COMPANY’S

CONSTITUTION
MADAM NORINTAN WAHAB
DR. RAHMAWATI MOHD YUSOFF
 INTRODUCTION

 Under the previous CA 1965 constitution of company consist of the

MoA and AoA and it must be lodge with the Registrar of Companies
before the Certificate of Incorporation was issued.
 Guiness v Land Corporation Of Ireland
“The Memorandum of Association contained the fundamental
condition upon which the company is allowed to be incorporated. It
is a condition introduce for the benefit of the creditors and outsiders
as well as shareholders. The Articles of Association is an internal
regulation of the company.”
 - MoA regarded as a company’s constitution.
- It is the essential elements of the company’s
structure.

The
- It sets out the provisions which regulates the
relationship of company and outsiders dealing
with it.
Contents - It sets out the essential details of co. and
governs the fundamental basis on which the co.
of MoA operates.

- S. 16(1) CA 1965: The lodgement of MoA for

incorporation of co. is a must.
- It defines the objects and powers of the company.
- S. 18 (1) CA 1965: The required particular need to be
inserted in MoA.
- S. 15 CA 1965: The restriction for private co. must also be
included.
 Ashbury Railway Carriage v Riche
“MoA is treated as a charter and defines the limitation of the power
of the co. to be established under the Co.’s Act…”
 Among the important clause in
the MoA are:

 The Objectives Clause

- It refer to the purpose of which the company is formed to achieve
OR the kind of activities in which the company can carry on.

 The Power Clause

- It refers to the legal ability or authority given to the company to
achieve the objectives of the company.
- S. 19 CA 1965 provides power of co. shall include:
1. Power to make donations for patriotic or for charitable purpose;
2. Power to do transaction or lawful business in aid of Malaysia in
the prosecution of any war which Malaysia engaged.
 governs the internal
arrangement of the
management of a
company.

The determine how the

objectives as stated in
Contents of the Memorandum of
Association shall be
AoA achieved

determines how the

power given under the
Memorandum of
Association can be
exercised
 Any conflicts between MoA and AoA, MoA will prevail.

 MoA mandatory for all types of co., however, AoA not

required for co. limited by shares.

 Section 33(1) CA 1965 provides that the MoA and AoA

constitute a binding contract between the company and its
members and also between the members themselves.

 Thus they are required to observe all the provisions of the

MoA and the AoA.
 CONSTITUTION UNDER CA 2016

 Under the new CA 2016, the term MOA and AoA has been
replaced collectively and instead the word ‘constitution’ has
been used.

 EXCEPT for a company limited by guarantee, the requirement to

have a constitution is no longer mandatory. – S.31(1) CA 2016.
 CONSTITUTION UNDER CA 2016

 Since the requirement to have a constitution is no longer mandatory,

where then the information and all the internal rules and regulation can
be found?

 S.31(2) CA 2016 – If the company is having a constitution, then it can be

found in the Act/Constitution

 S.31(3) CA 2016 – If the company is not having a constitution then it can

be found in the Act.
 This shows that, all the power, rights, duties and obligation of the company
and each director and member are prescribed in the CA 2016 UNLESS it is
modified by the company’s constitution. Which further means that the
company’s constitution can modify any of those rights, power, duties and
obligation only if the Act permits it.
 S.32 CA 2016 further provides that, a company may adopt a constitution for
the company and the adoption shall be by passing a special resolution. The
constitution adopted by the company shall be binding on the company, its
members and directors.
 POSITION OF COMPANIES REGISTERED
UNDER THE CA 2016 vis-à-vis ITS
CONSTITUTION

 S. 10(1) CA 2016 provides that a company may be incorporated as:

a) A company limited by shares
b) A company limited by guarantee
c) Unlimited company.

 S. 38(1) CA 2016 provides that only a COMPANY LIMITED BY GUARANTEE

shall have a constitution.
• S.38(2) further provides that the constitution shall be lodge at the time the
company is incorporated.

