What’s in this article
Starting a company requires a company owner to make several important decisions. Among these decisions is the legally mandatory creation of a company constitution to legally govern the operations of the company.
The creation of a constitution may cost a significant amount of money and require much effort, but a company with a well-crafted constitution will eventually reap tremendous rewards.
Those who have chosen to set up a company may create a constitution either during or after registration.
What is a Company Constitution in Malaysia: Importance & Rights of Shareholders?
A company constitution in Malaysia provides important information to the company, its shareholders, its directors, and its company secretary.
It is a formal document that specifies the rules governing a company. It also defines the relationship between the company, shareholders, directors, and other important figures of the company.
As long as the constitution of the company does not violate the Companies Act or any related legislation, it represents a binding agreement between the company and its shareholders and officers.
The company’s constitution must carefully consider that during the registration of a new company. When a new constitution is about to be assumed or a change to the constitution, a resolution will be made by the shareholders of the company to give for such changes to officially take effect.
Importance of a Company Constitution in Malaysia
A company’s constitution in Malaysia may be obeyed as a contract between the company and each member or administration of the company.
These are the people under which each person agrees to abide by the stipulations of the constitution which apply to that person. This, therefore, creates enforceable rights and obligations about shareholders about their role as shareholders of the company.
Company constitutions thus do not affect the personal status of a company’s shareholders. They also do not impose any excessive rights or obligations between the shareholders of a company and the company’s directors and company secretary. Consequently, a constitution may not allow a shareholder to enforce any provisions conferring personal rights.
A company constitution in Malaysia is:
- Suit the individual operations of the company – this grants the owner greater flexibility, control, and certainty
- Amend the imbalance of power between owners and shareholders or between directors and management
What is included in a Malaysian Company’s Constitution?
The Companies Act does not specify any rules that are included in the constitution of a company. However, there are certain matters which should always managed in the constitution of any company.
Some of the most important matters and common topics of a Malaysian company’s constitution include:
- Appointments of officeholders
- Inspections of the company’s books
- Annual general and extraordinary general meetings
- Issues related to the company’s shares and dividends
- Type of company
- Shares & share certificates
- Transfer of shares
- Dividends
- Meetings of the members of the board of directors
- Voting rights during meetings
- How directors remunerate
- Official company documents
- Conflict of interests
- Powers and responsibilities of directors
- Powers and responsibilities of a company secretary
- Indemnities
- Shareholders’ loans
Rights of Shareholders According to a Malaysian Company’s Constitution
The constitution of a Malaysian company specifies the rules by which the company needs to run. The Companies Act often mentions that a company may only perform certain actions if its constitution allows it. Therefore, a company constitution is very useful to all companies in Malaysia.
Companies which do not have a constitution will have to rely on the Companies Act to find out about the rights, duties, and obligations of every shareholder involved in the company.
Shareholders are not responsible for the daily management of the company; neither do they participate in this management. However, the Companies Act nevertheless specifies that there are certain powers which are available to the shareholders of a company.
Among these powers are:
- Adopting, altering, or revoking the constitution of the company
- Alteration of shareholders’ rights
- Approval of a major financial transaction
- Appointment and removal of directors
- Approval of a merger
- The decision to liquidate the company
According to the Companies Act, shareholders are also can ask questions and pass resolutions which have a relationship to the management of the company. However, unless the constitution states otherwise, the resolution is not binding on the board.
Share Capital Reduction
Furthermore, an important aspect related to shareholders’ rights and company structures in Malaysia is Share Capital Reduction. Share capital reduction allows a company to decrease its issued capital by returning funds to shareholders, canceling unpaid shares, or offsetting accumulated losses. This process, governed by the Companies Act 2016, can be beneficial for companies looking to improve their financial standing, manage excess capital, or streamline their balance sheet. For shareholders, a share capital reduction can affect ownership and voting rights, as well as the overall financial health of the company. Understanding the regulations and strategic uses of share capital reduction helps shareholders make more informed decisions about their investments in Malaysian companies.
FAQs
No, a Company Constitution may be publicly available.
A company constitution is an important document for every business in Malaysia. This is because companies are to refer to the company constitution before making any important decisions. For this reason, it is crucial to ensure that a company constitution addresses every issue that could potentially be faced by the company so that there is a plan of action for every situation
If necessary, a company might deem it suitable to discard its entire constitution. In such an instance, this version of the constitution would be made invalid. The company would then be required to create a new company constitution as a replacement.
It is possible for a company constitution to be changed. Changes to a constitution may take place for any of various reasons.
These may include:
- implementation of a new company structure,
- a change in the identity of the company’s directors,
- changes with regard to licensing or funding arrangement,
- a response to changes in the law, or
- following a court order requiring the company to change certain aspects of the constitution.
