THE COMPANY

CONSTITUTION
THE COMPANY CONSTITUTION

THE MEMORANDUM OF ASSOCIATION (MoA) &

THE ARTICLE OF ASSOCIATION (AoA)
◼ Function & Requirement for a Constitution
◼ Content
◼ Alteration
◼ Object Clause & Doctrine of Ultra Vires
◼ Binding Effect of Constitution
FUNCTION,
REQUIREMENT OF CONSTITUTION
& CONTENT
(i) FUNCTION & REQUIREMENT FOR A CONSTITUTION

The MoA & AoA of a co is

replaced as ‘CONSTITUTION’ of
a co.

It is a document by which the

original incorporators signal
their intention to form a co.

It sets out the constitution

(structure) and aims of the co.
(i) FUNCTION & REQUIREMENT FOR A CONSTITUTION

optional compulsory
(i) FUNCTION & REQUIREMENT FOR A CONSTITUTION
-The MoA & AoA of a co is replaced as ‘CONSTITUTION’ of a
co.

-Constitution (MoA & AoA) is optional. A co may adopt

constitution after incorporation.

-S31(1) a co, other than a co limited by guarantee, may or

may not have a constitution.

-A co. limited by guarantee is required, upon formation, to

adopt and lodge with the ROC a MOA.

-It is a document by which the original incorporators signal

their intention to form a co.
-In short, it sets out the constitution (structure) and aims of
the co.
(i) FUNCTION & REQUIREMENTS FOR A CONSTITUTION

-- s38 (2) requirement to be lodged for company limited by

guarantee only.

- For a co. limited by shares/ a unlimited co, the co, each

director and each member of the co shall have the rights,
powers, duties and obligations as set out in the Act s31(3).

- If no constitution, the rights, powers, duties & obligations

as set out in this Act.

- s619 provides for transition of co which were registered

prior to the CA 2016. The MoA & AoA shall have effect as if
made / adopted under the CA 2016.
(i) FUNCTION & REQUIREMENT FOR A CONSTITUTION

-Requirement for a Constitution under certain

circumstances:

1. a co with different classes of shares. S90(1)

The co must displays ‘prominently’ the co’s share
capital is divided into different classes & the voting
rights attached to shares
2. a private co. s42(2)
Restriction to transfer shares under s42(2) & co can
only do so in its constitution. S106(1)(a).
3. a co having a common seal. S66(1)(a)
The manner of affixing the seal will be prescribed in
the constitution.
(ii) CONTENT
The MOA must contain these information :
General provisions Co limited by guarantee
(Co limited by shares/
unlimited)
The type of co - S.38 (1)(a) limited by
guarantee
The objects of the co S.35 (1)(a) S.38 (1)(b)

The capacity, rights, powers/ S.35 (1)(b) S.38 (1)(c)

privileges of the co

The number of members - S.38 (1)(d)

proposed to be incorporated

Matters contemplated by the S.35 (1)(c) S.38 (1)(e)

CA2016 to be included

Other matters the co wishes S.35 (1)(d) S.38 (1)(f)

to include
ALTERATION
(iv) ALTERATION OF THE CONSTITUTION

-There are 2 methods to alter the constitution:

- by the co
- by the court

- Procedure laid down in sections 36 & 37

(iv) ALTERATION OF THE CONSTITUTION

-BY THE COMPANY

-s36 a co may alter its constitution by passing a special

resolution.

- Restriction on alteration
- s36 All clauses may be altered unless the constitution
itself prohibits its alteration.

- s37(1) constitution may impose a restrictive procedure

on its alteration that requires the approval of the board
of directors/ founder in cases of alteration by court’s
order.
- the common law cases is still applicable.
(iv) ALTERATION OF THE CONSTITUTION

-BY THE COURT

-s37 a director/ a member may apply to court for an order to

alter the constitution.

