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What is a Company Constitution ?

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:

  1. Power of Company

  2. Power of Directors

  3. Borrowing Power

  4. Rules for Seal and Execute Documents

  5. Type of Shares (Preference Shares etc.)

  6. Rule for Voting

  7. Rule for Resolutions

  8. Rule for Appointment of Director

  9. Rule for Removal of Director

  10. 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....









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