Drafting Malaysia Company Constitutions

Drafting Malaysia Company Constitutions

After the company has formulated its Vision, Goals, Mission, and Objectives, the next step is drafting Malaysia Company Constitutions. It used to be a required documentation prior to the incorporation of the company under the Companies Act 1965 of Malaysia. However, since the Companies Act 2016, it is no longer mandatory.

The company may choose not to have a Company Constitution but doing so will relieve them from a lot of headaches. If the company doesn’t have a Company Constitution, what will guide them are just their Job Duties and Description and a set of House Rules.

Making a Company Constitution in Malaysia is a challenge for some reason. Firstly, it must follow the guidelines set up by the Companies Act 2016. Secondly, it’s subject to scrutinization among members. You can’t blame them as it affects certain aspects of their lives. Particularly, those things related to their work.

 

The Definition of Company Constitution

The Company Constitution is the agreement between the Company and all the people involved in its operations showing the kind of relationship they have. When we say people, they include the Board of Directors, Secretary, Accountants, and all the employees working for the company.

The Company Constitution clearly states the different processes that the Company has and also the roles of all its employees. The Company processes include the guidelines to select a board of directors, the election process, allotment of shares, dividend payment, etc. The roles on the other hand include what are the things that the Board of Directors should be doing, the secretary, and the different employees within the company.

 

Is There a Prescribed Format for Writing a Company Constitution?

There’s no standard format for writing a Company Constitution since it’s not already mandated by the Malaysian Government for companies to have a Company Constitution. However, those countries where Company Constitution are still required for incorporation, the following parts must be present:

1. Name Portion – This is the name of the company.
2. Liability Portion – This the provision protecting the employees by defining their only liabilities to the companies that pertain to their work.
3. Subscriber Portion – This is what describes the shareholding matters within the company.
4. Objects Portion – This part shows the activities and objectives of the company.
5. Rules and Regulations – These are the set of standards that the employees in the company need to follow.

 

Additional Terms to Malaysia Company Constitutions

In addition to those parts of the Company Constitution, the company may add additional terms that they believe must be there for their own benefits. They are:

1. Kind of Company – This is where the structure of the business is defined.
2. Company Share – This pertains to the manner in which company shares may be acquired, transferred, and be dealt with.
3. Dividend Share – This pertains to when, where, and how dividends can be shared at the end of the financial year.
4. Directors’ Duties and Responsibilities – This pertains to how many directors should be there in a company, their voting power, and their specific duties to the company.
5. Handling of Documents and Records – This is the mechanism of how documents will be handled within the company.
6. Grievance Procedure – This pertains to the mechanism of how the conflict of interest within the company will be handled.
7. Loan – This pertains to the mechanism of how the company will handle its loans from the creditors.
8. Salaries – This pertains to the salaries and other benefits that the employees are going to receive on performing their jobs.

 

Amending the Company Constitution

After the Company Constitution has been written, the Board of Directors will present it on a specified day where people in the company can give their comments for improvement. Once everybody agrees, it will take effect after several days. The company will determine when it will be. Hence, the same process continues for next year.

Amending the Company Constitution happens when employees want to change a portion of the Company Constitution. The process is not that complicated. A proposal would be submitted to the Board of Directors and specified date will be set for the employees to vote whether they agree or not on those amendments.

If the process for drafting your Company Constitution is difficult for you, we at 3E Accounting services for Incorporation would like to make it easy. We have a Malaysia Incorporation Package.