TOPIC 3: CONSTITUTION

OF A COMPANY

Siti Aisyah binti Safren

Corporate Law (LAW5073)
 INTRODUCTION

 For a company which was incorporated before the

Companies Act 2016 came into effect, the existing
constitution (memorandum & articles of
association) will continue to be applicable to such
companies until the companies resolve otherwise.
3.1 REQUIREMENTS OF COMPANIES
LIMITED BY GUARANTEE
 S 38(1) As an exception to S 31 dispensing with the requirement
for a constitution, a company limited by guarantee (CLBG) is
still required to have constitution.
 S 38(2) The constitution shall be signed by those persons
intending to incorporate the company and lodged with the ROC
during the company’s incorporation.
 S 38(3) The constitution shall include the
following:
a) A clause stating the status of company being a
CLBG;
b) The objects of the company;
c) The capacity, rights, powers or privileges of
the company;
(d) The number of members with which the
company proposes to be incorporated;
(e) Matters which are required to be included
in the constitution as stipulated by the
2016 Act; and
(f) Any other matters which the company
wishes to include in the constitution.
 S 38(4) & (5) Therefore, any provisions in the
constitution which have the effect of creating a
share capital or gives a person a right to
dividends shall be void.
 38(6) Once the constitution has been lodged
with ROC, it shall become binding on the
company and its members.
 3.2 REQUIREMENTS OF OTHER
COMPANIES
 S 31(1) A company may, but does not need a constitution
(previously known as MOA and AOA under the 1965 Act).
 S 31(2) However, if a company has a constitution, the rights,
powers, duties and obligations of the company’s directors and
members under the 2016 Act shall apply unless otherwise
modified by the company’s constitution.
 S 31(3) If the company does not have constitution, the rights,
powers, duties and obligations of the company’s directors and
members shall be guided by the 2016 Act.
 ADOPTION OF CONSTITUTION AND
FORM
 S 32(1) A company may adopt a constitution
by passing a special resolution.
 S 32(2) The constitution of a company has no
effect to the extent that it contravenes or is
inconsistent with the provisions of this Act.
 S 32(3) The constitution shall be binding on
the company, its directors and its members.
 S 32(4) The company shall lodge the
constitution with the ROC within 30 days of
the adoption.
 S 32(5) Failure to lodge the copy of the
constitution shall render the company and any
officer in default to an offence under the 2016 Act
resulting in a fine upon conviction that is not
exceeding RM50,000 or a further fine not
exceeding RM500 for each day the offence
continues after conviction.
 S 35(1) The constitution may provide for the following
matters:
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 the 2016 Act to be included in the
constitution; and
d) Any other matters as the company wishes to include in its
constitution.
 Where the constitution sets out the objects of the
company, the company shall be restricted from
carrying on any business or activity that is not
within those objects.
 S 53(2) However, the company shall have full
capacity and powers to achieve such objects
unless the constitution expressly provides
otherwise (doctrine of ‘ultra vires’).
 As a consequence, promoters and company
secretaries may resort to drafting object clauses that
may be as wide as possible to allow the company to
undertake a wide variety of businesses and activities.
 Cotman v. Brougham [1918] AC 514 the House of
Lords held that such clauses to be valid and legal.
Known as ‘Cotman v. Brougham clauses’
 3.3 EFFECTS
 S 33(1) A constitution adopted under the 2016 Act
shall be bind the company and members to the
same extend as if they respectively had been
signed and sealed by each member and a covenant
by each member to observe the provisions of the
constitution.
1. THERE IS A CONTRACT BETWEEN
COMPANY AND MEMBERS
 A company can take action against its
members to make them comply with the
provisions in the constitution.
 HICKMAN V. KENT OR RAMNEY MARSH
SHEEP-BREEDERS’ ASSOCIATION
 Facts: The AOA provided that any dispute between itself and
its members should be referred to arbitration. A dispute arose
between the company and Hickman, a member. Hickman
brought the matter to the court. The company sought to stay
the action on the ground of the arbitration clause.
 Held: The court agreed as the articles were a contract
between the Association and its members, the provisions for
arbitration was binding on Hickman. He had to refer his
dispute to arbitration.
2. THERE IS A CONTRACT BETWEEN
MEMBERS
 Contract is said to contain agreements that each
member will observe all the provisions of the
constitution.
 This gives every member a personal right to make
the other members observe the term in the
constitution.
 RAYFIELD V. HANDS

 Facts : The articles required that (a) every director should be a

shareholder and (b) the directors must purchase the shares of any
member who gave them notice of his wish to dispose of them. The
directors, however denied that a member (R) could enforce the
obligation on them to acquire his shares.
 Held : The provisions in the articles were a binding contract
between R and the directors and so they were ordered to purchase
R’s shares.
 3. THERE IS NO CONTRACT
BETWEEN THE COMPANY AND
OUTSIDERS
 Outsiders are not privy to a contract, therefore
cannot enforce it.
 Even if the constitution confer rights on them,
outsiders cannot enforce those rights.
RAFFLES HOTEL LTD. V. MALAYAN BANKING
BHD. (SINGAPORE HIGH COURT)
 Facts : The articles of the plaintiff company (Raffles Hotel – lessee)
gave the lessor (MBB) the power to appoint a director for the
plaintiff company. The lessor (MBB) appointed itself as director.
The lessee contested this and sought to have the appointment be
declared invalid.
 Held : Federal Court ruled that the articles could not constitute a
contract between the company and outsiders and since the lessor
was not a member of the company the articles did not confer any
enforceable right to appoint a director.
 4. THERE IS NO CONTRACT BETWEEN THE COMPANY
AND MEMBERS (NOT IN THEIR CAPACITY AS MEMBERS)

Eley v. Positive Government Security Life Assurance Co. 1876

 Facts : E, a solicitor, drafted the original articles and included a provision
that the company must always employ him as its solicitor. E became a
member of the company some months after its incorporation. He later sued
the company for breach of contract in not employing him as its solicitor.
 Held : E could not rely on the article since it was a contract between the
company and its members and he was not asserting any claim as member.
 3.4 ALTERATIONS

 S 36(1) A company having a constitution may alter

its constitution by special resolution unless the
constitution itself prohibits the alteration.
 S 36(2) The constitution shall be deemed to be
altered upon the date of the special resolution or a
later date as specified in the resolution.
 S 36(3) Notify and lodge a copy of constitution as altered
with ROC within 30 days from the date the special
resolution was passed.
 S 36(4) The company and every officer who contravene
(3) commit an offence and shall be liable to a fine not
exceeding RM 10,000 and in the case of continuing
offence to a further fine not exceeding RM 500 for each
day during which the offence continues after conviction.
 S 37(1) However, a director or member of the company may
apply to the court for an order to alter the constitution if it is
not practicable to alter it using the procedures set out in the
2016 Act or in the constitution itself.
 Where the company has only two shareholders who are holding
shares in equal proportion, the likelihood of a deadlock when it
comes to a special resolution being passed would result in an
application to the court for an order to alter the constitution on
such terms and conditions as the court thinks fit.
 S 36(1) does not contain a similar provision to allow for the
cancellation of any alteration of the constitution.