LAW 2629:

RMIT Classification: Trusted

Singapore Company and

Finance Law

Week Two:
Topics Three and Four
Alex Wong
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Week 2
Topic 3:

The Constitution (read Chapter 5)

Topic 4:

The Company’s Relations with Outsiders (read Chapters 19 and 20)

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Topic 3:
The Constitution
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Overview of Topic Three

a. Company’s constitution
b. Amendment of company’s constitution
c. Legal effect of the constitution
d. Shareholders’ agreements
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a. Company’s Constitution
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Why the need for a Constitution

• Understand the roles and responsibilities between the
shareholder and the director?
• What does each party want?
• What can each party do?
• What if there is a disagreement

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Contents of Constitution
• These are provisions that regulate the internal management of the
company
• Deal with:
• Share issues, transfer , variation of rights
• Liens (charge over share certificate)
• Calls on shares
• Procedures for general meetings and notices
• Appointment of directors , powers and meetings
• Dividends
• Other matters

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Functions of a Constitution

1. Key characteristics of the legal entity

2. Details of how that entity is internally regulated.

As part of incorporation process all companies are required to

lodge a proposed constitution with ACRA
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Definition of Constitution:
s. 4 SCA
General definition in s. 4 as:

“the constitution of the company which is registered with the Registrar under s.
19 as may be amended from time to time”

Definition for companies incorporated before SCA 2014:

“the memorandum of association articles of association of the company or both,

in force immediately before that date.”
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Forms of Constitution
• Companies (Model Constitution) Regulations 2015 prescribes two forms of model
constitution:

(a) First schedule – companies limited by shares (adopted in whole or in part)

(b) Second Schedule - companies limited by guarantee (adopted in whole or in
part)

• However, it is open to the person incorporating the company to adopt their own
constitution

• Table A: whilst this has now been deleted from the Fourth Schedule of SCA, prior to
SCA 2014 some companies were taken to have Table A constitution by default as
they had not previously register their ‘articles” with ACRA.
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Contents of Constitution I:
s. 22 SCA
Constitution see s 22 for what must be in the document

• Name of company s. 27(1) SCA for requirements and s. 29 for changing

name
• Limited companies must state that members liability is limited
• If limited by guarantee then must state that the liability of member is
limited to such an amount
• If unlimited company then need to state liability of member is unlimited
• Full name and address and occupation of the subscribers to
• Statement indicating the subscribers’ desire to form a company and
their agreement to take up shares
• signed copy of constitution must be kept at co’s registered office
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Contents of Constitution II :
Objects clause (no more)
Previously
• Up to 2004 had to include such a clause
• Purpose was that shareholders and creditors knew what
the company was going to do
• If co did something outside its object(s) then transaction
was ultra vires and creditors could not recover
• Many companies may still have objects clauses
As of 2004
• See ss. 25 and 25A
• Now no need for companies to state their objects
• But objects clause may be included, the purpose of
inclusion is to restrict the powers of the directors. See
s 23(1A) that specifies
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Contents of Constitution III:

Ultras. 25(1)
Vires
“no act or purported act of a company… and no conveyance or transfer
of property, whether real or personal, to or by a company shall be invalid
by reason only of the fact that the company was without capacity or
power to do such act or execute or take such conveyance of transfer”

S 25(2)
Any such lack of capacity of power may only be asserted or relied upon in:
a. Proceedings against any member of the company OR where there is
a floating charge over all or any of the co’s property by the holder of
those debentures or trustee for the holder of those debentures to restrain
the doing of any act or the conveyance of any property to or by the
company
b. Any proceedings by the company or by any member against the
present or former officers
c. Any application by the Minister to wind up the company
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Contents of Constitution IV:

Regulation of the Internal Management
• Constitutions also contain provisions that regulate the internal management of the company

• Previously in the company’s articles of association but now contained within the Model
Constitutions or in the self-selected constitutions (free rein but listed companies must
meet requirements of Rule 210(7) SGX listing manual).

