Merging of the M&AA into the Company Constitution
In the first quarter (Q1) of 2016, one key legislative amendment by ACRA was merging of the company’s Memorandum and Articles of Association (M&AA) into a single document – known as the company Constitution.
The Constitution of a company must be submitted as part of its incorporation process, and all companies wishing you incorporate after Q1 2016 must submit the Constitution to ACRA. Companies who are already incorporated and currently have their M&AA do not need to take any additional steps or incur additional costs to combine the documents.
What is a Company Constitution?
A Company Constitution is merely the merging of the M&AA, which comprises of 2 separate documents – Memorandum of Association and Articles of Association, into a single document.
A Memorandum of Association sets out the structure of the company and its aims, such as the name of the company and the extent of liability of its members.
The Articles of Association on the other hand, sets out the regulations by which a company is internally governed by, as well as the rights of various business parties involved in the company. These include shareholder rights and the conduct of Annual General Meetings (AGMs).
Hence, Company Constitution has the same content as that of the originally separate documents, and fulfills the same purpose. It is a legal document that sets out the rules and regulations by which a company is governed by and how it is to conduct its business activities.
It also stipulates the structure of the company, and the right to which its members are entitled to. In summary, a company Constitution can be seen as the ‘guidebook’ and ‘rulebook’ of the entire company.
Notably, some important components of the Constitution include:
- Name and registered address of the company
- Liability of members (limited or unlimited)
- Personal particulars of shareholders and the amount of shares they hold
- Maximum amount shareholders are required to contribute (for companies limited by guarantee)
- Rules and Regulations – eg. Issue of shares, conducting of AGMs, directors’ duties, shareholder relations.
While there is a minimum requirement as to what goes into the Constitution, such as the names and liability of members, the Companies Act generally does not on enforce on what rules and regulations should go into a Constitution. Companies are able to decide what they want to have in place to best optimize their internal governance and management.
What is the Effect of a Company Constitution?
A Company Constitution serves as a contract that binds the company and its members, and among the company’s members themselves. This is in accordance with Section 39 of the Companies Act. Hence, all members are legally required to comply with the provisions of the Company Constitution, and are prohibited from doing anything else that would otherwise go against the Constitution. Members are also able to enforce contracts among one another through the Company Constitution.
How Do You Draft Your Company Constitution?
There are 2 main ways by which a company may draft its Constitution. Firstly, it may use the Model Constitution as provided by ACRA. Secondly, it may draft its Constitution according to its own format and preferences, most likely with help of a law firm.
For private companies limited by shares, Section 18 of the Companies Act stipulates that a Company Constitution is to restrict the right to transfer its shares and limit its members to a maximum of 50.
Regardless of whether you use the model provided by ACRA or draft it on your own, you should always bear in mind your company’s business objectives, modus operandi, culture and values. This will allow for a cohesive Constitution that is line with all members of the company.
When Must You have your Company Constitution Ready?
ACRA stipulates that when you form a company, you have to submit your Company Constitution as part of the registration process. Hence, it is a statutory requirement to have your Constitution ready before you incorporate your company.
The ACRA requirement aside, it is important to have your Constitution ready to allow all members of the company to be clear of how the company is going to be run and internally governed. These are crucial issues that would be best ironed out before a company incorporates.
Making Amendments to the Company Constitution
According to Section 33 of the Companies Act, companies are able to make amendments to their Company Constitution by means of passing company resolutions. Within 21 days after the resolution has been passed, an application has to be made with the Registrar for the amendments to take effect.
Despite the legislative amendment, a Company Constitution still serves the same purpose as its predecessor, the M&AA. It is one of the most important legal documents that your company will need, from before its corporation, to the running of the company and also in the event that the company winds up.