 The content of the said constitution has been provided under S.38(3) consisting of:

(a) that the company is a company limited by guarantee;

(b) the objects of the company;
(c)the capacity, rights, powers and privileges of the company;
(d) the number of members with which the company proposed to be
incorporated;
(e) matters contemplated by this Act to be included in the constitution;
(f) any other matters as the company wishes to include in its
constitution.
• For COMPANY LIMITED BY SHARES, s.32 allow adopt constitution by passing special
resolution. They are required to lodge with the ROC within 30 days from its adoption.

 S. 35(1), the constitution Co. limited by shares may contains:

(a) the objects of the company;
(b) the capacity, rights, powers or privileges of the company if the provision restricts
such capacity, rights, powers or privileges;
(c) matters contemplated by this Act to be included in the constitution; and
(d) any other matters as the company wishes to include in its constitution.

• BUT if a company is having different classes of shares (s. 90(1)) or if it is a private company (s.
106(1)(a), then the CA 2016 requires a constitution to be made.
• For an UNLIMITED COMPANY the general provision under S.31(1) allowing it to
adopt a constitution.

• S. 31(1) also applicable to a company limited by shares in relation to the form and
content of its constitution should also apply to an unlimited company.
 PROVISION WHICH IS PROHIBITED TO
BE INSERTED IN THE CONSTITUTION

 S.38(4) – Any provision which purports to divide the company’s undertaking

into shares or interests. This is due to the reason that CA 2016 does not allow
the incorporation of a company limited by both shares and guarantee.

 S.38(5) – Any provision to give any person the right to participate in the
divisible profits of the company. Read together with S.45(2) which prohibits
the payment of dividends to its members.
 EFFECTS OF CONSTITUTION

 The constitution constitutes a binding contract between the company

and its members and also between the members themselves.
1. Contractual Effect Between the Company and Its Members
2. Contractual Effect between the Members
3. The said constitution does not operate as a contract between a
member and an officer, or between an officer and another officer.
Further, the contract cannot be enforced by outsiders.
4. The constitution is not contract between the company and
outsiders.
 1. Contract Between Company
And Its Members

- A constitution shall when adopted bind the company and the

members.
- S.33(1) and S.38(6) CA 2016 are the codification of the common law
principles that the constitution is a contract between the company
and its members.
 1. Contract Between Company
And Its Members

Hickman v Kent or Romney Marsh Sheep-Breeders’

Association

Facts: The articles provided that disputes between members and the
association be resolved by arbitration. A dispute arose between the
Association and Hickman. Hickman brought an action against the
company in the courts. The Association on the other hand, sought to
stay the action.
Held: The association were entitled to have the action stayed as the
articles constituted a contract between Hickman and the association in
respect of their rights as members the provision for arbitration was a
binding agreement and thus the parties are obliged to refer the matter
to an arbitrator.
 1. Contract Between Company
And Its Members

Pender v Lushington
In this case it was held that members have the right to enforce provision in
articles entitling them to have their votes counted at a general meeting.
This is because the right to vote and the right to have the vote counted
were personal rights given to members in their capacity as members.
 2. Contractual Effect between the
Members

 S.33(1) & S.38(6) also stipulated that the constitution is a contract

between the members of the company, as if each one of them has
signed on it.

Lim Beng Hui & Ors v Ling Beng Sung

“…now the Memorandum of Association and Articles of Association
constitute a contract between the members inter se. The contract is
deemed to contain covenants that each member will observe all the
provisions of the Memorandum of Association and Articles of
Association. Therefore, every member has a right to have the terms of
the Memorandum of Association and Articles of Association
observed…”
 2. Contractual Effect between the
Members

Wong Kim Fatt v Leong & Co Sdn. Bhd. & Anor

In exercising the power conferred under the articles of association, the

majority member had acquired the shares of the minority shareholder.
Disagree with the said action, the minority shareholder sought to claim
that the exercised of that power was not in accordance with the articles.
Held: Articles of Association is a matter of contractual obligation which
the member of the company was bound to it, therefore the act by the
majority shareholder was done in accordance to its article.
 2. Contractual Effect between the
Members

 This contract may be altered by the vote of the prescribed majority of the
members, subject to the restrictions on alteration. Thus, a member may find
himself bound by the terms that he has not consented to.

