Starting a company requires a company owner to make several important decisions. Among these is the legally mandatory creation of a company constitution in order 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?

A company constitution 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 legislations, it represents a binding agreement between the company and its shareholders and officers.

The company’s constitution must be carefully considered during the registration of a new company. 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.

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Importance of a Company Constitution

A company’s constitution may be regarded 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 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.

A company constitution is created to:

  • 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 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 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 are remunerated
  • Official company documents
  • Conflict of interests
  • Powers and responsibilities of directors
  • Powers and responsibilities of a company secretary
  • Indemnities
  • Shareholders’ loans
ADVICE: 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.

Rights of Shareholders According to a Malaysian Company’s 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:

  • Adopting, altering, or revoking of the constitution of the company
  • Alteration of shareholders’ rights
  • Approval of a major financial transaction
  • Appointment and removal of directors
  • Approval of a merger
  • 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.

NOTE: 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.

Thinking of setting up a company in Malaysia or looking to appoint a company secretary? Reach out to us and see how we can assist in your business journey!

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FAQs

Are Company Constitutions confidential?2021-09-30T14:48:54+08:00

No, a Company Constitution may be publicly available.

Do all Business Entities in Malaysia Require Company Constitutions?2020-04-28T17:36:45+08:00

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

Can Company Constitutions be made Invalid?2020-04-28T17:36:05+08:00

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.

Can Company Constitutions be Changed?2021-09-30T14:43:38+08:00

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.

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