• General topics include:

- issues of and rights attached to shares;

- procedures for general meetings;
- directors appointments;
- powers and meetings;
- dividends; and
- capitalisation of profits etc.
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Contents of Constitution V:
Interaction between SCA and Constitution

• Notwithstanding the constitution = SCA takes precedence (e.g. s.

184G(1) (resolutions of one member companies)

• Subject to the constitution = constitution takes precedence (e.g. s.

26A(3) provisions of this Act relating to alteration of the constitution of
a company are subject to any entrenching provision in the constitution)
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b. Amendment of company’s
constitution
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Why change?

Who can change?

Maintain control
Limit power of others?
Exclude rights of others?
Change in business?

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Contents of Constitution
• These are provisions that regulate the internal management of the
company
• Deal with:
• Share issues, transfer , variation of rights
• Liens (charge over share certificate)
• Calls on shares
• Procedures for general meetings and notices
• Appointment of directors , powers and meetings
• Dividends
• Other matters

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Amendment of Constitution I: General

▪ May wish to amend due change in circumstances, generally
fine unless entrenched provision (see over)
▪ Process - see s 26 and s 37
✓Must pass a special resolution of members (75% of
members present / proxy at meeting)
✓Proper notice must be given s 184 (14 days notice for
private and 21 days notice for public companies)
✓Lodge change with the Registrar at ACRA
✓The majority voting must take into account the needs
and interest of the company and not just themselves
the majority to the detriment of minority

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Amendment of Constitution II: specific

changes
Some provisions relate to specific aspects of the constitution:

• change of name s.28

• Converting from limited to unlimited s.30
• Convert from public to private or vice versa s. 31
• Alter objects (if any) s.33
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Amendment of Constitution IV:

Entrenched Provisions (EP)(definition)
More difficult to amend and subject to special conditions

Definition of EP: s 26A(1)

• An EP is included at the time of incorporation

• An EP is included after incorporation but is agreed to be an
EP by all members

Alteration of EP s 26A(4)

• Not by special resolution

• Can not be altered other than by > 75% or other special
test.
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Amendment of Constitution III: Voting

on a Change

General position is as they see fit BUT:

- certain restrictions such as equitable limitations (bona fide in best

interest of company) – see Topic Nine
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c. Legal effect of the

constitution
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Legal Effect of the Constitution I:

A Statutory Contract
s. 39 provides that:
“a company’s constitution shall when registered bind the company
and the members thereof to the same extent as if they respectively
had been signed and sealed by each member and contained
covenants on the part of each member to observe all provisions of
the constitution.”
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Legal Effect of Constitution II:

• Statutory contract is a contract between company
and member
• Statutory contract is a contract between all
members
• All existing members are bound
• New members are bound by it
• Past members are not bound
• Companies MUST provide a copy of the
constitution to all members who request to see
the constitution and this must be ≤ $5. s 40 (1).
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Contents of Constitution
• These are provisions that regulate the internal management of the
company
• Deal with:
• Share issues, transfer , variation of rights
• Liens (charge over share certificate)
• Calls on shares
• Procedures for general meetings and notices
• Appointment of directors , powers and meetings
• Dividends
• Other matters

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Legal Effect of Constitution III:

Interpretation
• Law of contract is applied to interpret the constitution Zurich Insurance
(Singapore) Pte Ltd b B-Gold Interior Design Construction Pte [2008] 3 SLR 1029

• The court can also imply terms into a company’s constitution using general
contract law principles.
Sembcorp Marine Ltd. v PPL Holdings [2013] 4 SLR 193

• Courts are entitled to recognise that the constitution are instruments of

corporate governance that are intended to endure and to be capable of
operating with flexibility in changing circumstances. Lian Hwee Choo Phebe
and Another v Maxz Universal development Group Pte Ltd and Others [2009] 2 SLR 624
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Legal Effect of Constitution IV: Standing

• In contract law, only parties to a contract can enforce that contract

(privity of contract)

• Non-members (directors, employees, officers etc.) cannot enforce

provisions of the constitution
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Malayan Banking Ltd. v Raffles Hotel Ltd.

