Constitution Of A Company

Constitution of a company replaces the Memorandum of Association and the

Articles of Association. Under the CA 1965 all company must have a MA that must be
lodged with the Registrar of Companies (ROC) before ROC issue its Certificate of
Incorporation (S.16(1)). S.18 prescribes the minimum information which must be
contained:

 Name of the company

 Objects of the company
 Full names, addresses and occupations of the subscribers of the memorandum

In CA 2016, constitution is optional (s.31(1)) except for company limited by

guarantee S.38(1)). The constitution must be lodged at the time the company is
incorporated (S.38(2)). If there is no constitution then the CA 2016 will apply. If a
company has a constitution, the rights, powers, duties and obligations of the company’s
directors and its members under CA 2016 shall apply unless otherwise modified by the
constitution (S.31(2)). If a constitution contravenes the CA 2016 then it shall not have
effect (S.32(2))

A company’s existing MA will be deemed to be the constitution. If a company is

incorporated under CA 1965, then the MA will remains valid and enforceable under CA
2016 unless it is resolved, revoked or amended by the company. A company may also
contract out of its MA. If it wishes to revoke the existing MA and not to have a
constitution, it must have the approval from its shareholders by passing a resolution to
that effect and also notify SSM. According to S.32(2), any provision in constitution that is
inconsistent with CA2016 will not have effect

According to S.33(1), the constitution will bind the company and its members as
if:

 It has been signed and sealed by each member

 A covenant by each member to observe the provisions of the
constitution

A constitution is a statutory contract between the members and between the

company and the members. Any money payable by any member to the company will be
deemed as a debt due to the company (Article 33(2))
 Contract between company & members

Hickman v Kent or Romney Marsh Sheep-Breeders’ Association

Hickman was a member who sued the company in court to enforce his rights as a
member. The association had a clause in their articles that stated that disputes should
be resolved by arbitration, however Hickman decided to sue to enforce his rights as a
member

Held: AA is a contract between company and its members thus they are bound by it.
Thus Mr.Hickman was bound to comply with the provisions for arbitrating disputes and
could not resort to court

Pender v Pushington

The AA of the company provides that no member would be allowed to vote on more
than 100 shares on any meeting. Company is bound by it

Wood v Odess Waterworks Co

Articles of Odessa Waterworks allowed the directors to declare a dividend with the
approval of the general meeting. The directors instead recommended that members
should be given debenture-bonds and this was approved in the general meeting. Wood
as a member, brought an injunction against the company on his and the other members
behalf, as the company’s action was not in line with the company articles

Held: Plaintiff entitled to injunction as what was done was not in accordance with AA

Contract between members

S.33(1) & 38(6) – Constitution is a contract between members as if each of them has
signed on it

Rayfields v Hands

Articles stated that any shareholder wishing to sell their shares must offer them to the
members who were directors and those members were required to purchase them at a
fair price. The members refused to buy the shares when offered for sale, therefore
Rayfield who was a member sued to enforce the articles
Held: The article imposed an obligation on the directors, not as officers, but also in their
capacity as members

Wong Kim Fatt v Leong & Co Sdn Bhd

One of the articles of the company provided that the majority shareholder can require
the minority shareholder to sell his shares to the former. Pursuant to this article, the
majority shareholder requisitioned the purchase but the minority refused

Held: The said article was a contractual obligation which must be fulfilled by the
minority

Position of Outsiders

Beattie v Beattie

A member brought an injunction against a director who was also a member on behalf of
the company for breach of duty. The director requested the court to stay the action, as
there was a clause in the articles stating that all disputes between members and the
company should be arbitrated

Held: The director is not seeking to enforce a right which is common to himself and all
other members

Eley v Positive Government Security Life Assurance Co

Article 118 of the constitution of Positive Government Ltd stated Mr William Eley shall
be the solicitor to the company. But the company never employed him as its solicitor.
He was a member, but he brought an action to enforce the articles in his capacity as a
solicitor

Held: Mr Eley cannot sue as a solicitor. The AA only binds between the employees of the
company

Form Of Constitution (S.34)

 S.32 –Company limited by shares

 S.32(4) - Company shall lodge constitution with the registrar within 30 days from
the adoption
 S.38 – Company limited by guarantee shall have a constitution
A company that adopt a constitution need to stamp the constitution. The date of
adoption shall be the date of resolution. Any dates other than the date of resolution will
be disregarded

Contents of a company’s constitution (S.35(1))

 Objects of the company

 Capacity, rights, powers or privileges of the company

Amendment of Constitution (S.36 & 37)

 S.36 – Company may amend constitution by special resolution

 S.290 to 292 – Passing a resolution
 S.37 - court may alter or amend the constitution

According to S.36, a company can amend all the clauses in the constitution unless the
constitution itself prohibits it. There is only one prohibition according to this section. If
the court is satisfied that it is not practicable to alter the constitution according to the
procedure set out in CA or the constitution then the director or member of the company
can apply to court under S.37 to amend the constitution as it think fits. For example
when the constitution requires that the amendment of it needs the approval of its
founder member or the board of directors or where the company has only 2
shareholders holding equal shares

Whether the alteration of AA or the constitution must be made for the benefit of the
company?

