Companies Act 2016 allows a company to choose to 'have' or 'don't need have' a Company Constitution. [Professional word is Adoption of Constitution]
#Constitution is similar to M&A in old Act (Companies Act 1956) - but of course not the same. In Companies Act 2016, the word "Constitution" appears 198 times.
So, what exactly is a constitution?
In layman term, it is the agreement that bind the company and the members, as if the constitution had been signed and sealed by each member.
When given a choice to 'have' or 'don't need to have', what will most of the business owner (shareholder) do ? Of course, they don't know about it. #Secretary need to educate, advise them. Yes, it will cost the owner additional fee to have a constitution but cost is part of doing business, right?
The following are the key reasons for a company to adopt Constitution:
Power of Company
Power of Directors
Borrowing Power
Rules for Seal and Execute Documents
Type of Shares (Preference Shares etc.)
Rule for Voting
Rule for Resolutions
Rule for Appointment of Director
Rule for Removal of Director
Rule for Election of Director
Without a constitution, what will happen?
Without clarity, argument happens and the company may run into a situation where progress can be stuck.
Click here for Companies Act 2016
Section 31 - Constitution of a company
Section 32 - Company may adopt a constitution
Section 33 - Effect of constitution
Section 34 - Form of constitution
Section 35 - Contents of a company's constitution
Section 36 - Company may alter or amend constitution
Section 37 - Court may alter or amend constitution
Section 38 - Company limited by guarantee shall have a constitution
Section 39 - Non-application of doctrine of constructive notice
In many other section of the CA2016, these sentences like "Subject to the conditions or limitations in the constitution" or "Subject to the constitution" or "Unless otherwise provided in the constitution" suggest that the importance of constitution in certain situation, including Common Seal, Share Capital, Share Certificates etc, in the following sections
Section 60 - Register of debenture holders and copies of trust deed
Section 62 - Official seal for use abroad
Section 63 - Official seal for share certificates, etc.
Section 66 - Execution of documents
Section 69 - Types of shares
Section 71 - Rights and powers attached to shares
Section 72 - Preference shares
Section 80 - Permitted commissions
Section 82 - Calls on shares
Section 84 - Power of company to alter its share capital
Section 85 - Pre-emptive rights to new shares
Section 86 - Conversion of shares into stock
Section 89 - Classes of shares
Section 90 - Description of share of different classes
Section 91 - Variation of class rights
Section 96 - Variation includes abrogation
Section 97 - Issuance of share certificate
Section 106 - Registration of transfer or refusal of registration
Section 108 - Validation of shares improperly issued
Section 111 - Lien on shares
Section 115 - Company may reduce its share capital
Section 192 - Liability of members
Section 194 - Shareholders not bound to acquire additional shares by alteration to constitution
Section 195 - Members' rights for management review
Section 202 - Named directors and subsequent directors
Section 206 - Removal of directors
Section 208 - Vacation of office of director
Section 211 - Functions of Board
Section 212 - Proceedings of Board
Section 216 - Responsibility for actions of delegatee
However, constitution is not almighty and powerful, the Act prevents abuse by using Constitution .... as in....
Section 223 said 'notwithstanding anything in the constitution, the directors shall not....