B) CONSTITUTION OF COMPANIES – MA/AA

Question 1) What constitute Constitution of Companies?

a) Memorandum of Association
b) Articles of Association

Question 2) When does a company acquires legal status of a body corporate?

Upon its memorandum is registered and the Registrar issues a certificate of

incorporations.
S16 (1) – requires the memorandum to be lodged with the Registrar before a company can be
registered.
- The subscribers to the memorandum must sign on the memorandum and their
signatures must be witnessed by a person who is not himself a subscriber.

Question 3) Can any person inspect documents lodged with the Registrar?

Yes, any person, on payment of the prescribed fee; inspect at the Registry of Companies
any document filed or lodged with the Registrar, as these documents are public documents.

Question 4) What are member’s rights towards having a copy of the memorandum?

A member of a company is entitled to receive a copy of the memorandum subject to a

payment of RM5 or such lesser sum as fixed by the directors.
S154 – an agreement which effectively binds any class of share holders whether agreed to buy all
the members of that class or not and effects the memorandum is required to be lodged with the
registrar. A copy of the memorandum must be subsequently issued by the company unless a
copy of the agreement is annexed to the copy of the memorandum. There is a penalty for non-
compliance with the section.

Question 5) What are the contents of the memorandum?

Set out in S18(1) which requires the memorandum of a company to state:-

1- the name of the company;
2- the objects of the company;
3- in the case of a company limited by shares, the amount of a share capital of the company,
if any, and the division thereof into shares of fixed amount;
4- in the case of a company limited by shares, that the liability of the members is limited;
5- in the case of a company limited by guarantee, that the liability of the members is limited
and the amount that each member undertakes to contribute in the event of its being
wound up;
6- in the case of an unlimited company that the liability of the members is unlimited;
7- the full name, addresses and occupations of the subscribers; and
8- that the subscribers are desirous of being formed into a company in pursuance of the
memorandum where the company is to have a share capital, the subscribers respectively
agree to take the numbers of shares in capital of the company set out opposite their
respective names.
9- contains the names of the first directors and first secretary of the company.

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Question 6) What is an object clause, purpose of objects and legality of objects?

Objects clause of a company is designed to define the capacity of the company by

references to its business activities. Object clause is important and relevant in determining
whether the company has acted ultra vires thereby rendering the act void ab initio but with the
liberal interpretation by modern judges and the effects of S.20, the doctrine of ultra vires is now
of limited relevance. An object clause may be altered by special resolution provided under S.28.

i) The purpose of specifying the objects is two fold. First it gives protection to the
subscribers who learn from it the purpose to which their money can be applied and
second it gives protection to persons who deal with the company who can infer in the
extent of the company’s capacity and power.
ii) To connect the legality of an object to the law of contract, an objects in the
memorandum is lawful unless forbidder by any law or is of such nature would defeat
any law or it is fraudulent or it will be regarded as unlawful by reason of its being
immoral or opposed to public policy. Registrar has duty to refuse registration of a
proposed company whose objects are illegal or against public policy.

Question 7) What are the construction of memorandum and objects clauses?

Basic rule of construction of the memorandum is the memorandum must not contradict
the Act. It must be construed according to accepted principles applicable to the interpretation of
all legal documents without rigid canon of construction to be applied to such a document. It must
be read fairly and its imports derived form a reasonable interpretation of the language which it
employs. The fact that the memorandum is a commercial document does not prevent the court
construing it more strictly than ordinary contracts entered into between two contracting parties
because a memorandum is an instrument which is relied by third parties.

Question 8) What is the distinction between objects and power of a company?