Rayfield v Hands
Facts: The company’s articles provided that a member who wished to
transfer shares had to inform the directors, who will take the shares equally
between them at a fair value. Rayfields, a member sought to compel the
defendant, the director of the company, to purchase his share in
accordance with the article.
Held: There was a contract between Rayfield and the directors constituted
by the articles. The directors were ordered to purchase Rayfield’s shares in
accordance with the articles.
 3. The said constitution does not operate as a contract between a
member and an officer, or between an officer and another officer.
Further, the contract cannot be enforced by outsiders.

 The constitution does not create a contractual relationship between the

company and other persons such as solicitors and promoters. Therefore,
it cannot be enforced and do not have a binding effect on them.
 ISSUE: what is the position of a member where the constitution have
conferred some rights on him in another capacity? Can the member
enforce those rights?
 3. The said constitution does not operate as a contract between a
member and an officer, or between an officer and another officer.
Further, the contract cannot be enforced by outsiders.

Eley v Positive Government Security Life Assurance Co Ltd

Facts: The company’s articles which was drafted by Eley provided that he was
to be the company’s permanent solicitors and could only be dismissed by
misconduct. He was also received some shares for the work done in forming
the company. However, he never had any employment contract with the
company as their solicitor. Later on, when the company refused to employ him
as their solicitor, he brought an action against the company for breaching the
agreement with him by dishonor of the articles.
Held: The article did not create any contract between the company and Eley
as solicitor.
 3. The said constitution does not operate as a contract between a
member and an officer, or between an officer and another officer.
Further, the contract cannot be enforced by outsiders.

Beattie v E & F Beattie Ltd

Facts: The articles of the company provided that in case of any dispute
between members and company; it is to be referred to arbitration. A dispute
arose between the company and the director who was also a member. The
company sued the director-member in his capacity as a director for the return
of a certain sum of money which was alleged to have been improperly paid
by way of remuneration. The director-member sought to stay the action by
invoking the arbitration clause contained in the articles.
Held: the court disagreed because the defendant was being sued in his
capacity as a director and not as member.
 3. The said constitution does not operate as a contract between
a member and an officer, or between an officer and another
officer. Further, the contract cannot be enforced by outsiders.

Salmon v Quin & Axtens Ltd

The articles of the company provided that certain contract could not be entered
into without the assent of both Salmon and Axtens. The board of directors
proposed to enter into contracts to acquire premises and to let other premises.
Salmon dissented this proposal in accordance with the articles. To circumvent
Salmon’s veto, the members passed a resolution by the vote of Axtens. Then
Salmon in his capacity as member, sued for injunction to restrain the company
and directors from acting on the resolution.
Held: The application for injunction was granted because the resolution was
inconsistent with the articles. In this case, he succeeded to enforce the provision
in the articles against the company and its director because he had acted in his
capacity as a member.
 4. The constitution is not contract
between the company and
outsiders.
 Though the constitution is a contract between the company and its
members, and between the members, but the doctrine of privity does not
permit an outsider to enforce clause in the constitution even where the
clause purportedly confers a right on him.

Raffles Hotel Ltd v Malayan Banking Bhd.

Facts: Malayan Banking was the lessor of the land on which Raffles Hotel
stands. The Plaintiff (the company) was the lessee of the land. It was provided
in the company’s articles that the lessor should have the power to appoint a
director of the company. Malayan Banking appointed itself as director. The
company sought a declaration that this appointment was invalid.
Held: The articles could not constitute a contract between the company and
an outsider. Since Malayan Banking was not a member of the company, the
articles did not confer upon it any enforceable right to appoint a director of
the company. Accordingly, the appointment was invalid.
 4. The constitution is not contract
between the company and
outsiders.

 Although the articles are not a contract with an outsider, it is possible that an
outsider might have a contract with the company by incorporating the
relevant articles into the independent contract between the company and
the outsider.

Re New British Iron Co. ex.p Beckwith

The articles provided that the directors would be paid a fixed remuneration. The
directors accepted office on the basis of the articles. Although no express
agreement was made between the company and the directors, the court held
that a contract incorporating the articles could be inferred. Thus the directors
were entitled to the fees.
 4. The constitution is not contract
between the company and
outsiders.

