Epica Guide Series
Everything you need to know about Singapore Company Constitution
This guide will help you develop an extensive understanding of the following topics:
Watch the video or read below
What is the Constitution of a Singapore Company? What is the purpose of this document?
Table of Contents
Introduction
A company constitution is a legal document adopted at the time of incorporation of a company. It governs the internal management of the company. It is an essential document required when registering a Singapore Company on BizFile.
Companies incorporated before 3 January 2016 required two different constitutional documents.
Collectively, they were called M&AA. However, the Companies Amendment Act of 2014 has removed the requirement of having M&AA by the companies. Instead, both these documents were merged into one as the Company Constitution. It has become mandatory for the companies registering after 3 January 2016. Companies using M & AA before enacting the Companies Amendment Act 2014 can keep using their Memorandum & Articles of Association as the Company Constitution.
If you are planning on a Singapore company registration, this guide will help you understand all the details of a Singapore company constitution and how to draft one.
What is the Singapore Company Constitution?
A Singapore Company Constitution is a mandatory document that outlines the rules to govern a company. All the companies are legally complied with to regulate their activities in consonance with their constitution. It is a vital document as it is the first document submitted to the Registrar, depending on which a company is registered.
Singapore Companies Act defines rules and laws that all Singapore-incorporated businesses must comply with. The legal definition of a Company Constitution as per Companies Act is:
A Company Constitution contains the essential company's details such as its name, members' liability, the company's type of business and activities, and its capital amount. It also defines its primary purpose, duties, rights, responsibilities of its directors, and how a company operates.
Key Contents of a Singapore Company Constitution
The Companies Act of Singapore has only specified some mandatory sections to be included in a Company Constitution. Therefore, it is the company's responsibility to include other vital sections that set out various rules regarding the company's internal management, including shareholders' rights, shareholders' conduct, rules of share transfer, directors' appointments, and meetings.
The mandatory sections of a Company Constitution as per Section 22 of the Companies Act are:
Name Clause
This section specifies the company's name that is approved by the Company Registrar. This name is used in all the official documents and all the business dealings of the company.
Liability Clause
This section specifies the liability of company members, whether they are limited or unlimited. This clause also specifies the positions of company members and their liability during the dissolution of the company.
These are the required details in a liability clause:
Registered Office Clause
This section specifies the location of the company's registered address. A company must keep statutory registered, minutes, etc., at its registered office address.
Capital Clause
The clause defines the company's share capital amount and its division into shares of a fixed value.
Subscriber Clause
This clause specifies:
Objects Clause
This clause states the company's business objective and business activities it wishes to carry out. A company must state main and ancillary objects in the Company Constitution.
Objects Clause is an optimal requirement in the Singapore Company Constitution.
A Company Constitution can also state certain restrictions on a company's powers, activities, capacity, privileges, and rights. For instance, a constitution may contain a restriction clause restricting the company from conducting risky or immoral business activities like dealing in ammunition, or pornogrpahy.
Rules for operating and internal management of the company
The mandatory clauses do not specify all the rules to run a business successfully. Therefore, a typical Company Constitution must also list several regulations for the company's operations and internal management.
These rules must state and govern the critical decisions a company must make every day. This part of the Constitution must act like a company's rule book. This part is frame by companies at their discretion. Companies themselves set rules and regulations that they deem best for operating their businesses.
Rules typically cover the following areas:
Shares
Meetings
Directors
Secretary
Common Seal
Financial Statements
Profits and Reserves Capitalization
Dividends
Reserves
Winding up instructions
Notices
Indemnity
Ideally, companies cover the following rules in their constitution. A company can add or remove any clause (except a mandatory clause) they want, depending on their requirements. However, these rules must comply with the legal and Singapore Companies Act regulations.
Things to consider before drafting your Company Constitution
A constitution is one of the most integral parts of running your business and managing its internal affairs. You must consider the following things before drafting your Company Constitution.
Business Objectives
The goals you have set for your business and yourself are the business objectives. These goals may include your future plans regarding scaling the business and what you seek to achieve in the upcoming years. This comes in line with the Company Constitution's Object Clause.
