CORPORATE LAW

BBB 3233

LECTURE 3: THE CONSTITUTION OF THE COMPANY -

MEMORANDUM OF ASSOCIATION
 TOPIC OUTLINE
• The Name
• Business Names
• Registered Office
• The objects clause and other
contents/clauses
• Limited of liability clause capital
• Association Clause
• Alteration of the memorandum
 MEMORANDUM OF ASSOCIATION
• Memorandum of Association (MOA) and Article of Association (AOA) are legal

documents of a company

• Required to be lodged with Suruhanjaya Syarikat Malaysia(SSM)/CCM upon

the registration of a company

• Document that governs the relationship between the company and outside

• Of a limited liability company

• Contract under seal binding both the members and the company

• Accessible to the public

• Articles may adopt all or any of the regulations contained in Table A of the Fourth

Schedule, Companies Act 1965

• The most important document

• Foundation of the company

• Mandatory for every company that wants to get registered as a private/public

limited to prepare the memorandum of association

• Cannot perform anything beyond the limit as mentioned in the memorandum of

association upon registration

• S18(1) – Requires the MOA of every company to be printed and divided into

numbered paragraphs and dated and content to be put in

• Considered as a supreme document and comprises of following important

clauses:

 Name Clause

 Registered Office Clause

 Object Clause

 Liability Clause

 Capital Clause

 Association or Subscription Clause

Name Clause – Name of registered business

• Section 18 (1) - The name of the company should be stated in this clause

• A Company is a legal entity

• Must have a name to establish its identity

• Section 22 (1)- Free to select any name it likes

• Name should not create an impression that the company is carrying on

the business of some other existing company

• The name should not be misleading

• Name should not be identical or similar to that of a company already

registered

• End with the words “Sendirian Berhad” if it is a private company, or just

“Berhad” if it is a public company

 Case: Penrose v Martyr 1858
In this case a company secretary accepted a bill of exchange drawn on a
limited company. The name of the company was as written but the company
secretary omitted the words "limited“.
HELD : The company secretary was held to be personally liable

Case: Ewing v Buttercup Margarine Co Ltd 1917

• Ewing who traded under the name Buttercup Diary Company sued to
restrain a newly registered company called Buttercup Margarine
Company Ltd from using the name on the grounds that the general public
might reasonably believe that there was a link between the two
businesses.
HELD: Ewing was successful
A company may have any name except:

(a) Name should not be identical or similar to that of a company already registered

(b) A name, which in the opinion of the Central Government is undesirable or will mislead the

public and its use has been, therefore, prohibited by the Government

• The name of every company together with the address of its Registered Office must be

painted or affixed outside the premises wherever its business is carried on, in a

conspicuous position, in letters easily legible in one of the local languages

Registered Office Clause- Registered office address
• Section 119 require a company to have registered office within
Malaysia
• Name of the State where the Company’s registered office is
located should be mentioned
• Registered office means a place where the common seal,
statutory books etc., of the company are kept
• This clause also ascertains the nationality of the company as it
determines the jurisdiction of the company and mentions the
place where all the records of company are maintained
• Full address of the registered office must be communicated to
the SSM / CCM for future communication
Object Clause- Aim & Objective of company
• S18 (1b) – Requires the objects clause of a company to be stated in the MOA
Requires to mention clearly the objective behind the incorporation of the company, i.e.
the purpose for which the company is being established
• Identifies the activities in which the company wish to engage in
• Limits the scope of operations of the company
• Explains to the members the scope of activity of the company where their capital will
be employed
• Contain the important objectives of the company
• A company is not legally entitled to do any business other than that specified in its
clause
• It is difficult to alter the objects clause later on
• Promoters should draft this clause carefully
• This clause mentions all possible types of business in which a company may engage
in future
 Case: Re German Date Coffee Co 1882
The objects of the company were specific in that it was
to make coffee from dates using a German patent. The
patent was never granted and coffee was made with a
Swedish patent. The company was solvent and the
majority of shareholders wanted it to continue. However
two shareholders petitioned for a winding up on the
grounds that its objects had failed.

HELD: Failed as it was impossible to carry out the

objects for which the company was formed.
 The Ultra Vires Doctrine
• Referring to the term: Beyond powers

• Anything exceeding these limits is ultra vires (beyond the power of) the

company and may be void- Section 20 Company Act 1965

• The Memorandum of Association must state the objects of the company

• Purpose of the object clause is to define and limit the activities which the

company is permitted to undertake

• Any act which is not specified in its object or powers are regarded as ultra-vires