 In another situation, the constitution might create a contract between the company
and outsider for example if there is an existing relationship with an outsider before the
alteration of the constitution has been made.

Southern Foundries Ltd v Shirlaw

Shirlaw was appointed managing director of Southern for a period of 10 years. This was
done in written agreement. 3 years after Shirlaw’s appointment, Southern had been taken
over by Federated Foundries Ltd (Federated). Southern under a new management
(Federated) altered its article which empowered Federated as shareholder to remove
directors of Southern. Federated then exercised their new power and removed Shirlaw from
his directorship. Shirlaw sued Southern for breach of contract.
Held: The claim of Shirlaw was upheld. Although the company has the right to alter or
amend the provisions in its articles, it does not justify the breach of contract with an outsider
when the contract is validly entered into before the alteration takes effect.
 4. The constitution is not contract
between the company and
outsiders.

 Any alteration or amendment of the constitution affecting the contractual

relationship between the company and outsiders is effective prospectively
and not retrospectively.
Swabey v Port Darwin Gold Mining Co.
The company’s articles provided that the directors were to be paid £200 per
annum. In July 1888 the company passed a special resolution altering the
articles so that the directors were to receive £5 per month as from 31 December
1887. Swabey resigned as director and claimed three months accrued fees at
the old rate.
Held: The Company has power to alter the articles, but the directors would be
entitled to their salary at the rate originally stated in the articles up to the time
the articles were altered.
 ALTERATION OF THE CONSTITUTION

 Alteration of the constitution can be made in two different methods:

- By the company
- By the court
 1. Alteration by the company

 S.36 a company may alter its constitution by passing a special resolution.

 All clauses in the constitution can be altered or amended UNLESS the
constitution itself prohibits its alteration.
 Thus it means that the constitution may prohibit the alteration of one or
more provisions therein.
 S.36(2), alteration will takes effect on the day the resolution is passed or at
least at a later date mentioned in the resolution itself.
 S.36(3) it requires the company to notify the ROC of the alteration and
also lodge a copy of the altered constitution with the ROC within 30 days
of the special resolution being passed.
 Failure to do so is an offence.
 2. Alteration by the court

 S.37 provides that a director or member of the company may apply to the
court to alter the constitution.
 The court may grant the order on such terms and conditions as it think fit if
it satisfied that it is not practicable to alter or amend the constitution of
the company using the procedures set out in this Act or in the constitution
itself. – S.37(1)
 S.37(2) requires the company to lodge an office copy of the court order
together with the altered constitution with the ROC within 30 days from
the date of the order.
 Failure to do so is an offence.
 RESTRICTION TO ALTER THE
CONSTITUTION

The restrictions of power co. to alter its articles are:

 1. Any alterations must not be made if it is prohibited by the constitution.
 S. 36. (1) A company having a constitution may, by a special resolution, alter or
amend its constitution UNLESS the constitution itself prohibits the alteration or
amendment.
 S. 37 (1) The constitution may impose restrictive provision to alter its articles.
Example: Instead of require 75% consent form member to pass special
resolution, the constitution may require a higher majority to pass a special
resolution.
 RESTRICTION TO ALTER THE
CONSTITUTION

 2. Alteration must be made for the benefit of the company as a whole.

Allen v Gold Reefs of West Africa Ltd:

Facts: Allen held both fully paid-up shares and partially paid-up shares.
Despite repeated calls, he failed to pay up. The company altered the articles
to the effect that in the event a member failed to pay the calls on his
partially paid-up shares, the company would have lien on the fully paid-up
shares as well.
Held: even though the alteration was prejudicial to one shareholder, it was
done bona fide for the benefit of the company as a whole.
 RESTRICTION TO ALTER THE
CONSTITUTION

 Example where the alteration of constitution was held to be valid:

Greenhalgh v Ardene Cinemas Ltd

Facts: The company’s share capital was divided into two classes made up of
10s shares and 2s shares. Most of the 2s shares were held by Greenhalgh. A
resolution was passed to subdivided each of the 10s share into five 2s shares.
As a result, Greenhalgh’s voting power was diluted and he brought an action
to challenge the alteration in the articles.
Held: The court confirm the resolution. “Bona fide for the benefit of the co.
means that the sh. must proceed upon what, in his honest opinion, is for the
benefit of the co. as a whole… and the co. as a whole does not mean the
co. as commercial entity, distinct from the corporators… but it means the
corporators as general body…”
 RESTRICTION TO ALTER THE
CONSTITUTION
 It is for the members to decide what are the interest of the company:

Dafen Tinplate Co Ltd v Llanelly Steel Co

Facts: The co. altered the AoA to give powers to the majority sh. to allow the dir.
to sell any shares owned by any member to any person whom the dir. chooses.
The selling price of the said shares was to be determined by the dir. The purpose
of the alteration is to compel the sale of the share of any member who has
formed a business which is in competing with the co. business.
Held: The alteration is void as it is made NOT bona fide for the benefit of the co. as
a whole.

Brown v British Abrasive Wheel Co

An alteration of AoA to permit majority sh. to purchase the shares of minority sh.
was held not to be for the benefit of the co. as a whole but only for the benefits of
certain sh. and therefore invalid.
 RESTRICTION TO ALTER THE
CONSTITUTION
 3. The alteration must not deprive members of the rights given to them by
the court.
 S.346(4) a company cannot make further alteration to the constitution which is
inconsistent with the court order unless the company has obtained the prior
approval of the court.

 4. The alteration cannot be done so as to include an illegal clause.

 S.14(2) provides that a company shall not be formed for any unlawful purpose.
DOCTRINE OF ULTRA VIRES

THE DOCTRONE POSITION OF UV POSITION OF UV

UNDER THE UNDER THE CA 1965
COMMON LAW & 2016
 THE DOCTRINE

 The expression “ultra vires” consists of two words: ‘ultra’ and ‘vires’.
‘Ultra’ means beyond and ‘Vires’ means powers.
 Thus the expression ultra vires means an act beyond the powers.
 The expression ultra vires is used to indicate an act of the company
which is beyond the powers conferred on the company by the objects
clause of its constitution.
 THE DOCTRINE

 To ascertain whether the act is UV or not, the role of the object and power clause
must first be obtained.

Attorney General v Great Eastern Railway Co

The objects, whether main or dependent, are the purpose for which the company is set
up. However, to carry out these objects, companies need powers, companies have
implied powers to do anything incidental to their stated objects.
 POSITION OF UV UNDER THE
COMMON LAW

 The doctrine of ultra vires has no placed under the common law. This
is because every ultra vires transaction is void.
 Thus, in other words, every transaction which is done outside the
scope of the object and power clauses of the company’s
memorandum will not bind the company.
 A contract beyond the objects clause of the company’s constitution
is an ultra vires contract and cannot be enforced by or against the
company.
 POSITION OF UV UNDER THE
COMMON LAW
 The doctrine of ultra vires could not be established firmly until 1875 when the following case was decided by
the House of Lords.
Ashbury Railway Carriage and Iron Company Ltd v. Riche, (1875) L.R. 7 H.L. 653.,
In this case, the objects of the company as stated in the objects clause of its memorandum, were ‘to make and sell,
or lend on hire railway carriages and wagons, and all kinds of railway plaint, fittings, machinery and rolling stock to
carry on the business of mechanical engineers and general contractors to purchase and sell as merchants timber,
coal, metal or other materials; and to buy and sell any materials on commissions or as agents.’ The directors of the
company entered into a contract with Riches for financing a construction of a railway line in Belgium. The contract
was ratified by all the members of the company, but later on it was repudiated by the company. Riche sued the
company for breach of contract.
Issue: whether the contract was valid and if not, whether it could be ratified by the members of the company?
The House of Lords held unanimously that:
(a) The contract was beyond the objects as defined in the objects clause of its memorandum and, therefore it was
void, and
(b) The company had no capacity to ratify the contract.
Decision: The House of Lords has held that an ultra vires act or contract is void in it inception and it is void because
the company had not the capacity to make it and since the company lacks the capacity to make such contract,
how it can have capacity to ratify it. If the shareholders are permitted to ratify an ultra vires act or contract, it will
be nothing but permitting them to do the very thing which, by the Act of Parliament, they are prohibited from
doing.
 POSITION OF UV UNDER THE
COMMON LAW

 Even if the company tries to purify the ultra vires transaction by ratifying the said transaction, it shall
have no effect, nor shall it be validated by obtaining the unanimous assent from the corporators.