The distinction between objects and power of a company is a very fine one. The objects
of a company relate to the kind of activities or business upon which the company is formed.
Case: Arab-Malaysian Finance Bhd v Meridien International Credit Corp Ltd. London
Held _ _ _ _ the memorandum of association should set out the purpose for which the company
was formed to achieve and the kind of activities or business which it is to carry on. It is in the
object clause of the memorandum of association that the perimeter of permissible activities of the
company is set out, so that if it attempts to do anything beyond that perimeter, it is exceeding its
objects and thereby acting ultra vires._ _ _ the powers of the company are ancillary to the main
objects and are given to the company to enable it to carry on its primary objects or business.

i) Powers of the company are not specified in the memorandum but some are specified
in the memorandum but some are specified in the Third Schedule of the Act.
ii) Effects on distinction – the distinction between acts done in excess of the objects of
the company and acts done in abuse of the powers of the company may be critical for
the following main reasons:-
1) the Act only requires the objects and not the powers of a company to be specified
in the memorandum. It is not capable of converting something which is properly a
power into an object of the company.
2) Where a transaction is beyond the objects of the company it is in any event a
nullity and wholly void at common law irrespective of whether the third party had
notice of the invalidity. It is incapable of conferring rights on a third party. Since

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 the ultra vires transaction is void at its inception the transaction cannot be ratified
even by the unanimous consent of all the members of the company
3) If a transaction is within the object of the company but in abuse of the powers, the
position of a third party regarding whether a can enforce the contract depends on
whether or not he has notice that the transaction was an abuse of the powers of the
company. If the third party has such a notice, he cannot exercise the right. An act
of the directors, not being an ultra vires act, can be ratified by the company in
general meeting.
4) A company must only carry out things which are expressed in the objects clause
or things which are reasonably incidents to the attainment or pursuit of those
objects.

Question 9) What is doctrine of “ultra vires”?

The term “ultra vires” simply means “beyond the power” or “lack of power” in respect of
an act carried out by a person or body. It is distinct from illegality. An act which is ultra vires is
not necessarily illegal as well.
Case: Rolled Steel Products (Holidays) Ltd v British Steel Corp & Ors

1) to be ultra vires, a transaction has to be outside the capacity of the company not merely in
excess or abuse of the powers of the company.
2) whether a transaction is outside the capacity of the company depends solely on whether on
the true construction of its memorandum, the transaction is capable of falling within the
objects of the company as apposed to being a proper exercise of the powers of the company.

Question 10) How does statutory modification effects ultra vires doctrine?

The doctrine of ultra vires is an illusory protection for the shareholders and yet maybe a pitfall
for the third parties dealing with the company. As now applied to companies, ultra vires doctrine
serves no positive purpose but is on the other hand a cause of unnecessary prolixity and vexation.
Ultra vires doctrine has been restricted by S20(1).

Question 11) What are the circumstances where ultra vires doctrine applies?

Provide in S20 (2) i.e.:-

a) proceedings against the company;
b) any proceedings by the company or by any member of the company against the present or
former officers of the company; or
c) any petition by the minister to wind up the company.
It is submitted that a contract which is intra vires the company but the ultra vires the directors is
not affected by S20 (2).

Question 12) Who are entitled to assert lack of authority or power?

Under 20 (1), they are:-

a) the members of the company; or
b) where relevant, the debenture holders or trustee for the debenture holders and
c) the Minister.
Case: Pamaron Holdings S/B v Ganda Holdings Bhd

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Question 13: Which parties may take proceedings against a company?

Under S20 (2), they are:-

a) members of the company; or
b) where the company has issued debentures secured by a floating charge over all or any of
the company’s property, the holder of the debentures or the trustees for the holders of
debentures. The proper party who is entitled to assert the lack of capacity or power may
in proceedings against the company seek to restrain the doing of any or the conveyance
or transfer of any properly to or by the company.
i) S20 (2) (a) may only be invoked “in proceedings against the company”, the
purpose being “to restrain the doing of any act or acts – by the company”. The
must be proceedings for relief against the company.
ii) The provisions of S20 (2) (a) are to be read together with 20(3). In essence
20(3) provides that if the unauthorised act sought to be restrained is being or
is to be performed or made pursuant to any contract to which a company is a
party, the High Court may, if all the parties to the contract, are parties in the
proceedings, set aside and restrain the performance of the contract if it deem it
“just and equitable” to do so.
High Court have jurisdiction under S20 (2) (a) to award compensation to the
company, or other contracting party in respect of loss or damage sustained by
either of them save that no anticipated profit to be derived from the
performance of the contract is to be awarded by the court.

