Chapter 4 – The Constitution of a Company

Vocabulary flashcards summarising key statutory provisions, concepts and cases concerning the constitution of Malaysian companies, the doctrine of ultra vires, legal effects, and alteration rules under the Companies Act 2016.

Company Constitution

A single document (replacing the former Memorandum and Articles of Association) that sets out a company’s objects, powers, rights and internal rules under the Companies Act 2016 (CA 2016).

Section 21 CA 2016

Provision giving every company full capacity of a natural person to carry on or undertake any lawful business or activity.

MOA & AOA

Memorandum and Articles of Association—the two pre-2016 documents replaced by the single ‘constitution’ under CA 2016.

CLBG

Company Limited by Guarantee; must have a constitution and cannot have share capital or declare dividends (s 38 CA 2016).

Special Resolution

A resolution passed by at least 75 % of members’ votes; required to adopt or alter a constitution (s 32 & s 36 CA 2016).

Registrar ("R")

The Companies Commission of Malaysia (SSM) with whom a constitution or its alterations must be lodged within 30 days.

Section 31 CA 2016

Sets out that having a constitution is optional for most companies; rights and duties default to CA 2016 if none is adopted.

Section 32(3) CA 2016

States that the constitution is binding on the company, its members and directors.

Object Clause

The section in a constitution that expressly states the purposes (objects) for which the company exists (s 35(2)(a)).

Company Powers

Legal abilities of a company to act; may arise from CA 2016, expressly in the constitution, or be incidental to stated objects.

Doctrine of Ultra Vires

Common-law rule that acts outside a company’s objects are void and unenforceable.

Ashbury Railway Carriage v Riche

Leading case where a contract to build a railway was held ultra vires and void because it was outside the company’s objects.

Re Jon Beauforte (London) Ltd

Case holding that loans and contracts for an activity (veneered panels) outside stated objects were ultra vires and unenforceable.

Section 35(2)(a) CA 2016

Restricts a company from carrying on any business not within its stated objects, if objects are included in the constitution.

Constructive Notice (abolished)

Doctrine deeming outsiders to know a company’s public documents; abolished by s 39 CA 2016 for constitutions.

Section 39 CA 2016

Provides that no person is deemed to have notice of a company’s constitution, protecting third parties who contract with it.

Bell Houses v City Wall Properties

Case upholding a wide object clause allowing any business advantageous in directors’ opinion.

Arab-Malaysian Finance v Meridian

Malaysian case stressing that objects define the permissible activity perimeter; actions beyond are ultra vires.

Oppression Remedy (s 346 CA 2016)

Allows members or debenture holders to seek court orders—including cancellation of an ultra vires transaction—if company affairs are oppressive.

Winding-up Petition (s 465 CA 2016)

Members may petition the court to wind up a company if management is unfair, unjust, or it is just and equitable to do so.

Directors’ Duty – Section 213

Directors must act for proper purpose, in good faith and in the best interest of the company; breach (e.g., ultra vires acts) is an offence.

Statutory Contract

Legal concept that the constitution operates as a contract: company ↔ members, members ↔ members, company ↔ directors, members ↔ directors.

Hickman v Kent or Romney Marsh

Case confirming that members are bound by constitution clauses (e.g., arbitration) and can be compelled to follow them.

Pender v Lushington

Members may enforce constitution rights such as voting and having votes counted.

Wood v Odessa Waterworks

Case where members enforced their right to receive declared dividends under the constitution.

Eley v Positive Life Assurance

An outsider/member could not enforce a constitutional provision appointing him solicitor because it was not a membership right.

Rayfield v Hand

Held that directors were bound to buy shares per a constitution clause; created a contract between member and directors.

Raffles Hotel v Malayan Banking

Confirmed that outsiders (non-members) cannot enforce constitutional provisions conferring benefits on them.

Alteration of Constitution – Section 36

Company may alter its constitution by special resolution unless the constitution itself prohibits such change.

Alteration by Court – Section 37

Court may order alteration where it is impracticable to use standard procedures; order must be lodged with Registrar within 30 days.

Restriction: Additional Shares (s 194)

An alteration cannot require existing shareholders to acquire more shares or increase liability without their written consent.

Restriction: Internal Prohibition

Constitution cannot be altered contrary to its own express prohibition or without following any tougher procedure it prescribes.

Bona Fide Test

Alteration must be made bona fide for the benefit of the company as a whole; otherwise it may be set aside.

Allen v Gold Reefs of West Africa

Leading case establishing the bona fide for benefit of the company standard for constitutional changes.

Greenhalgh v Arderne Cinemas

Clarified that ‘company as a whole’ means members collectively; honest belief in benefit satisfies bona fide test.

Shuttleworth v Cox Bros

Alteration removing a director held valid because done bona fide for company benefit.

Dafen Tinplate v Llanelli Steel

Alteration empowering directors to force share sales was invalid—power too wide and not bona fide for company as a whole.

Brown v British Abrasive Wheel

Majority’s attempt to expropriate minority shares via alteration held invalid, not for company benefit.

Sidebottom v Kershaw, Leese

Alteration allowing expulsion of members competing with the company was valid and bona fide.

Carrier Australasia v Hunt

Company could not use constitutional alteration to avoid contractual obligations under a separate service agreement.

Section 14(2) CA 2016

A company cannot be formed for an unlawful purpose; alterations cannot render the constitution illegal.