Allen v Gold Reefs of West Africa Ltd

Allen held both paid up and partially paid up shares but failed to pay up. The company
altered the articles that if a member failed to pay on his shares the company will have a
lien on the fully paid-up shares as well

Held: Even though it was prejudicial to one shareholder, it was done bona fide for the
benefit of the company thus it was valid

Peter’s American Delicacy v Health

Articles state that holders of the fully and partially paid-up shares were entitled to
bonus. The company altered the article where they only got bonus for the amount paid-
up
Held: The alteration was valid

Effects of Alteration

S.36(2) – Alteration will be effective on the day it is passed and binds the company and
the members. No retrospective effect

S.33 - Alteration that increase the liability of an existing member will not be binding
unless written consent was given

S.194 – Not binding against shareholders unless written consent has been given

Doctrine of Privity – The alteration does not affect 3rd party. But the position will be
different when there is a contract between the company and a 3 rd party

Southern Foundries Ltd v Shirlaw

There was a contract between Shirlaw and the company. The company amended the
constitution and terminated Shirlaw

Held: A company cannot be precluded from altering tis articles thereby giving itself
power to act upon the provision of the altered articles. But it can be a breach of contract
if it is contrary to a stipulation in a contract validly made before alteration

Swabey v Port Darwin Gold Mining Co - Alternation will affect the contract from the
effective date of the alienation. If there are arrears before the alternation the company
has to pay the overdue amount at the old rate

Constructive Notice

When MA is registered with the ROC it becomes public document. An outsider who
dealth with a company is deemed to have a constructive notice of the contents of the
documents of the company. An outsider cannot claim relief on the ground that he was
unaware of the powers of the company in case of ultra vires of the company. To protect
company against an outsider. It is the duty of the person dealing with the company to
inspect its public documents to make sure that the contract is in uniform with the
provisions

Exception: S.39
 Object Clause (Description of the nature of company’s business or trade)

 S.35(1)(a) & (2) – A constitution may provide for objects of the company
 S.38(3) – Company limited by guarantee to state its objects
 S.14(3)(c) – To state the nature of business in application for incorporation

Types of object clauses:

 Main objects: Activities in which a company is specifically authorized to engage

 Dependent objects: Unspecified additional activities a company s authorized to
engage in association with one of its main object
 Powers: Legal ability by which a person can create or extinguish legal relations

Common Law

If a company enters into an ultra vires transaction neither company or the 3rd party is
bound by it

Ashbury Railway Carriage & Iron Co Ltd v Riche - if a company pursues objects beyond
the scope of the memorandum of association, the company's actions are ultra vires and
void

Position of CA1965

If a company enters into a contract beyond its objects or powers the contract was still a
valid contract and they had to perform the obligations under it

CA 2016

 S.21(1) – Company have capacity to carry out any business activity

 S.16(2) - Company to carry out lawful business not prejudicial to public order,
morality & security
 S.14(3) – Application of incorporation of company to include nature of business
 S.35(2)(a) – Company shall be restricted from carrying out business or activity
not within the objects stated in the constitution

Right of 3rd party

If a party is not aware that its transaction with the company is outside its objects clause,
the contract is valid and must be performed. S.21(1) CA 2016 states that a company has
full capacity carry out business thus the 3rd party can assume that the transaction is not
ultra vires. By reading S.39, a 3rd party will not be deemed to have knowledge of the
company’s objects but he can assume that the company has full capacity. If the contract
is restrained by a court order under S.20(2)(a), the court may order compensation to 3rd
party. CA 2016 does not give any specific right to a member to restrain the performance
of an ultra vires contract

Right of the company

As long as the contract was not invalid the company could enforce the ultra vires
contract. But the right of company to enforce ultra vires contract is not stated in CA
2016. S.213 states that it is the duty of director, CFO, CEO or other ppl to exercise their
powers for proper purpose and in good faith and best interest of the company. Thus,
company can sue director for not acting for a proper purpose when he authorized the
ultra vires transaction