Amendment Of Company Constituition

Written by Team Farallon

  • Farallon Law Corporation
  • May 28, 2019

What is a company constitution?

After the introduction of the Companies (Amendment) Act 2014, a company’s memorandum and articles of association (“M&AA”) merged into a single document known as the “Constitution”. Although the company does not need to take any action to “merge” their existing M&AA, most companies have since taken this opportunity to update and amend their M&AA to reflect this change. Therefore, a simple explanation of what is a company constitution, is that it is a legal document, typically drafted by a corporate law firm in Singapore that details the governing rules and procedures of the company. It also defines the relationships between the management of the company, its shareholders and the company itself.

Pursuant to section 19 of the Companies Act (the “Act”), anyone incorporating a company must also submit the constitution of the proposed company. Section 22(1) of the Act also provides that the constitution shall state the following:

  • the name of the company;
  • whether the liability of members is limited or unlimited and, in the case of a company limited by guarantee, the maximum amount that the members may be called upon individually to contribute in the event of a winding up;
  • the full names, addresses, and occupation of the subscribers to the constitution of the company; and
  • that such subscribers are desirous of forming the company in pursuance of the constitution and (where the company has a share capital) that the subscribers respectively agree to take the number of shares set out opposite their names.

Any company could opt to adopt the Model Constitution as provided in the Companies (Model Constitutions) Regulations 2015. However, given that clauses of the constitution should be precise and unambiguous so as to prevent potential disputes that could impede a company’s operation and that different companies could have very differing needs, it would be prudent to engage a lawyer to review the company’s constitution.

Common reasons to amend the company constitution

Typically, a company’s Constitution is typically amended to show:

  • (pursuant to section 75 of the Companies Act) the creation of preference shares or any new share classes;
  • a change in the quorum requirements for directors’ and members’ meetings;
  • a change in how company directors are appointed, retired, or removed;
  • any alteration of pre-emption rights; and
  • to harmonise the clauses of any Shareholders’ Agreement with the articles of the company’s constitution.

Amending the constitution for preference shares

Section 75 of the Companies Act states that no company shall allot any preference shares or convert any issued shares into preference shares unless there are set out in its constitution the rights of the holders of those shares with respect to:

  • repayment of capital;
  • participation in surplus assets and profits;
  • cumulative or non-cumulative dividends;
  • voting and priority of payment of capital and dividend in relation to other shares or other classes of preference shares.

Rights of preference shares in section 75

Section 75 is necessary so that an interested 3rd party or shareholder could accurately and easily determine what the rights attaching to the preference shares are.

Further, there is a presumption that the rights set out in the company’s constitution are exhaustive. Therefore, if a right is not included when the constitution is amended, that right will not be regarded to be attached to the issued preference shares.

How to amend the constitution?

A company can alter its constitution by means of a special resolution. In order to do so, the company has to first serve a notice to its members. The notice period for such a notice is at least 14 days for private companies (or longer, as set out in the Constitution) and 21 days for public companies. For the special resolution to be passed, it would require 75% of the shareholders’ approval.

Once the special resolution is passed, the company secretary would file the necessary documents with the regulatory authorities within 14 days of the passing of the resolution.

Interaction between the shareholders agreement and the constitution

Shareholders could possibly state in the shareholder’s agreement agreeing as to how they shall exercise their voting rights in relation to a resolution to alter the constitution.

In that regard, it is also possible for the shareholders’ agreement to prevail over the company’s constitution if shareholders agree in that agreement that, in the event, that the agreement and the constitution are inconsistent, the shareholders’ agreement would override the constitution. However, such a clause in the shareholder’s agreement must be carefully crafted as the prevailing assumption is that, in absence of a valid agreement, the constitution would always be the legal document that governs the operation of the company and the relationships that the company has with its shareholders.

 

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