A company constitution is a contract which summarises the company’s relationships with its directors, corporate secretary, as well as all its members. It includes the duties that control a company. These include the appointment or removal of the company’s directors, the transfer of shares (Also see What is Share Certificate?), allotment of shares, dividend payment, the company’s role and responsibilities, its power and so on.
Business owners are suggested to adopt a constitution for the company as it fixes a set of internal regulation which has been carefully assessed. Thus, the directors and the shareholders will have peace of mind as the constitution plays a role in controlling the management of the company. The constitution gives the directors and shareholders a greater certainty and flexibility when they deal with the authorities. It also eases the dealings between the company and the banks, as well as making licensing issues easier. Besides, the company can amend the constitution based on the requests of the members. As a business owner, if you need help on such issues, feel free to contact a corporate secretarial firm in Johor Bahru.
The company should review the constitution regularly to make sure that the document shows the current activities, operations and objectives of the company. Moreover, the company should also make sure that its processes always meet its requirements. This could bring an increase in the certainty and flexibility in the company’s governance and makes sure that the company is in better control as it changes or develops as time passes.
As companies are under the governance of the Companies Act 2016 and the internal rules that the constitution has listed, undoubtedly, the company constitution may be one of the subjects of legal challenges. If the constitution does not suit the company well, it can be one of the risks (Also see Ways to Alleviate Business Tax Risks) for the company.
Before this, all companies need to have an M&A (Memorandum and Articles of Association) under the Companies Act 1965. Now, the M&A is known as the constitution under the Companies Act 2016, and business owners may choose whether they want to have a constitution for their companies.
As the company constitution is an important document that sets out the company’s procedures and processes, if it did not include any provision in the constitution, it might face some difficulties. The company (Also see How to Differentiate Net Income and Cash Flow of a Company?) should draft the constitution and makes it to be in compliance with the company’s main objective and the Companies Act. By doing so, the company will have the right people for decision making and conveying some crucial issues.