Company Constitutions in Singapore and How to Draft One
The constitution of a company sets out the basic framework by which a company is organised. It outlines the objects of the company and governs the rights, powers, duties and obligations conferred on the company, its board of directors and its shareholders.
Before 3 January 2016, a company’s constitutional documents typically consisted of two documents – its Memorandum of Association and its Articles of Association (collectively known as the M&AA). The former document defined the company’s essential features while the latter document regulated the relationship of the company with its members, and among its members.
The requirement of having M&AA has been removed with the enactment of the Companies (Amendment) Act 2014, which now mandates all companies incorporated on or after 3 January 2016 to adopt a single-document constitution.
But for companies incorporated before 3 January 2016, you do not need to replace your existing documents with the single-document constitution and can continue using your M&AA.
If you are a business owner looking to incorporate a company, this article will explain the factors to consider, and the steps to take to draft your company constitution.
- Drafting Your Company Constitution
- Register Your Company Constitution
- Effects of the Company Constitution
- Amending Your Company Constitution
1. Drafting Your Company Constitution
The constitution of the company must contain the following, as stated under section 22 of the Companies Act (CA):
- The company’s name; (Name Clause)
- If the company is a company limited by shares, a statement that the liability of its members is limited; (Liability Clause)
- If the company is a company limited by guarantee, a statement that its members are liable to contribute up to a certain specified amount if the company is being wound up;
- If the company is an unlimited company, a statement that the liability of its members is unlimited;
- If the company is an unlimited company or a company limited by guarantee, the number of its members at the time of its application for registration;
- The full names, addresses and occupations of the members; (subscriber clause); and
- A statement that such members wish to form a company on the terms of the constitution and (where the company is to have a share capital) they agree to subscribe for a stated number of shares in the capital of the company.
These conditions are the minimum requirements for a company’s constitution. Other terms may also be included, such as:
- Issue, allotment and transfer of shares (For private companies limited by shares, the constitution is required to restrict the right to transfer company shares, and to limit its members to 50 at most.)
- Organisation and conduct of board and shareholder meetings
- Appointment and removal of directors
- Directors’ duties and powers
- Distribution and capitalisation of profits
- Distribution of surplus assets in the event of winding up
The good news is that you do not need to draft a company constitution from scratch. A Model Constitution has been provided in the Companies (Model Constitutions) Regulations 2015 for business owners to refer to.
A downloadable PDF version of these constitutions can also be found on the Accounting and Corporate Regulatory Authority’s (ACRA) website.
Considerations when drafting your company constitution
Since the company constitution is going to be the legal document that governs the internal affairs of your company, the relationship between the members, and the relationship between the members and the directors, it is important to keep a few of these considerations in mind when crafting your company constitution, amongst other things:
- Business objectives – Consider your company goals, and what your company seeks to achieve, and align your company constitution with these goals and objectives.
- Decision-making structure – If you have a desired set of structures for running your company, you should look to implement it in your company constitution. This includes procedures for the appointment of directors, as well as the ideal decision-making structure you envision for your company. All of these can be included in the ‘rules’ section of the constitution. This may help to avoid potential conflicts between members of the company in the future, with regard to decision-making.
- Specific rules and regulations – Do you have specific sets of rules and regulations that are unique to your company? If these aren’t already in the default constitution template, consider adding them in. For instance, with regard to future share issuance, if you wish to first offer new shares to existing shareholders before offering these to the public and private markets, you should include that in your company constitution.
Finally, keep in mind that all clauses in the constitution (especially the custom ones that you’ve added yourself) must be in line with current legal and regulatory compliance requirements.
For peace of mind, you may wish to engage a professional corporate secretary to customise your company’s constitution to suit your specific needs.
2. Register Your Company Constitution
According to section 19 of the CA, anyone who intends to incorporate a company must submit the constitution of his company to the Registrar (i.e. ACRA). From then on, the company constitution will come into effect.
If you choose to adopt the Model Constitution without making any amendments to it, you will not need to register your constitution during the company incorporation process.
3. Effects of the Company Constitution
The company constitution essentially creates a contract between the company and all of its members, and between these members.
Section 39(1) of the CA gives each member of the company a personal right to bring an action to enforce a regulation of the constitution, or to restrain its breach.
If the court finds that the constitution has indeed been breached, it could order for the constitution to be complied with, or for the losses suffered by the innocent parties to be compensated.
However, section 39(1) only relates to those rights which affect the member in his capacity as a member and not those in his personal capacity.
For example, a member could seek to enforce his right to vote at an Annual General Meeting, if it is being denied to him. This is because, such a voting right is granted to him in his capacity as a member of the company.
On the other hand, a member would be unlikely to succeed in an action that does not affect him as a member.
For example, even if the constitution provides for a veto right (i.e the right to reject a decision or proposal) to a company director, he might not succeed in getting the court to make an order for compliance with that particular provision. This is because, that right affects him in his capacity as a director, and not as a member of the company.
In addition, each member in a private company limited by shares is required to make a declaration to ACRA of his intention to take shares in a company, and the number of shares that he will be taking.
4. Amending Your Company Constitution
There are different procedures to be followed for amending the company constitution, depending on whether it is the company’s objects that are being amended.
An amendment will be considered an alteration to the company objects if it involves changes to the language of the objects. For example, shifting from “brewing beer” to “running a café”.
The following are also considered changes to the language of the objects:
- Fixing errors
- Replacing old English terms with modern ones
Renumbering of the objects clauses, with no change to the objects’ language, will not be considered a change to the company objects. However, this change will still be considered as an amendment to the constitution requiring compliance with a certain procedure.
Procedure for amendments to the constitution that do not alter the company objects
For amendments to the constitution that do not alter the company objects, the procedure in section 26 of the CA is to be followed. This involves passing a special resolution in an Extraordinary General Meeting (EGM).
This special resolution requires more than 75% support from members, with members getting at least 14 days or 21 days’ notice of the EGM in advance (for private and public companies respectively).
Among other things, the notice should contain the date of the EGM, as well as the agenda of the meeting.
The alteration will generally be part of the constitution effective from the date of the special resolution (or any other later date specified in the special resolution).
Additionally, the company will have to submit a copy of the special resolution, and a copy of the amended constitution, within 14 days of the passing of the resolution to ACRA through the BizFile+ website. ACRA then issues a notice of registration of that resolution.
You can also apply to the Registrar via BizFile+ for a certificate of incorporation which stands as a confirmation of the alteration to the constitution.
Procedure for altering the objects of the company
If you wish to alter the objects of your company, the procedure to be followed is found in section 33 of the CA.
Under this procedure, the alteration of the company objects also has to be done by a special resolution. This is similar to the procedure in section 26 of the CA for amendments to the constitution that do not involve alterations to the company objects.
However, the company also has to give to its members 21 days’ written notice of the EGM where the resolution to alter the company’s objects will be discussed.
The special resolution to alter the company objects must also not include any other alterations to the constitution. In other words, the special resolution must solely contain alterations to the company objects. If other alterations to the company constitution are to be made, they must be done in a separate special resolution.
The special resolution that has been passed to alter the company’s objects cannot be lodged with ACRA until 21 days have elapsed since the passing of the resolution. But after the expiration of those 21 days, the company has 14 days to lodge the special resolution with ACRA.
Should you require further assistance in drafting or customising a constitution unique to your company, please feel free to inquire about our corporate secretarial services.
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