- s37(1) court may grant order on such terms & conditions as it

thinks fit if :
it satisfied that it is not practicable to alter / amend
the constitution of the co using the procedure set out
in the CA2016/ the constitution itself
(iv) ALTERATION OF THE CONSTITUTION

-LODGEMENT WITH THE ROC

-By the Co
-s36(3) requires the co to notify the ROC of the
alteration & lodge the altered constitution within 30
days of the special resolution being passed.

- s36(2) the alteration will take effect on the day of

resolution is passed/ at a later date mentioned in the
constitution.

-By the Court

s37(2) requires the co to lodge an office copy of the
court order & the altered constitution with the ROC
within 30 days from the date of the order.
(iv) ALTERATION OF THE CONSTITUTION

- S.37(1): The constitution may only be altered in the manner

and to the extent provided by the Act. It cannot be altered
otherwise.
-The Act provides for the following alterations:

S28 The name of the company may only be altered as

provided by the section

S40 To convert from an unlimited company to a limited

company

S 115 To reduce the share capital

 Alteration of objects clause
(aims of company)
OLD REGIME CA1965
◼ S31: Subject to the Act and the co.’s MOA, a co. may by
special resolution alter or add to its articles.
◼ S.28(1) allows a co. to alter its objects clause by passing a
special resolution.

NEW REGIME CA2016

◼ The CA does not provide any special procedure on the
alteration of the co’s object clause.
◼ The alteration may apply similar procedure like any clause
in the constitution, by passing a special resolution.
◼ S36 a co may alter its constitution by passing a special
resolution. S36 & S292 are applicable
Restriction 1: Must not bind the shareholder
to acquire additional shares
◼ S 194 – unless agreed in writing by shareholder –
shareholder is not bound by an alteration of the
constitution that: ◦ Require the shareholder to acquire or
hold additional shares; ◦ Increase the liability of the
shareholder.
◼ Eg – constitution altered to require every member to hold
at least 5000 shares. Ali only hold 3000 shares. Ali
cannot be forced to subscribe 2000 shares more. Such
alteration is not effective against Ali, an existing member.
Unless he agrees in writing.
Restriction 2 : must not contrary to the
provision in the constitution itself
◼ S 36 – if the constitution prohibits the
alteration of certain provision, it cannot be
altered.
◼ S 37 – if the constitution impose additional
restrictive procedure to alter its provision, that
procedure must be complied with.
◼ E.g. require a higher majority or require
consent or approval of particular persons etc.
Restriction 3 : Must be bona fide

◼ Alteration must be bona fide for the benefit of

the co as a whole.
◼ Allen v Gold Reefs of West Africa Ltd.
◼ Greenhalgh v Arderne Cinemas Ltd.
◼ Shuttleworth v Cox, Bros & co Ltd.
◼ Dafen Tinplate Co ltd v Llanely Steel Co.
◼ Brown v British Abrasive Wheel Co
◼ Sidebottom v Kershaw, Leese & co
 Greenhalgh v Arderne Cinemas Ltd.
◼ Evershed MR said:
◼ “I think it is now plain that ‘bona fide for the benefit of the
company as a whole’ means…
◼ that the shareholder must proceed upon what, in his
honest opinion, is for the benefit of the company as a
whole…
◼ the phrase “ the co as a whole” does not mean, the
company as a commercial entity, distinct from the
corporation; it means the corporator as a general body…
◼ a special resolution would be liable to be impeached (argue)
if the effect of it were to discriminate between the majority
shareholders and the minority shareholders, so as to give
the former an advantage of which the latter were deprived”
Brown v British Abrasive Wheel Co

◼ The AOA altered – to permit a majority of

shareholders to expropriate (take/steal) the
share of a minority shareholder.
◼ Held: the alteration was invalid. Because it
was not for the benefit of the company as a
whole. The majority shareholders may abuse
their power or committed a fraud on a
minority.
OBJECT CLAUSE &
DOCTRINE OF ULTRA VIRES
(iii) OBJECTS CLAUSE

Function: to identify the activities in which the co. may

engage.