Question 14) When can be there an alteration to the memorandum?

The memorandum is regarded as an inflexible constitutional document and in S21 (1)

provides the memorandum of a company may be altered to the extent and in the manner provided
by this Act and not otherwise. The relevant provisions where alterations to the memorandum or
permitted are as follows:-

a) change of name
b) conversion of an unlimited company to a limited company
c) conversion of a public company to a private company
d) conversion of a private company to a public company
e) change of an object clause
f) alteration of share capital
g) reduction of share capital and
h) alteration by the High Court under S.181.

ARTICLES OF ASSOCIATION

Question 1) What is the nature of Articles of Association?

The articles of a company are its internal regulations. The regulations in the articles must
be lawful. Articles of a company are subordinate to the memorandum i.e. articles cannot override
and overrule any provisions in the memorandum. Articles are public documents and are open to
inspection by anyone to deal with the company.

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Question 2) Can Articles be rectified by Court?

No, if statuary procedure could not be achieved the proper remedy would be to petition
for an order that the company be wound up on the ground that it is just equitable to do so in the
circumstances under S218 (1) (1).

Question 3) What are the contents of the Articles?

Most articles deal with matters such as:-

a) the registered office
b) the exclusion, wholly or in part of Table A
c) the execution or adoption of a pre-incorporation contract or preliminary agreement, if any
d) classes of shares and variation of class rights
e) lien on shares
f) calls on shares and for feature for non payment of calls
g) transfer of shares
h) transmission of shares
i) alteration of share capital
j) reduction of share capital
k) general meetings of members
l) directors
m) accounts and audits
n) dividends and rescue funds
o) notices to members and
p) winding up.

Question 4) What are the restrictions in articles for private companies?

States in S15 (1) i.e. the restrictions, limitations and prohibitions:-

a) restriction on the right to transfer shares;
b) limitation on the number of members to not more than 50,
c) prohibitions as to invitations to the public to subscribe for shares in or debenture of the
company; and
d) prohibitions as to invitation to the public to deposit money with the company.

Question 5) What provisions applies to unlimited company and company limited by

guarantee?

In the case of an unlimited company having a share capital, the articles must state the
amount of share capital with which the company proposes to be registered and the division
thereof into shares of a fixed amount. In the case of unlimited company the articles must state the
number of members with which the company proposes to be registered.

Question 6) What are the principles regards First Directors and First Secretary?

The first directors and first secretary of a company must be named in the memorandum or
articles of the company. It is sufficient if first directors are named in either one of the documents.
The Registrar must not register a memorandum and articles unless the memorandum or articles
contain the names of at least two persons who are to be the first directors of the proposed
company. In the case of first secretary, if the name of first secretary is omitted in the

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memorandum or articles, Registrar could require the documents to be appropriately amended or
completed and resubmitted under S11(8).

Question 7) Who must sign the Articles?

Must be signed by each subscriber in the presence of at least one witness who must attest
the signature and the address of the witnessed must be added.
Case: Ho Tung v Man on Insurance Co Ltd [1902] AC 232PC – by the acquiescence and
agreement of the share holders shown by a long course of dealing, registered articles though
unsigned could still be valid and operative as if they had formally adopted by special resolution.

Question 8) What is the right of member to have a copy of the articles?

A member of a company is entitled to have a copy of the articles on payment of a sum of

RM5 or such lesser sum as fixed by the directors of the company.

Question 9) What is the necessity of Articles?

Main purpose of registering the articles is to enable persons dealing with a company to
ascertain the manner in which the affairs of the company are regulated.
- A company limited by the shares is not required to register its articles as part of
the incorporations documents. They may elect whether or not to register its
articles but in modern practise very exceptional for a company limited by share
not to register its articles.

Question 10) Where do company limited by share refer to it’s articles?

From Fourth Schedule to the Act refer as Table A is a model articles for a company
limited by share. They may adopt all or any of the regulation contained in Table A.

Question 11) Can the articles be altered?

Can be altered by special resolution subject to S31(1) where Table A is concerned any company
shall have the power and shall be deemed always to have had the power to amend its articles by
the adoption of all or any of the regulations contained in Table A.