[1965-1968] SLR 85
FACTS

- Hotel’s constitution had a provision giving power to the hotel’s landlord to

appoint a director to the company’s board.
- Landlord relied upon provision.
- Company challenged their right in court.

HELD

- Constitution was not a contract between the company and a third party who was
not a member.
- Therefore, landlord could not enforce provision.
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Legal Effect of Constitution IV:
Provisions incorporated into actual contracts
(express / implied)

• Non-members can incorporate provisions from the constitution

into a contract they have with the company but not the other way.

• This incorporation of provisions can be expressly (actually

including the constitutions provisions) or impliedly
incorporated into a separate contract.
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Constitution Provisions Impliedly

Incorporated into a Separate Contract
Chee Keong Mah Chaly & Others v The Liquidators of Barings Futures (Singapore)
Pte Ltd. [2003] 2 SLR 571.

• An auditor was able to infer, at the time they were appointed, that they would be
indemnified by the company as the constitution contained provisions stating this
was the case.
• This was in spite of the fact that the contract between the auditor and the company
did not contain such a clause.

Consequence of Implied Incorporation of Constitution Provisions

• Where incorporated on an implied basis, the company may be able to unilaterally

amend the terms of the contract by amending the terms of the constitution (this is
not consistent with contract law).
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Legal Effect of Constitution V:

Which provisions can be enforced by members?
• No authoritative decision on this aspect of s. 39 SCA (binding nature of constitution).
• Appears to imply that all provisions are enforceable
• CLRFC (Company Legislation and Regulatory Framework Committee) Recommendation 3.19 that position be clarified and
further that:
• Default position is all enforceable unless
• contrary provided for
• breach is trivial / frivolous
• Australia and England: only those provisions that confer rights that are personal to members in their capacity as members (to
vote / receive notice of meetings etc.) can be enforced.

Eley v Positive Government Security Life Assurance Co Ltd. (1875) 1 Ex D 20

FACTS
- E drafted the provisions of the constitution
- E later became a member of the company
- Constitution provided that E “shall be the company’s solicitor”
- The company employed another solicitor even though the constitution stated E was to be the solicitor
- E sued the company
HELD:
- E unsuccessful as he could only enforce the constitution in his capacity as a member (and not in his capacity as a solicitor)
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Legal Effect of Constitution VI:

• S. 39 does not reference any consequences for non-compliance.
• Accordingly, criminal liability and injunctions as required under SCA
provisions do not apply.
• By default, general contract law principles apply.
Result:
(a) non-compliance by company = member may be able to obtain a
declaration / injunction requiring the company to comply (no
damages available see Houldsworth v City of Glasgow Bank
(1880) 5 App Cas 317)
(b) non-compliance by a member = another member / company
may be able to obtain a declaration / injunction or damages
(c) Rights of third parties are generally not affected by non-
compliance (however, see s. 25(2) but if any officers caused the
breach then they may be liable to the company for the breach of their
duties to the company.
(d) Procedural irregularity: results in invalidation of the relevant
issue (e.g. holding a meeting without a quorum) only when the
courts consider the issue to have caused substantial injustice that
cannot be remedied by a court order and the court declares the
proceeding is invalid. Section 392
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Legal Effect of Constitution VII:

Differences with Other Contracts
Statutory contracts (contracts created by the
legislation)are different from other contracts:

a. remedies more limited

(declaration/injunction available generally,
but damages only when a member has not
complied with the constitution)
b. can be modified without consent of
every party
c. written contract but not signed
d. no consideration needed
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d. Shareholder
agreements
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Statutory Contracts and Shareholder

Agreements
SC is distinct from agreements between shareholders (SA):

1. Rights and obligations under SC intertwined with membership of the

company (cease being a member = cease being party to member) and rights
and obligations in SA are personal to the parties and can only be assigned
pursuant to contract law.

2. SC can only be amended provided procedures complied with (generally

requisite majority) whereas with SA, all parties must agree.

3. SC and SA may co-exist and have their own legal force and are equally
binding. In case of conflict: apply general contract law principles