Structure for decision-making
This step is essential if you have already thought of a specific structure you wish to implement in your company. For instance, you want a particular procedure in your company to elect or remove directors or a specific method for holding general meetings. You must check if the procedures you have in mind comply with regulations of the Companies Act. It will help you avoid any potential conflict among members in the future.
The unique set of rules
Similarly, you can add any other unique rules that you wish to add. For instance, you want a specific rule in your company regarding the future issuance of a share. The rule states that the shares will be available to your existing shareholders first before becoming available in the public and private markets. You must mention this rule in your constitution to save yourself from making amendments later.
Drafting a Singapore Company Constitution / Use ACRA provided Model Constitution
Before applying for Singapore company registration, a company must draft its constitution. There are two options available for a company while drafting a Company Constitution:
Whether you decide to create a new Singapore Company Constitution or choose to adopt the model constitution, there are several benefits to both. You must learn these benefits before you decide to choose one option.
Benefits of creating a new constitution
Creating a new constitution for your company may be a difficult job. However, it has several benefits to offer you.
Benefits of adopting the model constitution
Adopting the model constitution also has several benefits.
Private companies limited by shares have a model constitution in the First Schedule of the Regulations.
For private companies limited by guarantee, the model constitution is available in the Second Schedule of the Regulations. You can also download the following constitutions from the website of ACRA (Accounting & Corporate Regulatory Authority) in PDF.
In general 99% of the private limited companies adopt the model constitutions and will not write their own. If needed they may use the model constitution and make changes where appropriate.
The constitution is the backbone of any company. If you fail to include any provision in your Company Constitution, it may lead to difficulties and ambiguities in your business's later stage.
Therefore, it is best to use experts' assistance and advice while drafting a Company Constitution. Epica has the relevant experience and expertise to help you draft a Company Constitution that complies with your main business objective and Singapore Companies Act.
Registering your Company Constitution
Section 19 of the Companies Act requires all the companies who intend for Singapore company registration to submit their constitution to the Singapore Company Registrar, i.e., ACRA.
If you choose to adopt a model constitution, you do not need to submit it for registration during the incorporation procedure. You need to indicate which model type you adopted (a company limited by shares or a company limited by guarantee) when you apply for registration.
Adopting the Company Constitution
The constitution is instantly adopted at the time of company formation. A declaration must be made to the Registrar by a person named either a secretary or a director in the proposed company's constitution that the subscribers' identity and the officers of the proposed company are verified by him/her.
The proposed company's constitution can be rejected by the Registrar if:
A company must keep its constitution at the registered office. All the constitution's subscribers must duly sign it and mention how many shares they have agreed to hold.
A Company Constitution must always be open for inspection at the company's registered office. A copy can be sent to the member if he/she requests it. The member must pay a fee of S$5 or less as fixed directors of the company.
These are provisions of the Singapore Company Law, and every company must comply with them. Any violation will deem the company guilty of an offense and will result in a fine.
Effects of Adopting the Constitution
After being adopted, a company constitution creates a contract between a company and its members, as well as among these members.
As a result, the company is bound to the members, the members are bound to the company, and the members are bound among themselves as well. Neither the company nor the members can perform an act that defies any rule stated in the constitution or is not in compliance with the constitution.
Binding company to the members
The company is required to comply with its constitution, and it is bound to its members. If the company breaches the constitution, its members can bring an injunction against it.
Section 39(1) of the Companies Act gives specific personal rights to every company member. They have the power to restrain the breach of the constitution or bring an action that will enforce its regulation.
For instance, a company's constitution states that the director will declare the dividends paid to its members after the shareholders' approval at a general meeting. Suppose the company decides to give debenture bonds as dividends instead of cash after getting it approved with a resolution. However, the Company Constitution mentions that the dividend must be paid in cash to all the shareholders.
In this instance, a company member can initiate court proceedings to restrain a director from acting according to the new resolution. The court will only favor the declaration of dividends based on the constitution. This will restrain the company director from acting on the new resolution and force him to comply with the Company Constitution. Hence, the company must pay the dividend in cash.