• Describe a situation when the directors of a company has exceeded the power

delegated to them

• Contract will be void and not legally binding on Ultra Vires

• Cannot be ratified even shareholders wish to ratify it

• In order to authorize act which otherwise would be ultra vires, a company
may by special resolution alter the provision of its memorandum with
respect to the objects of the company-Section 28(1) Companies Act 1965
• Only permitted to depart according to the Act prescribe
• Acts to authorize ultra vires:
1) If an act ultra vires the power of directors, then the shareholders can
ratify it
2) If act ultra vires the Article of the company, the company can alter it
• Cannot bind company through an ultra vires contract
• The effect of Section 20 (1) is that the company is estopped from claiming a
contract is ultra vires when it is full performed
• Estoppel, acquiescence, lapse of time, delay, or ratification cannot make it
‘Intra Vires’
• Intra vires is within the powers (within the limit of the MOA)
• An action taken within an organization's or person's scope of authority (conferred by a statute,
or a constituting or vesting document)
Purpose of Ultra Vires:
– To protect shareholder and investors interest
– To restrain from using its fund for other purpose
– Restrain from carrying out trade different from authorized
• Company cannot sue on ultra vires transaction
• If proceed, they cannot obtain payment to recover loan
• However, if the company borrows money in an ultra vires transaction to repay a legal loan,
then the lender is entitled to recover his loan from the company
• Main advantage of the Doctrine of Ultra Vires is the protection of shareholders and creditors
• The disadvantages prevents the company from changing its activities in a direction agreed by
all members
• However, special resolution can alter the object clause of the Memorandum
• Defeat the purpose of the doctrine
 Case: Ashbury Railway & Iron Co v Riche 1875
The object of the company states “to make, sell, borrow and rent
train coach and business of mechanical engineering and general
contractor”. The directors made a contract to buy a concession of
building railway and the contract was approved by all
shareholders. Later, the company refused to resume with the
contract.
Issue: Whether the contract between these two is ultra vires or
not?
Held: The Court decided that the contract was ultra vires as it was
not within the scope of the company’s objective. As such the
contract was null and void. Since the nature of the contract was
not included in the Memorandum of Association, it was ultra vires
not only of the directors, but of whole company. Even the
shareholders cannot ratify the ultra vires contract
• With the implementation of Companies Act 2016, companies
will have full capacity of a natural person-Section 21(1)
• Object clause will no longer be required for companies
limited by shares (Bhd or Sdn Bhd)
• A company limited by shares may decide to limit its object
• Within the boundary of the Act, companies have the rights,
powers and privileges to enter into any lawful business
transaction or perform activities and no longer restricted by
any objects clause in its constitution
• Under Companies Act 2016, the doctrine of ultra vires is no
longer relevant
• But the effect on ultra vires transaction still relevant for
companies that decide to adopt a constitution which sets out
the object of the company
• Company limited by guarantee must have object clause
• In other words, the company will be restricted from carrying
on any business transaction or activities which are not within
its object
Liability Clause- Section 18 (1) (d) – (f)
• States the nature of liability of the members of the company
• Liability may be limited by shares or by guarantee:
(a) In case of a company limited by shares, members’ liability is
limited to the face value of the shares.
(b) In case of a company limited by guarantee, the liability clause
must state the extent of liability of each individual member in the
event of its being wound up.
(c) In case of an unlimited company, the liability clause does not
appear in the memorandum of association
Capital Clause – Section 18 (1) (c)
• States the total capital of the proposed company
• The amount of capital as stated in the memorandum is known as
the authorized capital of the company
• Cannot collect funds exceeding the authorized capital
• If some special rights and privileges are conferred on any type of
shareholders mention may also be made in this clause
• The division of capital into equity share capital and preference
share capital should also be mentioned
• The number of shares in each category and their value should be
given in the memorandum
Association or Subscription Clause- Section 18 (1) (g)- (h)
• Subscriber declare in written statement agree to incorporate the
company and state amount of shares agree to take
• Has to be signed by each subscriber in presence of at least one witness
• At least one share should be taken by each subscriber
• Minimum number of members is 2 in case of a private company
• Minimum 7 members in case of a public company
• Subscribers are required to pay for these shares after the company is
incorporated
• They must also sign articles of association of the company
• No subscriber can withdraw his name on any ground whatsoever once a
company has been incorporated
• Even on the ground that he/she was induced to sign the memorandum by
misrepresentation
 ALTERATION OF THE
MEMORANDUM
• Section 2(56) defines a memorandum to mean “the memorandum of

association of a company as originally framed or as altered from time to

time in pursuance of any previous company law or of this act.”

• Section 21 (1) indicate it may be altered in the manner by the

Companies Act 1965

For example, a company may by passing a special resolution alter is name

with the approval of the Central Government

• If the alteration involves change of the name to private limited or public

limited, permission of Central Government is not required

Generally a company may amend only clauses that the Act
prescribes in Memorandum :
• Change company name- Section 23 (Name clause)
• Alter capital clause - Section 62
• Alter object clause- Section 28
• Members must pass a special resolution agreeing to the
changes
• Court must conform the alteration to give effect to it
• May cancel or confirm
• The court duty is to make sure that the company exercises
its power fairly
 CONSTITUTION OF THE
COMPANY
• With the coming into force of the Companies Act 2016, a company is no

longer required to have the Memorandum of Association and Article of

Association (M&A) for registration purpose

• In fact, company can even operate without any constitution

• Effective 31 January 2017, the M & A of the company would be deem to

be the constitution of the company-Section 34 (c)

