals have been approved by the company in general meeting."

Moving all your customers to another company is certainly "disposing of the company's undertakings" and therefore would require a vote of the shareholders.

We have registered a HK office many years back for venturing of China business and luckily we are able to get the same company name but during the registration, we have decided to only put 1 of the director's name without any contract binded. All along we have been doing inter company purchased btw Singapore and HK to facilitate China business and keep little margin in HK and major margin to Singapore. Can we say that our HK office is an independent & "related" company of Singapore HQ?

My question is whether we are able to transfer all the customers with AGM or without his knowledge and he cannot sue us as we are allow to get customers to buy from our HK offices and we did not transfer to any outside company?

All shareholders would need to be informed of a resolution that would state the intention to move all customers to the HK company. Notice would have to be given of an AGM or EGM to all shareholders. Such a drastic move which materially affects the health of the company, would probably require a "special resolution", whereby three quarters of the shareholders would have to vote in favor of the resolution. With each of you owning 1/3 of the shares, this could not be passed.

You could try to pass this as an ordinary resolution but I bet money you would be shot down in a court of law. It seems pretty clear that you are trying to screw the third shareholder, and instead of trying to negotiate a price everyone can live with you will strip the company of all its assets. I believe a judge would have problems with this.

I would add that just because the one shareholder wants to leave, it doesn't mean that anyone actually has to buy his shares. If this shareholder wants out he should find someone willing to buy him out. Usually, articles of incorporation for a private limited include a "right of first refusal". If the shareholder who wants out finds someone willing to buy his shares for $20 each, the other shareholders first have the right to buy them from him for $20, otherwise he is free to sell to whomever he wishes.

Unless a private investor knows your company well, it is unlikely that anyone will buy those shares. You don't have to buy him out, either. So, you do have bargaining power by refusing to deal.

But, if you decide to proceed with your plan, the third person is also free to file a lawsuit against you for taking his rightful property. You are essentially making his shares worthless because you don't want to compensate him.

Last question, can we draw dividend without AGM?

Regards
Faster

This depends upon what the articles of incorporation say. The companies act says that directors can declare a dividend without shareholder approval but many articles will require shareholder approval. Dividends can only be paid out of profits, never paid up capital.

[Faster]

Hi All

If the buy out negotiation is unsucceessful and all Directors would like to go through a voluntarily liquidate of the company. Once the liquidation procedures start, can the other 2 directors able to get the customers to transfer the orders to HK offices and continue the business?

Regards
Faster

[Strong Eagle]

Hi All

If the buy out negotiation is unsucceessful and all Directors would like to go through a voluntarily liquidate of the company. Once the liquidation procedures start, can the other 2 directors able to get the customers to transfer the orders to HK offices and continue the business?

Regards
Faster

If all three directors vote to liquidate the company, and you properly wind up the company (ie - all creditors paid), then you can do whatever you want with the customers.

But, I don't get something.

a) If all three agree to liquidate, then you know how much the third director must be paid. Why not just do that?

b) Why not just start up another Singapore pte ltd with the two directors that want to keep going?

[Faster]

Hi All

Thanks for your advise!

a) there are some personal dispute btw partners that is why he has chosen to leave with anger. That is the reason he had demanded for very high buy out price, otherwise he also don't wish we can continue the business.

b) Our customer base are regular & giving us long term orders, if we liquidate our company, our suppliers will find other distributor to take over our orders...we will be wipe out over night. Liquidation is as good as start all over again.

By the way, if HK office doesn't have his name meaning that he doesn't have authority. Can we split the HK accounting away from SG, make HK office independent accounting and stop buying from SG office and purchase goods directly to our suppliers in Taiwan? can he still sue us for doing this?