SINGAPORE MANAGEMENT UNIVERSITY

LGST 201 Company Law

Assignment 1
In 2020, Ashlee who was an accountant in one of the big 4 accounting firms decided that she no longer
wanted to slog her life away for her employer and decided to establish her own startup company called
Accounts4Fun Pte Ltd (“Accounts4Fun”), which specialized in providing automated accounting services
to businesses. In order to gain market share, Accounts4Fun priced its products very cheaply. While
Accounts4Fun was growing at a very fast pace, it was not profitable due to the low prices it was offering
its products at.
Nevertheless, due to the “startup craze”, Accounts4Fun manage to attract investments from various
Venture Capital (VC) funds, including a VC called “IRR-Kings” and became very successful within 1
year. As part of the fundraising exercise, Ashlee negotiated for Arts 13, 14 and 15 (as set out below) to be
included in the constitution of Accounts4Fun. Ashlee’s intention was to ensure that she continued to
retain effective control over Accounts4Fun and also to build into the constitution her right to engage
specialists who can help Accounts4Fun grow even bigger.
Art 13
Each holder of a Preference Share shall assign to the Founder [ie Ashlee] all its voting rights at the
Company’s general meetings, provided that the Founder holds not less than 20% of the of the voting
rights of the Company

Art 14
The Founder shall be entitled to appoint up to two (2) directors of the Company.

Art 15
In the event of any proposed amendment or deletion of Art 14, the approval of IRR-Kings shall be
required.

After the fundraising activity, Ashlee exercised her rights under Art 14 to engage 2 of her friends as
directors to provide “strategic advice”. Brandon was an ex-derivatives trader and Carmen was an ex-
accounts manager at an SME. They both took up the offer without any hesitation due to the generous
package Ashlee offered them, which included “employee shares” in Accounts4Fun.
The corporate structure of Accounts4Fun after the 2020 fundraising exercise with IRR-Kings was as
follows:
Ordinary Shares Class A Redeemable Position
Preference Shares#
Ashlee* 1,000 1,500 Director and Chief
Executive Officer
IRR-Kings - 7,500 -
Brandon 1,000 - Director and Chief
Strategy Officer
Carmen 1,000 - Director and Chief
Marketing Officer

LSGT201 2022-23T1 1 Assignment 1

*Ashlee holds ~20.8% of the voting rights of Accounts4Fun.
#Each Class A Redeemable Preference Share has 1 vote.
In 2022, the economy started to suffer. Accounts4Fun was not doing well (as many of their customers had
closed down), and investors were also starting to become more cautious of “growth” companies (which
made it difficult for Accounts4Fun to obtain further fundraising). Fortunately, Uncle Scrooge (Ashlee’s
wealthy uncle) was willing to step in to inject equity into Accounts4Fun as Ashlee was his favourite
niece. However, one of Scrooge’s conditions was for Ashlee to appoint his “good for nothing” son
Donald to be part of the management team to give him some real life working experience.
If Ashlee accepts the investment from Scrooge, the corporate structure of Accounts4Fun after the
investment from Scrooge will be as follows:
Proposed Corporate Structure (Post Scrooge Investment)
Ordinary Shares Class A Redeemable Position
Preference Shares#
Ashlee* 1,000 1,500 Director and CEO
IRR-Kings - 7,500 -
Brandon 1,000 - Director and Chief
Strategy Officer
Carmen 1,000 - Director and Chief
Marketing Officer
Scrooge - 2,000 -
Donald - - Director
*Ashlee holds ~17.86% of the voting rights of Accounts4Fun.
# Each Class A Redeemable Preference Share has 1 vote.

Question 1
Scrooge has given Ashlee 2 weeks to think about his proposal. Ashlee is unsure whether she should
accept Scrooge’s investment. In particular:
(a) By accepting Scrooge’s investment, Ashlee’s shareholding would be diluted and she is worried that
she will lose effective control over Accounts4Fun. Are there any steps Ashlee can take to preserve the
control that she currently has in Accounts4Fun under Art 13, and what are the potential legal challenges
to such steps?
(b) Ashlee is unsure how to go about appointing Donald as a director, and she does not want to terminate
Brandon or Carmen as they have been working hard and contributing to Accounts4Fun. However, she
knows that she is only entitled to appoint 2 directors under Art 14. How would you advise her?
(c) Would your answer in 1(b) above change if the following version of Art 15 were in force instead?
“In the event of any proposed amendment or deletion of Art 14, the shares held by the Founder at such
point of time (provided always that the Founder holds not less than 20% of the voting rights of the
Company) shall be deemed to carry votes equivalent to 76% of the total votes.”
Note: There is no need to discuss remedies for oppression under s216 of the Companies Act.

LSGT201 2022-23T1 2 Assignment 1

Question 2
The constitution also contains the following:

Art 32
Brandon shall be appointed as the Chief Strategy Officer for a period of at least 3 years, and shall be
entitled to a bonus of $10,000 per annum.

Art 33
Carmen shall be appointed as the Chief Marketing Officer for a period of at least 3 years, and shall be
entitled to a bonus of $10,000 per annum.

(a) IRR-Kings believes that Carmen is not pulling her weight in the team, and would like to remove her
from her position as Chief Marketing Officer. How would you advise IRR-Kings, taking into account
the fact that Carmen may not wish to be removed?

(b) Due to the bad economic climate in 2022, resolutions were passed such that, amongst other things,
Art 32 was amended as follows:

Revised Art 32
Brandon shall be appointed as the Chief Strategy Officer for a period of at least 3 years, and shall be
entitled to a bonus of $10,000 per annum.

Brandon wants to stay on with the Company, but was extremely unhappy about this as he was not
consulted on this change. Is there anything Brandon can do about this amendment?

Question 3
Eventually, the economy became so bad that Accounts4Fun was no longer a tenable business, and
Accounts4Fun got into debt troubles with O$P$ Pte Limited (“O$P$”). In connection with the loan that
O$P$ provided to Accounts4Fun, Ashlee provided a pledge of a valuable necklace that she owned in
favour of O$P$ as collateral to secure the loan.

As it became clear to Ashlee that there was no way Accounts4Fun was able to repay the loan, Ashlee
decided to transfer the valuable necklace to Dormant Pte Ltd, a company that was 100% owned by
herself.

Discuss the legal issues that you think may arise from a company law perspective. Would your answer
change if Dormant Pte Ltd were instead 80% owned by Zach, who is a remote business acquaintance of
Ashlee?

Note: Please discuss these questions in the context of week 1 and week 2 topics only.

General Instructions:

A. Written assignment
~ Each team should address all the questions.
~ Maximum word length is 2000 words (excluding footnotes / references). Submissions that exceed this
length may be penalized. Do note that substantive content should not be placed in footnotes and/or
references.

LSGT201 2022-23T1 3 Assignment 1

~ Deadline for submission: Each group should submit its report by 6.00 pm on the Saturday before the
week of the presentation class. Submission should be made by email to Prof, and should also be
simultaneously exchanged by email with the other team. Late submissions may be penalised or rejected.

B. Oral presentation
~ Team 1 will present on Question 1.
~ Team 2 will present on Questions 2 and 3.
~ Each team’s presentation should not exceed 20 min. As far as is possible, each team member should be
allocated an approximately equal amount of time. Each team may question/comment on the other team’s
report/presentation.

LSGT201 2022-23T1 4 Assignment 1