Law and Business: What You Need to Know

businessmen in contract meeting

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 effected 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 at what rate.

Obviously, the experienced business person would know more about legal rules than the less experienced business person: but in the eyes of the law, all persons ought to adhere to the legal rules.

This article will therefore describe some different heads of law that a business person ought to be aware of. It will cover:

Which Business Vehicle is Best Suited to Your Business?

First, we will go over the statutory law in relation to the entity by which 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.

Most persons who intend to enter into businesses 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 and in terms of governance, operations, bookkeeping, and so on. These are internal rules which affect the business person.

Exceptionally, the statute may affect contracts between the entity and outsiders. For example, a contract is not enforceable against a partnership if it is entered into by a partner who lacks authority from within the partnership to enter into that contract.

However, there are other rules which can have an impact on those operating behind the entity. For example, a company which is insolvent should no longer trade, otherwise, this is tantamount to a reduction of the assets available to that of the creditors of the company, and a director may be held personally liable for those losses.

A crucial point to note is that corporate governance is built into the Companies Act. So for example, 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 which governs the relations between the business and the government. One example of this is tax law under the Income Tax Act. Another example is under the CPF Act, where contributions have to be made by an employer to the CPF of an employee.

Be Aware of the Laws Which Govern Employee Contracts

Third, there is some common law and statutory law (i.e. the Employment Act (EA)) governing the relations between employer and employee. The EA applies certain provisions (Part IV of the EA) to certain employees.

The common law also has an effect on the relationship between the employer and employee. For example, it implies a term in their contract to the effect the employer will not require the employee to do anything which is illegal.

There are Laws Which Govern the Business Dealings of the Entity – Be Mindful of These

Fourth, there is an entire field of private law which governs the relations between the business and outsiders. These are essentially contract law based on, for example, an order of goods to be sold and bought. Such a contract may be for the sale of goods as defined under the Sale of Goods Act (SGA, as imported into Singapore law under the Application of English Law Act) and therefore controlled by SGA. Notwithstanding the application of SGA, concepts like “offer” and “acceptance” remain the keystone of contract law and are applicable.

There is another area of law which affects the business’ 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 “Free on Board (FOB)” or “Cost, Insurance and Freight (CIF)” (or variations thereof) contracts.

As one of the documents used in international sale of goods is a Bill of Lading and another is the insurance policy for the goods, the rights of parties are also dependent on the law governing these documents. So for example, in the unfortunate event of damage caused to goods during transit, and assuming the “risk” has passed to the buyer at the time of the damage, the buyer will have to call on the insurance policy to make good any losses. The buyer then enters into the realm of insurance law.

Be Aware of Duties in Tort

If one is not in the business of the sale of goods but offers services or, for example, construction work, then that business must cope with, not only the contractual duties and obligations stipulated in contract, he must also contend with the duty of care imposed by tort law.

Professionals, who make negligent misstatements that are relied upon will usually be liable for losses resulting (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 which a business person should be aware of is by no means exhaustive. Furthermore, other rules may exist which do not come clearly as a matter of law. If for example, one was an architectural firm, that business would also need to conform to any professional rules that exist within that profession.

A business person needs to be aware of his obligations and duties, and more importantly his rights, in the law. Only in this way does he ensure that commerce is carried out directly in accordance with the law, and it is submitted, in the most profitable way.

Glen Koh

Advocate and Solicitor

June 2022

© Glen Koh 2022

Notice: Nothing contained in this note shall be construed as legal advice.