Binding members to the company
All members must ensure that they are in compliance with all the provisions of the Company Constitution.
A member cannot participate in an activity or enter into a contract that does not comply with the company's constitution.
Binding member to each other
The Company Constitution automatically enforces a contract between the company's members. A contract among members can be enforced through the company as per the constitution.
For instance, a member who wants to transfer his/her shares must inform the company directors.
In one case, a company member decided to transfer his shares. The directors had to take the member's shares at a fair price. The member informed the directors that the constitution does not bound them to pay for his shares. However, the court objected to it and declared that the directors had to take his shares at fair value as they are the company members.
It is important to note that a company constitution does not have a binding contract between the company and outsiders.
Meaning of being compliant with the Company Constitution
The rights given by Section 39(1) of the Singapore Companies Act are only the ones that affect a person as a member of the company and not in any other way.
For instance, a member can enforce his right to vote at an AGM (Annual General Meeting) even if other shareholders deny it. The Company Constitution gives him this voting right as a member of the company.
On the other hand, a right given to someone for any different directorial or managerial position does not come into the domain of Section 39(1).
For example, a director, granted veto right by the constitution, may not succeed in enforcing this right. The court may not order the company to comply with this provision of the constitution because it affects the director's capacity as the company's director and not the company's member.
Company Constitution Amendment Procedure
There are two different procedures for the amendment of a Company Constitution.
If there are changes to the company objects' language, it is considered an alteration of the company's objects. For instance, you change from "manufacturing auto parts" to "brewing beer."
These two are also regarded as the changes in the language of the company objects.
If the Object clauses are renumbered without making any language changes, it will be considered only as an amendment and not as a change in the objects' language.
These are the specific procedures required for amendment in a Company Constitution with or without making a change in the language.
Amendment Procedure without altering objects of the company
For amendment that does not involve any alteration to company objects, the procedure mentioned in Section 26 of the Singapore Companies Act must be followed. An Extraordinary General Meeting (EGM) must be held, and a resolution must be passed.
The company must issue a notice of the EGM before 14 days for private companies and 21 days for public companies. More than 75% of company members must support the special resolution.
The notice issued for the EGM must contain:
The amendment becomes a part of the company constitution effective from the date specified in the resolution.
The company must also submit copies of both the special resolution and the amended constitution to ACRA via BizFile+ within 14 days after passing the resolution. A registration notice of the resolution is issued by ACRA then.
You can also apply for an incorporation certificate to the Registrar. A new certificate of incorporation also acts as a confirmation to the constitution amendment.
Amendment Procedure for altering company objects
Section 33 of the Companies Act mentions the process of altering the company objects in a constitution.
Similar to the procedure mentioned in Section 26, a special resolution must be passed in an EGM. However, there are some differences:
The special resolution of this EGM must not alter any other clauses of the constitution. If the company members feel the need to make amendments to any other clause of the company constitution, they must do it in a different special resolution.
The special resolution that amends the company objects cannot be lodged with ACRA for 21 days after its implementation. Once the 21 days period is over, the company must submit it to ACRA within the next 14 days.
Buying a Company Constitution from ACRA
Singapore offers an open environment for data sharing. The registration system with ACRA means transparency for all Singapore businesses.
You can visit the BizFile+ or use ACRA mobile app to view any company's basic registration details for free. ACRA also provides direct access to all companies' information with its API (Application Programming Interface).
Any company can purchase in-depth information of other companies from ACRA for market research, partnerships, or decision-making purposes. ACRA provides PDF copy extracts of forms filed with ACRA by Singapore companies, such as financial statements, Company Constitution, annual returns, and incorporation certificate. These forms are available with or without attachments.
Conclusion
The Company Constitution is the foundation of the company on which a company's daily activities are based. Being such a significant document, a company must draft it carefully, keeping all the provisions in mind that might affect its management or operations in the future.In this guide, all the essential points are covered regarding a Singapore Company Constitution. You can adopt the Singapore model constitution, or you can draft a new one for your business.
However, it is advisable to hire professionals to help you draft your Company Constitution, so you will not miss any necessary provision. You can contact us, and our team of experts would love to help you draft your Company Constitution.