A company constitution specifies the rules by which a company is to be run. Every company in Malaysia would benefit from a constitution which has been carefully planned. Therefore, great care must be taken by the owner of a company during the creation of a company constitution.
Starting a company requires a company owner to make several important decisions. Among these is the creation of a company constitution. Every company owner in Malaysia will need a company constitution in order to legally govern the operations of the company. The creation of a constitution may use up 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. The Companies Act does not specify any rules that are to be included in the constitution of a company. However, there are certain matters which should always be addressed in the constitution of any company. Some of the most important matters to be mentioned in a company constitution include appointments of officeholders, inspections of the company’s books, annual general and extraordinary general meetings, and issues related to the company’s shares and dividends. Each of these topics has a significant impact on the company and its future direction.
Definition of a Company Constitution
A constitution 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 be carefully considers during the registration of a new company. A constitution is created during the time of incorporation. When a new constitution is adopted or a change to the constitution has been made, a resolution made by the shareholders of the company must be passed in order for such changes to officially take effect.
Topics Included in a Malaysian Company’s Constitution
Every company in Malaysia has the right to decide upon what details are to be included in its constitution. However, the following topics are often included in the constitution of any company: the type of company, shares, share certificates, transfers of shares, dividends, meetings of the members of the board of directors, voting rights during meetings, how directors are to be remunerated, official company documents, conflicts of interests, powers and responsibilities of directors, powers and responsibilities of the company secretary, indemnities, and shareholders’ loans.
On a related note, if you plan to start a company in Malaysia, we at Paul Hype Page & Co can be of assistance to you. Our incorporation specialists will work with you throughout the process of setting up your company in Malaysia. We will even liaise with government authorities if necessary so that your company will be set up in an optimal manner.
It has clearly been shown that there are many areas to be considered when a company owner sets the rules for governance of the business. It is thus advisable to have a point of reference already in place for the management of the company; this would prevent the need to deal with administrative issues as and when they arise. A company constitution provides important information to the company, its shareholders, its directors, and its company secretary.
Importance of a Company Constitution
A company’s constitution may be regarded as a contract between the company and each member. It is also a contract among members and the administration of the company. The administration of the company includes the company secretary and directors. These are the people under which each person agrees to abide by the stipulations of the constitution which are applicable to that person. This therefore creates enforceable rights and obligations in relation to shareholders with regard to 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 shareholder may not be allowed to enforce any provisions in a constitution which may confer personal rights. Such provisions may include the right to be employed by the company as well as provisions designed to protect the interests of the company’s minority shareholders.
A company constitution is created to suit the individual operations of the company. This means that a company constitution will grant the company owner greater flexibility and certainty in the running of the company. The owner will have more control as the company develops over time.
A constitution may also be used to amend an imbalance of power between owners and shareholders or between directors and management. Such imbalances occur when there is inequality in the level of control exerted by the people involved. For example, through the use of a company constitution, shareholders can be empowered to instruct or even veto decisions made by the directors of the company.
Rights of Shareholders According to a Malaysian Company Constitution
The constitution of a Malaysian company specifies the rules by which the company is to be 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 the adopting, altering, or revoking of the constitution of the company; the alteration of shareholders’ rights; the approval of a major financial transaction; the appointment and removal of directors; the approval of a merger; and the decision to liquidate the company. According to the Companies Act, shareholders are also allowed to ask questions and pass resolutions which are related to the management of the company. However, unless the constitution states otherwise, the resolution is not binding on the board.
There are certain provisions which are only allowed if the constitution of the company permits them to be carried out. These provisions are not available to a company which does not have a constitution. Such provisions relate to the company’s purchase and holding of its own shares as well as the division and location of the share register.
There are certain instances in which a director of a company may act in a manner which is believed by the director to be in the best interests of the company even though such might not necessarily be the case. In such instances, shareholders may make claims against a director for a breach of duty owed to them. However, not all directors’ duties are owed to shareholders. The Companies Act also specifies that a shareholder cannot bring an action against a director for any losses in the value of the shares that they hold.
As an aside, if you have not yet hired a suitable person to serve as the director of your company, we at Paul Hype Page & Co are able to meet your needs. One of our packages provides companies with a nominee director. The person we will select for the role will be one who has all of the necessary qualifications and skills to complete every directorial task which is required.
A shareholder may at any time make a written request to the company to seek information which is held by the company. Once the request has been made, the company may then choose to provide the information, agree to provide the information before a specific period elapses, agree to provide the information within a specified period as long as the shareholder pays a charge to the company to pay for the cost of providing the information, or refuse to provide the information while also specifying the reasons for refusal.
A company may refuse to provide a shareholder with information if disclosure of such information would or would be likely to damage the company’s commercial viability, if disclosure of such information would or would be likely to damage the commercial capabilities of any other person, or if the request is deemed unnecessary or unimportant.
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Company Constitutions in Malaysia FAQs
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 the 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.