Question 12) What is the law regards Construction of Articles?

The “ut res magis valet quam peveat” concept should be applied. The articles must be
read as a whole and not in isolation. In construing the articles, the court may admit evidence of
surrounding circumstances for the limited purpose of identifying persons, places or other subject
matters referred therein.
- where there is a conflict between the memorandum and articles, the provision in the
memorandum shall prevail because it is the dominant document of the two.

Question13) What is the binding effect of the Articles?

Binding effect emerge from S33(1) _ _ _ when registered bind the company and the
members thereof to the same extent as they if respectively had been signed and sealed by each
member and contained covenants on the part of each member to observe all the provisions of the
memorandum and of the articles.

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 - Effect of S33 (1) is the provisions on the memorandum and articles of a
company when registered become a statuary contract of a special nature in
i. binding between the company and the members gua members ; and
ii. binding between the members ‘inter se’

Question 14) What is ‘qua member’ concept?

The word “members” in this section S33 (1) means “members in their capacity as
members”, i.e. excluding any relationship which does not flow from the membership itself. This
concept is expressed as ‘qua member’ and ‘members as such’. S33 (1) regulates the position of a
member as a member of the company and not in his capacity as an individual.

- A member may contract individually with the company upon terms, which may or may not be
defined in the articles. Such contract is called a ‘special contract’.

Question 15) What is the Law regards Alteration of Articles?

Can be altered under statutory and common law alteration.

Question 16) How to alter under statutory provisions?

S31 (1) _ _ _ any conditions in its memorandum, a company may be special resolution
alter or adds to its articles.

Question 17) What are the statutory restrictions on alteration?

A member of a company is not bound by an alteration made in the memorandum or

articles after the date on which he became a member so far as the alteration require him to take
or subscribe for more share or in any way increases his liability to contribute to the share capital
of or other wise to pay money to the company.

- Under S181 – A member of a company may apply to a court for relief where resolution or a
proposed resolution to alter the articles would be unfairly discriminating or prejudicial against or
otherwise prejudicial to one or more of the member or debenture holders.

Question 18) What is the law regards alteration under Common Law?

Whether the alteration will be set aside is a matter of discretion for the court. In
exercising the discretion, the court is expected to follow the relevant established legal principles.
Case: Peters’ American Delicacy Co Ltd v Heath & Ors (1939) 61CLR457, 511

Question 19) What are the principles taken into account when altering the articles?

Points to be considered:-
a) Alteration to be exercised bona fide – must be exercised by the members of the company
bona fide for the benefit of the company as a whole.
Case: Allen v Gold Reefs of West Africa Ltd {1900], ch 656.

These words ‘bona fide for the benefit of the company as a whole involved a two stage test:-
i) first, the alteration of the articles should be made in good faith which would involve an
assessment of the subjective intention of the majority; and

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 ii) secondly, that the alteration of the articles was for the benefit of the company as whole
which would be objective test.
This test was doubted in Sidebottom v Kershow, Leeso & Co Ltd (1920) ch 154 and Shuttle
worth v Cox Bros & Co ( Maidenhead) Ltd (1927) ZKB9.

b) Members to decide whether alteration is beneficial i.e. for the members to decide and not
court. This is a prima facie general rule and not an absolute rule.
Case: Allen v Gold Reefs of West Africa Ltd [1900] ch 656 – if an alteration to the articles
is bona fide for the benefit of the company as whole, it may be immaterial that it prejudice or
diminishes some of the rights of one particular member.

Question 20) What are the restrictions on alterations?

S31 (1) – allows to alter the regulations contained in the articles from time to time by
way of special resolutions. However a provision in the articles of a company which restricts its
statutory power to alter those articles is invalid, an agreements between individual shareholders
as to have they shall exercise their voting rights on a resolution to alter the articles may not
necessarily infringe the machinery of the Act.

The rights of a company to alter its articles may be overridden by some rights and
privilege given to its ‘founder members’ on the formation of the company. – Pang ten Fatt @
Anor v Tawau Transport Co Sdn Bhd & Ors [1986] MLJ 179.