Company Constitutions in Singapore: Importance & How To Draft

A constitution is a document that circumstantiates rules governing your company. The constitution will also explain the relationship between your company, its shareholders and all the directors, and any other individuals involved directly / indirectly to the company.

A company is required to prepare their constitution before company incorporation with Accounting and Corporate Regulatory Authority (ACRA).

Typically, a company secretary would prepare this document for submission.

According to the Singapore Companies Act, the constitution of a company is defined as:

1. The constitution that a company registers with the Registrar, or
2. In the case of companies existing before the 2014 Amendment to the Companies Act, the Memorandum and Articles of Association of the company in force immediately before the amendment date.

When drafting your company’s constitution, it should not conflict with the Singapore Companies (Amendment) Act 2017 or any other regulations in Singapore. The company constitution legally binds stakeholders of the company. Otherwise, the constitution can be designed and modified to suit a company’s operations. It can be drafted in a way whereby it gives you greater flexibility and certainty in your governance and allows you to have more control as your company grows or changes over time.

1. Business Objectives

Your business objectives are the results you hope to achieve as you run and grow your business.

2. Decision-making Structure

This is an important aspect if you have a desired structure to implement in your company. This will ensure your company complies with legal and compliance regulations, and avoid any potential conflicts among everyone involved in it.

3. Rules & Regulations

If you have any out of norm, specific sets of rules and regulations that are unique to your company, you should add them into your Constitution. However, this must be in line with legal and compliance regulations of Singapore.

4. Mandatory Sections

Name clause, registered office clause, liability clause, capital clause, subscriber clause and objects clause are some of the mandatory clauses.

Aside from the above, there are some other terms that you can include in your company constitution. They are:

The amendment procedure of a company constitution is dependent on the company’s objects. There are 2 key distinctions:

1. Amendments that do not alter the company objects – e.g. changing the language of the objects in the constitution, fixing errors, renumbering of clauses, etc.
2. Amendments that alter the company objects

For amendments that do not alter the company objects, you will need to pass a special resolution in an Extraordinary General Meeting (EGM). Once that is approved by the board and completed, the amended constitution will be effective from the date of the special resolution, unless otherwise stated.

Companies need to submit the copy of the special resolution and amended constitution within 14 days from the passing of resolution through BizFile+.

The company constitution serves as a contractual agreement between the company and its members, as well as among the members themselves.

Under Section 39(1) of the Companies Act (CA), each member has a personal right to take legal action to enforce a provision of the constitution or to prevent its violation.

If a breach of the constitution is established by the court, it has the power to order compliance with the constitution or to award compensation for the losses suffered by the affected parties.

It is important to note that Section 39(1) specifically applies to rights that pertain to a member in their capacity as a member of the company, rather than in their personal capacity.

For instance, a member can seek to enforce their right to vote at an Annual General Meeting if it is being wrongfully denied. This right is granted to them as a member of the company.

However, an action brought by a member that does not directly affect their role as a member is less likely to succeed.

For example, even if the constitution grants a company director a veto right, they may not succeed in obtaining a court order for compliance with that provision. This is because the right affects them in their capacity as a director, rather than as a member of the company.

Furthermore, in a private company limited by shares, each member is required to make a declaration to the Accounting and Corporate Regulatory Authority (ACRA) regarding their intention to acquire shares in the company and the number of shares they intend to acquire.

The company constitution must be signed by all members and kept at the company’s registered office.

Amending the Company Constitution: The process of amending the company constitution in Singapore differs depending on whether the amendment involves changes to the company’s objects.

Any amendment that modifies the language of the objects is considered an alteration to the company’s objects. For example, changing from “brewing beer” to “operating a café.”

The following changes are also considered modifications to the language of the objects:

However, renumbering the object’s clauses without altering the language of the objects itself is not considered a change to the company’s objects. Nevertheless, this type of change still constitutes an amendment to the constitution and must comply with the prescribed procedure.

The company constitution establishes contractual obligations between the company and its members, and among the members themselves. Members have the right to enforce provisions of the constitution, but such enforcement is limited to matters that affect them in their capacity as members. Amendments to the constitution require adherence to specific procedures, depending on whether changes are made to the company’s objects.

1. Avoiding incorrectly classed shares

Having a company constitution can avoid company to be set up with any absurd rules and incorrectly classed shares. This saves the cost of having any expensive legal fees if any conflict arises.

2. Maintaining the balance of power between stakeholders

A constitution may also work well to amend the balance of power between owners/shareholders and directors/management when there is a perceived or evident gap in control. Example, a shareholder can be empowered to give directions to overturn decisions of the company’s directors.

If you are unhappy, or you have a new director or shareholder coming into the company and requires a change of the company constitution, then it can only be altered by means of a special resolution.

This is usually not recommended, but if it needs to be done it has to be done. The alteration will be a part of the original constitution from the date of passing of the special resolution. The company has to submit a notice of the resolution or any court order that affects the constitution within a period of 14 days of such resolution of order to the ARCA. ACRA will then issue a notice and certificate of incorporation which stands as a confirmation of the alteration to the constitution.

3. In setting the tone of what a company does

A constitution defines the scope of the activities that a company carries out. It is the foundation for the company to start its business. Since it is one of the most important documents, the company must take great care while drafting it.

4. During applications of bank accounts, bank loans, grants, licensed etc.

The opposite party would investigate the company’s constitution to understand the relationship between stakeholders, the scope of activities and how these fit into their risk assessment. Having unusual circumstances might be flagged out and questioned during your applications.