Associations & Charities – Legal Responsibilities

Associations & Charities – Legal Responsibilities Presented by Gregory Vijayendran / Lester Chua Rajah & Tann LLP

Contents • Introduction • Statutory, General and Fiduciary Duties • Charity Trustees- Responsibilities • Delegation of Powers by Management • Inter-Relationship with Members: What Rights Do Members Have? • Q & A

1) Introduction • An association in Singapore can be set up as society or a company limited by guarantee (“CLG”) • Charities have to be established as a CLG, a trust or a society. Increasing trend in Singapore for associations and other not-for-profit organisations to be set up as CLGs.

1) Introduction- Cont’d • CLGs are able to hold immovable assets directly in their own names without the need for trustees, and can more easily carry out commercial operations. Arguably, a CLG is better able to have members delegate powers to its board of directors and for the board to delegate responsibility to management. Conversely, the members of a society have greater power and control over societal affairs than the members of a CLG. • While a CLG is subject to ongoing public disclosure requirements and greater annual reporting requirements, these are not particularly onerous.

Table of Comparison Between Registered Society and CLG

2) Statutory, General and Fiduciary Duties • CLG • The Companies Act (“CA”) does not purport to codify the common law duties imposed on directors. Instead, the CA makes it clear that the common law and equitable duties on directors are expressly preserved. • Common law duties of skill, care, diligence and fiduciary duties apply in full to directors. • Duties of directors primarily generally owed to the company as a whole and not to an individual member or members (unless, for example, directors benefit personally from their breach of duty)

2) Statutory, General and Fiduciary Duties • Statutory Duties • Statutory Duties to act honestly and to use reasonable diligence in the discharge of duties. • A director who breaches this duty under section 157 of the CA is liable to the company for any profits made by him or any damage suffered by the company as a result of the breach (the civil liability) and • Is guilty of an offence punishable with a fine of up to $5000 or imprisonment for a term not exceeding one year (the criminal liability). • Duty to act honestly • To act bona fide in the interests of the company in the performance of the directors’ duties • So long as the director acts honestly, he cannot be made liable for damages unless gross or cuplable negligence in a business sense is involved.

2) Statutory, General and Fiduciary Duties- Cont’d • Statutory Duties • Duty to exercise reasonable diligence • The standard of diligence expected of a director depends on what is reasonable in the circumstances • A director is not obliged to give continuous attention to the company’s affairs. • A director is permitted to entrust the affairs of the company to some other official of the company and in the absence of grounds to raise his suspicions, a director is entitled to rely on the official to perform his duties honestly. • However he cannot delegate away his duties and he remains liable where he fails to control and/or supervise the company’s officials.

2) Statutory, General and Fiduciary Duties • Statutory Duties • Duties in relation to accounts • A director has the duty to ensure that a profit and loss account and a balance sheet is prepared, duly audited and laid before the company together with the auditor’s report and director’s report at its annual general meeting (section 201 of the CA). • This must be done no later than 18 months after the incorporation of a company and subsequently at least once in every calendar year at intervals of not more than 15 months.

2) Statutory, General and Fiduciary Duties • Fiduciary Duties • Duty to use powers for proper purposes- not for collateral purposes • Directors are viewed as fiduciaries and therefore owe fiduciary duties to the company • One aspect of this is a duty to disclose conflicts of interest: codified in section 156 CA

2) Statutory, General and Fiduciary Duties • Societies • Registered societies are generally self-governing. A society has to abide by the rules of its constitution and the prevailing laws in Singapore. • The constitution of a society is a set of rules and regulations that binds the members of the society. Societies may draft their own constitution or choose to use or modify Registrar of Societies’ Guide Constitution. • The constitution should specify the functions, powers and responsibilities of each office-bearer including the authority or authorities for expenditure from the funds of the society.

2) Statutory, General and Fiduciary Duties • Statutory Duties under the Societies Act include the following: • Maintaining proper accounts and records of the transactions and affairs of the society for a period of at least 5 years; • Submitting an Annual Return and its audited statement of accounts to the Registrar of Societies annually; • Submitting to the Registrar of Societies an audited statement of accounts of any fund raising appeal 60 days after its completion; • .

3) Charity Trustees-Responsibilities • If the association is a charity, the charity trustees take on a number of responsibilities:- • The trustees are the persons responsible for the general control and management of the administration of the charity (board members, management committee members, directors, trustees) • Board of charity trustees- responsible for ensuring that the charity is governed and managed responsibly and prudently such that the charity is solvent, well-run, and delivering the charitable outcomes for the benefit of the public for which it has been set up

3) Charity Trustees-Responsibilities-Cont’d • Duty of care and prudence- act in the best interest of the charity and be actively involved in the management and decision making process; exercise strict control over financial matters of the charity; ensure compliance and law and regulations • Charity trustees are encouraged to adopt the Code of Governance for Charities and IPCs (principles and best practices on key areas of governance and management of charities and IPCs)

4) Delegation of Powers by Management • Directors or office bearers of a CLG and a society may delegate powers if authorised by the articles of association of the company • Committees may be useful for deliberations on specific matters such as setting up membership fees, deciding on matters of policy etc. • Reporting structures should be in place

5) Inter-Relation with Members: What Rights do Members Have? • CLG • General sources of rights of members stem from the memorandum & articles of association, the Companies Act and any rules or by-laws which may be prescribed by the CLG from time to time • General management of the company rests with directors, but members have the role of making decisions about fundamental aspects of the company. For example, its constitution; the composition of its board of directors, winding up, changing company name, etc. • A CLG may distribute profits to members if nothing in the memorandum & articles of association prohibits this. However, in the case of a company which is a charity, there must be a ‘no-distribution’ clause • Class rights if there are different classes of members

5) Inter-Relation with Members: What Rights do Members Have? • Societies • Generally set out in the Constitution • Members of a society generally have greater power and control over affairs of the society than members of a CLG

Q & A

THANK YOU Gregory Vijayendran / Lester Chua Rajah & Tann LLP 9 Battery Road #25-01 Straits Trading Building Singapore 049910 DlD: 6232 0438 / 6232 0561 Email: gregory.vijayendran@rajahtann.com lester.chua@rajahtann.com

Associations & Charities – Legal Responsibilities