Under the Companies Act 2016 (CA 2016), the constitution is no longer mandatory for a private company unless:
- The company chooses to adopt one, or
- It is a company limited by guarantee or a public company, in which case a constitution is still required.
If a company adopts a constitution, Section 33(1) of CA 2016 gives it contractual effect.
- Contractual Effect Between Company and Members
Section 33(1), CA 2016:
“The constitution shall, when adopted, bind the company and the members to the same extent as if it were a contract between the company and each member and between the members themselves.”
Relevant Case: Lee Eng Eow v Sungei Way Realty Sdn Bhd [1984] 2 MLJ 143
- The court held that the articles of association (now called a constitution) have a binding effect between the company and members.
- This means members are contractually bound by provisions of the constitution and cannot act inconsistently with it.
- Governance and Management of the Company
The constitution governs:
- Appointment, powers, and removal of directors
- Shareholder rights and duties
- Procedures for meetings (AGM, EGM)
- Transfer of shares
- Issuance and classification of shares
The company can customize internal management rules instead of using the default rules under the Act.
Relevant Case: Ganesh Siva Balan v Ventra Niaga Sdn Bhd [2021] MLJU 2430
The High Court emphasized that the company must act in accordance with its constitution in matters of internal governance.
- Protection of Minority Shareholders
A company’s constitution may:
- Offer pre-emption rights on share transfers
- Require special resolutions for key decisions
- Define voting rights and quorum rules
This helps balance power, particularly in closely held companies.
Relevant Case: Chuah Eng Khong v Malayan United Industries Bhd [1993] 1 MLJ 97
The court examined provisions in the constitution related to shareholder rights and held that members are bound by the limitations and procedures set within.
- Limitations on Director Powers
- The constitution can limit or expand director authority.
- Directors must still adhere to their statutory duties under Sections 213 and 218 of CA 2016 (e.g., duty to act in good faith, avoid conflicts).
Malaysian Example:
In Ng Hoo Kui v Wendy Tan & Ors [2019] MLJU 564, the court recognized the binding nature of the constitution on the actions of directors and members, particularly on decision-making procedures.
- Alteration of the Constitution
- A constitution may be altered by special resolution (i.e., passed by 75% of shareholders at a general meeting).
- Any alteration must be:
- Done in good faith
- For the benefit of the company as a whole
Relevant Case: Malaysian courts often refer to UK common law like:
- Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 — this principle is applicable in Malaysia and used in interpreting similar scenarios.
Summary Table
Effect | Provision / Case | Impact |
Contractual Binding | Section 33(1) CA 2016; Lee Eng Eow | Constitution binds company and members like a contract |
Governance Rules | CA 2016 + Constitution; Ganesh Siva Balan | Controls director powers, meetings, shareholder actions |
Minority Shareholder Protection | Constitution clauses; Chuah Eng Khong | Ensures procedural fairness and rights |
Director Powers and Duties | Sections 213–218 CA 2016; Ng Hoo Kui | Directors must act within the constitution’s scope |
Amendment Procedure | Special resolution; Allen v Gold Reefs (UK case) | Changes must benefit the company, not just majority |
Conclusion
In Malaysia, while private companies are no longer required to have a constitution under CA 2016, adopting one allows a company to customize and formalize its internal rules.
Once adopted, the constitution is binding and enforceable like a contract under Section 33(1). Malaysian courts uphold the constitution as a key governance document, provided it is used in good faith and in the best interest of the company.