It is unusual for a constitution/memorandum to simply

contain/state one object. It is more common for the
objects clause to include a wide range of activities whether
or not the co. actually intends to engage in all of them.

The usual provisions in an objects clause can be divided into

2 categories:
1. Main or independent objects;
2. Dependent objects; and
1. Main / independent objects

The main or independent objects are those activities in

which a co. is specifically authorized to engage.

Interpreting the extent of the main object is important

in determining whether the co. is acting beyond its
powers or ultra vires.

Interpreting the extent of the main objects is also

significant for the purpose of ascertaining whether the
co. should be wound up under just and equitable
ground [s 465 (1)(h)].
2. Dependent object

The dependent objects are unspecified additional

activities in which a co. is authorized to engage in
association with one of its main or independent
objects.

Bell House Ltd v City Wall Properties Ltd [1966] 2 QB

656

Both companies carried on business as property

developers. The plaintiff co. had agreed to introduce
the defendants to a financier who could provide a
bridging loan amounting to 1 million pounds, in return
for which the defendants promised to pay a fee of
20,000 pounds.
When sued for the fee, the defendants pleaded that a
mortgage-broking transaction such as this is ultra vires the
plaintiffs. The MOA did not cover it in express terms, but
the plaintiffs relied on clause 3(c), which stated;

“To carry on any other trade or business whatsoever which

can, in the opinion of the BOD, be advantageously carried
on by the co. in connection with or as ancillary to…the
general business of the co.”

Held: …that the business was within the plaintiff co.’s

object and powers.
£20,000
UK MSIA MSIA
CA1965 CA2016
Common law
S20 if the transaction Has a Constitution No Constitution
is not yet complete S35(2) restricted S21(1) a co shall have
if not within object the capacity
to carry on /
oppression s346(2) undertake any business

wind up the co s465(1)

DOCTRINE OF ULTRA VIRES

-Companies are regarded as being capable of engaging

only in those activities set out in the object clause.

-Under the common law, any act by the co., which is not
specified in its objects or incidental to their attainment
was regarded as VOID i.e. not having legal validity.

-In the past, the ultra vires doctrine was strictly applied.
This approach was seen as important because it affords
protection to shareholders and creditors by assuring
them that money invested by them (fund of the co.) will
be applied only to/for the stated objects.
Case: Ashbury Railway carriage & Iron v Riche(1875) LR 7

The object of the co. was to make and sell railways carriage and to
carry on business of mechanical engineers and general contractors.

The directors entered into a contract for the purchase of a

concession to construct railways. The action of the BOD was ratified
by the shareholders.

However, the co. did not proceed with the contract. The seller of the
concession brought an action against the co. for breach of contract.

Held: The co. was not liable for breach of contract because the
construction of the railways was not within the objects of the co. as
stated in the MOA. Even unanimous approval of the shareholders
cannot extend the business of the co.
The ultra vires doctrine was applied very broadly. In the case of
Re Jon Beanforte (London) Ltd (1953):

A co. was incorporated to carry on the business of tailoring.

It then decided to manufacture veneered panels, an activity
outside its objects.

The co. ordered coke using the co.’s letterhead. The co.’s
letterhead stated that the co. was a manufacturer of veneered
panels.

The supplier of the coke then sought to enforce the payments for
the coke supplied. He failed because the contract was ultra
vires.

The supplier had constructive notice that the co. was acting
outside the co.’s objects. The co. did not have the power to
manufacture veneered panels.
Case: Re Introduction (1970)

The co. was started for offering services to tourists

attending Festival of Britain in 1951. In 1960, it started
pig breeding. The co. borrowed money from a bank for its
pig breeding business. There was a specific clause
empowering the co. to borrow money.

