What is Company Constitution Malaysia?
A company constitution in Malaysia (previously referred to as an Article and Memorandum of Association) is a legal document recognized by the Companies Act 2016. It generally specifies the rules governing the relationship and activities of the corporate, its shareholders, and its directors.
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When to adopt and is it mandatory?
Company Constitution Malaysia is not mandatory. At the point of incorporation, shareholders may choose to adopt a constitution either on or after company registration. It is best to adopt when there is more than one (1) shareholder in the Company.
The difference compared to the Shareholders’ Agreement?
A constitution is a special form of contract as it binds the company, shareholders, and directors who initially agreed to adopt a constitution and any future shareholders, unlike shareholders agreement which only binds those who are parties to it.
What is the effect of adopting the Company Constitution Malaysia?
First of all, a constitution has a similar effect as a contract between the company, shareholder, director, and company secretary. The provision is to comply or a decision may be voided. However, it usually does not create enforceable rights between the shareholders, directors, and/or company secretary.
Usually the Companies Act 2016 will set out some rules governing the relationship between the company, its shareholders, and directors. Company constitution may be adopted to exchange the provisions of the Companies Act 2016 that is applicable. If the Companies Act 2016 is silent on the method for decision-making, the company constitution can be used to fill in the gap.
As an example, the Companies Act 2016 states that the issuance of new shares requires ordinary resolution, which can be passed through a majority vote. Shareholders may use Company Consitution to override this and state that the issuance of a new share must be decided with a unanimous vote.
Conclusion
A company constitution is not relevant in all circumstances. It is usually necessary for growing and bigger organisations as it onboards more shareholders and directors. This is to ensure consistency in the decision-making process and offers clarity on duties and responsibilities.
Make an appointment with Company Secretary for advice and consultation
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