 The common law strict application of the ultra vires doctrines often creates problems to the third party.
This is because, they cannot enforce the ultra vires transaction even if they acted bona fide.

Re, Jon Beaufore (London) Ltd ., (1953) Ch. 131.,

A company was authorized by its memorandum to carry on the business of Costumiers, gown makers,
tailors and other activities of allied nature. Later on the company decided to carry on the business of
manufacturing Veneered Panels which was admittedly ultra vires and for this purpose erected a factory. A
firm of builders, who constructed the factory, brought an action to recover £ 2078 from the company.
Another firm supplied Veneers to the company and claimed £ 1011. A third firm claimed £ 107 for
supplying the fuel to the factory. The claimants did not acknowledge that the Veneered business was ultra
vires.
However, the court held that the company was not liable. the memorandum is a constructive notice to the
public and therefore if an act is ultra vires, it will be void and therefore will not be binding on the company
and the outsider dealing with the company cannot take a plea that he had no knowledge of the
contents of the memorandum.
 POSITION OF UV UNDER THE
COMMON LAW

 Since the strict application of the said doctrine often causes negative effects
such as the unfair treatment to the third party and the prevention for the
development of the corporate world.
 Hence it is suggested that the company may insert a wide and broader
clauses to include a general object clause. This is in order to allow the
company to engage in any business that the company thinks desirable.

Bell House Ltd v City Wall Properties Ltd

The company’s memorandum contained the following objects clause:
“to carry on any other trade or business whatsoever which can, in the opinion of
the board of directors, be advantageously carried on by the company in
connection with or as ancillary to … the general business of the company.”
Held: This clause was valid.
 POSITION OF UV UNDER THE
COMMON LAW

Besides that, a company may insert an implied or hidden clause to enable

the company to enter into a transaction without worrying that it may enter
into an ultra vires transaction which is void.

Deuchas v Gaslight
The company is established to produce gas. The process could then
produce a kind of by-product. Such by-product if mixed with another
material could produce another product (caustic soda), which could bring
profit to the company. Due to that, the company intent to take loan to
build factory to produce caustic soda.
Held: It is intra vires the company. Such hidden clause gives power to the
company to run business, which is incidental to the main business of the
company.
 POSITION OF UV UNDER CA
1965

 Due to the strict application of the ultra vires doctrine under the common
law, the said doctrine has been modified under Section 20.
 If a transaction is valid and binding upon the company, the fact that it is
ultra vires is irrelevant. Thus a company is estopped from denying its
liability over certain transaction which has been fully performed by stating
that it has acted ultra vires.
Public Bank Berhad v Metro Construction Sdn. Bhd.
It was held that, even assuming that the third party charges created by the
directors of the defendant company were ultra vires, they could be saved
by Section 20(1).
 Unlike in the common law, in Malaysia, if the transaction is wholly
completed, (provided that it is a lawful transaction) then the issue of ultra
vires cannot be raised as it is not covered under Section 20 of the
Companies Act 1965.
 POSITION OF UV UNDER CA
2016

 The position of UV under the CA 2016 is different due to S.21(1) which

provides that a company shall have the capacity to carry on or
undertake any business or activity.
 S.21(2) further provides that a company shall have the full power, rights
and privileges to undertake or to carry on any business and activity.
 For unlimited capacity of co., S.16(2) provides a control measures for a
unlimited company where it requires to carry on a lawful business and
one which is not prejudicial to the public order, morality or security of
Malaysia.
 S.35(2)(a) if the constitution set out the objects of the company, then the
company shall be restricted from carrying on any business or activity that
is not within its those objects.
 POSITION OF UV UNDER CA
2016

 S.35(2) the company shall have the full capacity and power to achieve
such objects.
 S.38(3) a company limited by guarantee are required to state its objects in
its constitution.
 Unlike the previous CA 1965, the position of UV transaction was not
discussed under the new CA 2016.
THANK YOU