Held: the borrowing was ultra vires. Even though the co.
had power to borrow money, it was not an independent
object and the power had to be used for the main
purpose of the co. i.e. tourism.
 DOCTRINE OF ULTRA VIRES IN MALAYSIA

◼ Thus, in Malaysia, the doctrine of ultra vires had been

modified by s 21(1).
◼ S21(1) a co shall have the capacity to carry on /
undertake any business / activity.
◼ S21(2) a co shall have the full rights, powers & privileges
for those purposes.
◼ S16(2) provides a co carries on a lawful business & one
that is not prejudicial to the public order, morality /
security of M’sia.
◼ S35(2) if the constitution states the objects of the co than
the co shall be restricted from carrying on any business/
activity that is not within those objects.
 DOCTRINE OF ULTRA VIRES IN MALAYSIA
◼ Rights of members & holder of debenture
❑ Application on the grounds that a member/ debenture holder is
oppressed s346(2) /
❑ Petition to wind up the co s465(1)(f) &(h)

◼ Rights of 3rd party / outsiders

❑ A 3rd party can assume that the co he is dealing with has full
capacity to carry on / undertake the business. An assumption based
on s21(1) that the co has full capacity to carry on business.

❑ S39 doctrine of constructive notice does not apply to the contents

of constitution/ any document relating to the co which has been
registered by the ROC/ available for inspection.
BINDING EFFECTS OF THE
CONSTITUTION
BINDING EFFECTS OF THE
CONSTITUTION
◼ S32(3) – subject to this Act, the
CONSTITUTION…shall be BINDING on the
company, its DIRECTORS and its MEMBERS.
◼ S33(1) & s38(6) – the constitution …bind the
company and the members to the same extent
as if the constitution has been signed and
sealed by each member and contained covenant
on the part of each member to observe all the
provisions of the constitution.
◼ Statutory contracts: Constitution
◼ (A) CONTRACT BETWEEN CO. AND MEMBERS/ DIRECTORS
◼

◼
between the co and its directors

between members and the co’s directors


◼ (B) CONTRACT BETWEEN MEMBERS
◼ between the co and the members
◼ between the members inter se

◼ (C) RELATIONSHIP BETWEEN THE CO. AND OUTSIDERS


◼ between the co and outsiders.
◼ (A) CONTRACT BETWEEN CO. AND MEMBERS/
DIRECTORS
◼ between the co and its directors
◼ between members and the co’s directors
• The co. can take action against its members to force
them to comply with the provisions in the MOA and
AOA.
• Conversely, a member is able to require the co. to
comply with the provisions of its MOA and AOA.
• However, members can enforce only those provisions
which confer rights on members in their capacity as
members. eg: payment of a declared dividend.
Constitution is a contract between
company and its directors
◼ S32(3) •
◼ Beattie v E & F Beattie Ltd.
◼ Salmon v Quin & Axtens Ltd
◼ Under the CA 2016 –The director can enforce
the provision in the constitution against the
company.
Salmon v Quinn & Axtens Ltd
A company’s AOA provided that certain types of contracts
could be entered into by the co. only if both Salmon and
Axtens agree to it.

Salmon did not agree to purchase certain properties by the

co. To get over this, Axtens convened a general meeting of
the co. and approved the purchase by passing a resolution
(this was possible because Axten was the majority
shareholder).

