An Easy Guide to the Company Constitution

Company ConstitutionSummary: A binding document governing corporate operations, defining roles, rights, and responsibilities of directors and shareholders.

A company constitution is a contract between a corporation and its shareholders, acting as a guideline for business operations and decisions. Some key details within the contract are the company’s name, business nature, initial capital pool, and overall liability range. But it goes beyond just these facts. The Constitution genuinely captures the heart of the business, defining the core purpose and outlining the rights, duties, and operations of the company directors.

 

Looking Back: The Evolution of Company Constitution

Companies in Singapore once lived by the rule of the Singapore Companies Act alone. But change rolled in with a crucial amendment to this Act in 2015. Since then, for any company incorporated after January 3, 2016, having a Company Constitution has become non-negotiable. This unified document, now an essential feature of setting up a company in Singapore, brings together what the Memorandum of Association and Articles of Association earlier offered as separate resources.

 

The Rule of Law: Standing by the Company Constitution

The golden rule when starting a company – you must present your Constitution, and once it’s all set, you’ve got to stick by it. Owners can engineer their unique constitution, or if they prefer, they can lean on the Model Constitution made available by the Accounting and Corporate Regulatory Authority (ACRA). This route often streamlines paperwork and can trim down some costs.

 

Key Points to Remember: The Dos and Don’ts of Writing a Company Constitution

Writing a good Constitution means being mindful of important components:

  • Enshrine your business targets – Make sure they are well-grounded and sit comfortably in the Constitution’s Objects Clause.
  • Blueprint your decision-making chain – An early game plan will help keep future disputes to a bare minimum between members.
  • Design bespoke rules and laws – Creativity is good, but make sure it helps you stay within legal and compliance boundaries.
  • Don’t forget the obligatory sections – As per Companies Act Section 22, the Name Clause, the Subscriber Clause, and the Liability Clause must be included.

 

What Goes Into a Company Constitution?

While the broad strokes paint your company’s vision, the fine details tell your unique story:

  • Name Clause: Lays out your company’s official title.
  • Liability Clause: Spells out the shareholders’ limited liability only if the company is limited by shares.
  • Subscriber Clause: Gives a snapshot of all your team players — their full names, jobs, and locations.

The Constitution also houses mutual agreement terms where the listed shareholders display their intent to shape a company as the Constitution dictates and commit to subscribing for a set amount of shares. Also, the total number of shareholders at the registration time is stated.

If you’re a limited guarantee company, don’t forget to include a section indicating a members’ commitment to chip in a predefined sum if the company is headed towards dissolution. For unlimited liability companies, a clause that acknowledges the infinite liability of the members should be included.

 

Additional Elements You Can Include

.Additional details might include:

  • The anatomy and functionality of board and shareholders meetings
  • Clear role definition and duties for directors
  • Rules around appointment and dismissal of company directors
  • Strategy for collecting and capitalising on the company’s profits
  • Dealing with shares: issuing, transferring, distributing, and any restrictions
  • Plan for distributing any remaining assets if the company ends up dissolving.