Company's Constitution

Introduction

CA 1965:  a memorandum and articles of association (M&A) is required for a company to be incorporated.

New CA:   the memorandum and articles of association is replaced with a constitution.

Memorandum and Articles of Association

The memorandum of association sets out the basic details of the company’s existence and governs the fundamental basis on which the company operates.

The articles of association governs the internal management of a company.

Constitution

•   Contents of constitution sets out the objects of the company, the capacity, right, powers or privileges of the company.
• Objects of constitution sets out the restrictions from carrying on any business or activity that is not within those objects.
•  A constitution is optional for a private company limited by shares.
• A company limited by guarantee must lodge their constitution with the Registrar of Companies.
• For listed company, the constitution must comply with listing requirement of the Bursa Malaysia Securities Berhad.
• A private company may adopt a constitution after incorporation.
• If a company does not have a constitution, the Act shall govern the internal administration of the company.
• Existing companies will have its Memorandum and Articles of Association deemed to be the new Constitution.
• If there is an inconsistency between the constitution and the new CA, the provisions of the new CA shall prevail.

Effect of Constitution

The constitution of a company has a legal impact besides being a contract between:

• The company and each member; and
• Each member with each other.

When a constitution is adopted and registered, it binds the company and the members as if it was a contract under seal.

A company may sue a member and a member may sue the company to enforce or restrain breaches of the constitution or new CA.

Since the constitution constitute a contract among members of the company, outsiders who are not privy to the contract cannot enforce any rights conferred on them by the provisions of the constitution.

Alteration of constitution

The CA 1965 imposes specific procedures and meeting requirements as to the means by which changes may be effected. It also provides protective provisions and restraints for particular types of companies. Changes to the Memorandum may have significant impact on the existence of the company.

Changes made to the constitution may involve a change of name, an alteration to the main objects of the company or other clauses.

Requirement as to alteration of constitution

A company may freely alter its constitution by passing special resolutions. A member must vote for the benefit of the company as a whole. This prevents the majority shareholders from exercising their vote to alter the constitution to the prejudice of a minority.

Restriction on alteration of constitution

Provision of the new CA states that a company having a constitution may, by a special resolution, alter or amend its constitution unless the constitution itself prohibits the alteration or amendment.