Salmon sued for restraining the company from acting on the

resolution.
Held: The resolution was invalid because it was against the
AOA.
Constitution is a contract between members
and co’s director
◼ s32(3)
◼ Rayfield v Hand
◼ AOA – “a member who wished to transfer shares had to
inform the directors, who were to take the shares equally
between them at a fair value”.
◼ R wanted to transfer his shares. D director (who were
also members) refused. R vs the D
Rayfield v Hands [1960]
◼ The AOA required every director to be a shareholder and provided
that if a member intended to transfer his shares, he should inform
the directors, who would then take the said shares equally between
them at fair value.
◼ However, the DIRECTORS REFUSED TO PURCHASE THE
PLAINTIFF’S SHARES.
◼ It was held that there WAS A CONTRACT constituted by the AOA
between the plaintiff and the defendants, as they were all members
and therefore they have to purchase the shares.
◼ A members’ rights and liabilities under the articles is a matter of
contractual obligations and the court will not look at whether it is fair
to enforce it.
◼ (B) CONTRACT BETWEEN MEMBERS
◼ between the co and the members
◼ between the members inter se
• The contract constituted by the MOA and AOA is a
contract between a member and every other member.
• Meaning, if one member does not observe any of the
provision, another member has the right to force the
other to comply with the provision.
• A member may enforce his rights to have the provisions
of the MOA and AOA observed by injunction.
• This action may be brought directly against the member
and the company does not have to be joined as a party.
Constitution is a contract between the
co and its members.
◼ Hickman v Kent or Ramney Marsh Sheep-
Breeders’ Association.
◼ Pender v Lushington
◼ Wood v Odessa Macdaugall v Gardiner
◼ -this contract between co & members in his
capacity as a member.
◼ Eley v Positive Government Life Assurance
co.
Hickman v Kent or Romney Marsh
Sheepbreeders Assoc [1915]
Hickman was a member of the incorporation.
Unsatisfied with various irregularities in the affairs of
the assoc., he began a court action.

However, Art.49 of the AOA provided that any

DISPUTES between the co. and its members should be
referred to ARBITRATION. So, the co. sought to stop
Hickman’s court proceeding and succeeded.

Art.49 was binding on Hickman and he was therefore

OBLIGED TO REFER HIS DISPUTES TO ARBITRATION.
Member v Co for Beach of AoA

◼ Pender v Lushington
◼ Held: members have the right to enforce provision in
articles entitling them to have their vote counted at a
general meeting. The rights to vote and to have the vote
counted are the rights given to members in their capacity
as members.
◼ Wood Odessa
◼ Held: members have the right to enforce payment of a
declared dividend. The right to be paid dividends
declared is the right given to members in their capacity
as members.
Constitution is a contract between a member
and every other members.

◼ S33(1)
◼ •Wong Kim fatt V Leong & Co Sdn. Bhd.
◼ •Re Caratti Holding Co Pty.
Wong Kim Fatt v Leong & Co
Sdn Bhd (1974) 250,000/
300,000
<50,000
A co.’s AOA provided that if holders of 7/10 of issued capital
requested for the co. to transfer to them any particular
shares held by others, then the co. is bound to abide by the
request.
ONE SHAREHOLDER HELD 250,000 SHARES OUT OF TOTAL
300,000 SHARES. He asked the company to transfer Wong’s
share
i.e. he served a requisite to buy out Wong’s shares. Wong
objected to this and went to court to obtain an order,
restraining the co. from transferring his shares.
Held: Wong HAS TO SELL THE SHARES because the AOA is a
contract between the members and therefore, this is a
matter of contractual obligations and the plaintiff has to do
the obligations that he had undertaken.
◼ (C) RELATIONSHIP BETWEEN THE CO.
AND OUTSIDERS
◼ between the co and outsiders.
• The MOA and AOA is a contract enforceable
only among members of the company.
• Thus, outsiders i.e. non-members will not
receive any rights contained in the MOA or AOA
Constitution is not a contract between
the co and outsiders
◼ Raffles Hotel Ltd v Malayan Banking
Berhad
◼ A lease contract.
◼ MBB – lessor
◼ RH – lessee(company)
Raffles Hotel Ltd v Malayan Banking
Bhd (1966)
MBB was the lessor of the land on which Raffles Hotel
was built. It was provided in the hotel’s co.’s AOA
that the lessor has the right to appoint a director.
MBB appointed itself as director.

Held: the APPOINTMENT WAS INVALID as MBB was

not a member and therefore AOA could not
constitute a contract between a co. and an outsider
and therefore it did not confer on MBB any
enforceable rights even if it is provided in the AOA.
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