The Company Constitution is a legal document between the company and its shareholders. It sets out the powers of the company during incorporation, as well as the rules and manners as to how business will carry out after incorporation.
The document states:
- the company name,
- the type of business it will conduct,
- the company’s total capital amount, and
- the overall liability of the company.
The document also outlines the key purpose of the business, the rights and responsibilities of the directors, and how the company should operate.
History of Company Constitution
Previously, companies only had to comply with the Singapore Companies Act. This changed in 2015 when the Companies Act was updated. Now, the document is mandatory for any companies incorporated after 3 January 2016. All new company incorporation in Singapore must comply with the Company Constitution.
Before the amendment of the Companies Act, the same function was served by 2 documents: Memorandum of Association and Articles of Association. The Company Constitution combines the content of the said 2 documents into a single document.
Complying to the Company Constitution
All businesses must submit the Company Constitution when incorporating the company. They must also follow all the terms stated in the document.
Business owners have the option to create their own constitution. Alternatively, they can adopt the Model Constitution provided by ACRA. This will not only simplify the company’s administrative work but also lower the cost of establishing a company.
What to Consider when Preparing a Company Constitution?
The Company Constitution is essential in offering direction and discipline. Therefore, there are a few factors that business owners must keep in mind when drafting a constitution:
- Mention attainable business objectives and goals for the company – This will fall under the Company Constitution’s Objects Clause.
- Lay out a decision-making structure – This can help avoid conflict among members in the future. Having a structure is important if you want to implement the desired structure such as procedures for the directors’ election. It will also enforce all members to abide by compliance and legal regulations.
- Set specific rules and regulations – These are unique clauses for your company. However, it is critical that these clauses are in line with the compliance and legal regulations.
- Include mandatory sections – According to the Companies Act Section 22, there are some mandatory sections to be included in the Company Constitution. These sections include the Name Clause, the Subscriber Clause, and the Liability Clause.
What is included in a Company Constitution?
The Company Constitution must contain the following sections:
- Name Clause: The company’s name
- Liability Clause: A statement of liability must be included stating that members have limited liability if the company is limited by shares
- Subscriber Clause: The full names, occupations, and addresses of all the members
- A statement expressing that the mentioned members want to form a company (with a share capital) on the terms stated in the constitution and agreement to subscribe for the determined number of shares.
- The total number of members at the time of registration.
- For companies limited by guarantee, the Company Constitution must include a statement that its members are expected to contribute a certain amount if the company is getting dissolved.
- For unlimited companies, a statement mentioning that the members have unlimited liability.
While the aforementioned conditions are mandatory for a Company Constitution, some other terms may be included. They are:
- Organization and conduct of both board meetings and shareholder meetings
- Appointment and removal of company directors
- The powers and duties of directors
- Issue, transfer, and allotment of shares. I.e. Include a clause to restrict the right to transfer shares or limit members to a maximum of 50 for private companies.
- Distribution and capitalization of the company’s profits
- Distribution of any surplus assets in case the company is dissolved