• If company opt for a constitution, the constitution will consist of a single

document containing the basic information of the company and any other

matters regarding the company’s internal management

• Hence a constitution is optional for companies limited by shares- Section

31 (1)
• Formal document that sets out the rules governing a company
• Defines the relationship between the company, shareholders,
director and other officers of the company
• Good business management practice
• Adopt a constitution when registering your company
• Essentially sets out the rights, powers and duties of:
 The company
 The board
 Each director and
 Each shareholder
• A Memorandum of Association (MOA) is a legal document
• Document that regulates a company activities
• Under Companies Act 1965: a memorandum and articles of
association (M&A) is required for a company to be incorporated
• Sample: http://www.boustead.com.my/v2/misc/BHB_MnA.pdf
• However, Companies Act 2016: replaced the memorandum and
articles of association (M & A) with constitution
• The constitution of a company may contain provision relating to:
 The object of the company
 The capacity, rights, powers or privileges of the company if the
provision restricts such capacity, rights, powers or privileges
 Matters contemplated by the Act to be included in the constitutions
 Any other matters as the company wishes to include in its
constitution
• Sample:
http://www.bumiarmada.com/App_File/Image/assets/Constitution.pdf
• Under the CA 1965, every company was required to have a
memorandum and articles of association
• The memorandum and articles of association are now collectively
known as the constitution, and it is expressly stated in Section 31 and
38 CA 2016 that only a company limited by guarantee shall have a
constitution
• Other types of company may or may not have a constitution
• It is optional for them
• A public company has the option of whether to have a constitution or
not
• As such, in cases where an existing public company (other than a
company limited by guarantee) opts to do away with its constitution, it
must obtain approval from its shareholders
• A company may adopt a constitution after its registration by passing a
special resolution
• Certain provisions of the Companies Act 2016 may be modified by a
company by providing different rules in its constitution
• However, the constitution will be invalid and have no effect if it
contravenes or is inconsistent with the Companies Act 2016- Section
32(2)
• For companies which were registered prior to the coming into operation of
the CA 2016, Section 619(3) provides that the memorandum and articles
of association of a company existing before the operation of the Act shall
have effect as if made or adopted under the Act unless otherwise resolved
by the company
• Thus, a company’s existing memorandum and articles shall form the
company’s constitution until the company alters it by passing a special
resolution
• For company limited by guarantee, the constitution is mandatory
• The constitution must contain the following information- Section 38:
a) That the company is a company limited by guarantee
b) The objects of the company
c) The capacity, rights, powers and privileges of the company
d) The number of members with which the company proposed to be
incorporated
e) Matters contemplated by this Act to be included in the constitution and
f) Any other matters that the company wishes to include in tis constitution
• In short, companies can decide to:
 Adopt a new constitution by special resolution (Section 32 (1)) with the legal
boundaries of Companies Act 2016 (Section 32(2)) or
 Review their constitution and make appropriate amendments-Section 31 (2) or
 Choose not to have the constitution, in which case the provisions of the
Companies Act 2016 will apply by default-Section 31(3)
• If a company has no constitution, the company, each director and each

member of the company shall have the rights, powers, duties and obligations

as set out in the Act

• If the company has a constitution, the company, each director and each

member of the company shall also have the rights, powers, duties and

obligations as set out in the Act, except to the extent that such rights, powers,

duties and obligations are permitted to be modified in accordance with this Act,

and are so modified by the constitution of the company’ (Section 31(2) CA

2016)

• In other words, the rights, powers, duties and obligations of the company,

director and member are prescribed by the CA 2016 unless modified by the

company’s constitution

• The company’s constitution can modify any of those rights, powers, duties and

obligations only if the Act permits it

 LEGAL EFFECTS OF THE
CONSTITUTION
• Based on Section 32 (3) of the Companies Act 2016, if the company

decides to adopt the constitution, then it will be binding on:

 The company

 Its directors and

 Its members

• For company limited by shares that opts to have constitution, the

company, its directors and shareholders are bound by the rights, powers,

duties and obligations stated under the Companies Act 2016

• Except to the extend that such provisions are modified by the constitution

and such modifications are permitted- Section 31(2)

• As for company that has no constitution, the provisions of the
Companies Act 2016 will apply automatically on the rights, powers,
duties and obligations of Section 31(3) of:
 The company
 Each directors and
 Each member
• According to Section 33(1), once the constitution is adopted, it shall
bind and form a contract:
 Between the company and each members and
 Between members
• However, neither the company nor the members are bound to
outsiders
• The contract cannot be enforced by outsider
 EXERCISE
1. Explain briefly the facts and court decisions of
the case of Ashbury Railway & Iron Co v Riche
1875.
2. Elaborate why companies are required to have
a Memorandum of Association
3. Examine the concept of Name clause in an
Memorandum of Association
4. Section 21 (1) of the Companies Act 1965 state
that the Memorandum of Association (MOA)
may be altered. Explain the concept of the said
act