RUNNING a business is not just about bringing in the sales to cover costs and to fund the firm's expansion, as some budding entrepreneurs and businessmen learned at a conference.
Indeed, the directors of a firm also have to familiarise themselves with their roles and responsibilities under the Companies Act to avoid legal woes.
At the Essential for Business Seminar in July, Leonard Goh from ACRA, explained that the law requires the directors of a company to act in the company's interests, avoid conflict of interest and exercise powers for proper purposes.
For example, acting in the company's interests means ensuring that transactions the board authorises are commercially justifiable. For example, if a company A takes over another company B and this later turns out to be a bad investment decision, it does not necessarily imply that the directors of company A had not acted in the firm's best interests.
The test is whether 'an honest and intelligent man in the position of the directors, taking an objective view, could reasonably have concluded that the transactions were in the interests' of the firm.
Secondly, to avoid conflicts of interest, a director must not make profit for himself by using a company's property, money, or company information acquired from his position.
Indeed, participants were told that directors have to exercise powers for proper purposes. This includes not using fiduciary powers over the shares of the company purely for the purpose of destroying an existing majority or creating a new one which did not previously exist.
Another speaker at the conference was Lawrence Kwan from Singapore Association of the Institute of Chartered Secretaries and Administrators, who touched on how best to get the most out of company secretaries.
Specifically, Mr Kwan said that a company secretary can help define the role of the governing body, assist in ensuring the effective functioning and performance of the governing body and ensure the effective governing body's decision making and delegation.
Specifically, Mr Kwan told participants that the company secretary should be able to help the board define its responsibilities, tasks and powers by assisting in system implementation, corporate values or understanding the nature of leadership.
The company secretary can also help with the composition of the governing body, and establish procedures to keep the governing body performance under review.
In terms of tasks delegation, Mr Kwan added that this can take the form of delegating relevant functions to specialist governing committees such as audit committee or remuneration committee.
Besides these, a company secretary can also help in many areas such as identifying an organisation's legal and regulatory responsibilities, plus the firm's code of ethical behaviour.
This article was first published in The Business Times on September 16, 2008.
