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.