Drafting a company constitution is a very important matter. This is essentially a rulebook as to how a company should conduct its business. Adherence to the company constitution is necessary when dealing with company related matters. Therefore, how a company operates stems from its constitution. Great thought must be placed as to how the company constitution is to be drafted. Otherwise a company may find itself in certain situations where it may not be able to function optimally.

Here are some considerations when drafting a company’s constitution.

1. Legal Compliance

a. Companies Act Compliance:

  • Ensure that the constitution aligns with the provisions of the Companies Act (Cap. 50). Non-compliance may result in penalties or legal disputes.

b. Model Constitution Reference:

  • ACRA provides a Model Constitution that covers common company regulations. You can adopt it fully or modify it based on your specific business needs. Adopting the Model Constitution simplifies the registration process.

2. Company Type and Structure

a. Private or Public Company:

  • Private Company Limited by Shares: Most common for small to medium enterprises. Shareholder limit: 50.
  • Public Company Limited by Shares: Can raise funds from the public. No limit on shareholders.
  • Public Company Limited by Guarantee: Usually for non-profits and charities.

b. Share Capital:

  • Define the types of shares (ordinary, preference) and the rights attached.
  • State the maximum share capital (if applicable) and issuance terms.

3. Key Provisions to Include

a. Company Name and Registered Office:

  • The registered name must be unique and approved by ACRA.
  • State the registered business address in Singapore.

b. Business Objectives:

  • Clearly define your company’s business activities and purposes. Use broad language if you anticipate expanding business operations in the future.

c. Liability of Members:

  • State whether members’ liability is limited (common for most companies). For companies limited by shares, liability is limited to unpaid amounts on issued shares.

d. Shareholders’ Rights and Obligations:

  • Define voting rights, dividend entitlements, and obligations such as capital contributions.
  • Specify procedures for share transfer, issuance of new shares, and share redemption.

4. Governance and Decision-Making

a. Board of Directors:

  • Minimum and Maximum Number: At least one resident director for private companies.
  • Appointment and Removal: State how directors are appointed and removed (e.g., by shareholders’ resolutions).
  • Duties and Powers: Clearly outline directors’ duties, including acting in good faith and avoiding conflicts of interest.

b. Meetings:

  • General Meetings: Define when and how annual general meetings (AGMs) are conducted (unless exempt).
  • Board Meetings: Specify procedures for calling and conducting board meetings.
  • Quorum Requirements: State the minimum number of directors/shareholders needed for valid meetings.

c. Resolutions:

  • Ordinary Resolutions: Require more than 50% approval (e.g., approving directors’ reports).
  • Special Resolutions: Require at least 75% approval (e.g., amending the constitution).

5. Financial and Audit Requirements

a. Financial Records:

  • State how financial records will be kept, including accounting standards compliance.
  • Mention the obligation to prepare financial statements annually.

b. Dividend Policy:

  • Define how and when dividends are declared and distributed. Ensure the company has sufficient profits before distribution.

c. Annual Returns:

  • Specify the obligation to file annual returns with ACRA within the required timeframe.
  • Include compliance with statutory audits (if applicable).

6. Dispute Resolution and Exit Strategies

a. Dispute Resolution:

  • Arbitration/Mediation Clauses: State preferred dispute resolution methods to avoid lengthy legal battles.
  • Jurisdiction: Declare Singapore as the governing jurisdiction for legal disputes.

b. Exit Clauses:

  • Buy-Out Rights: Define how shares can be bought out if a shareholder wants to exit.
  • Pre-emption Rights: Offer existing shareholders the first right of refusal if shares are sold.
  • Deadlock Resolution: Include mechanisms like third-party mediation in case of shareholder disputes.

7. Amendments to the Constitution

a. Alteration Rules:

  • Changes typically require a special resolution passed by at least 75% of shareholders at a general meeting.
  • Ensure the procedure for amending the constitution is clear and complies with the Companies Act.

8. Additional Considerations

a. Confidentiality and Non-Compete Clauses:

  • Protect sensitive company information by including confidentiality clauses.
  • Prevent key personnel from competing with the company after leaving through non-compete clauses (if legally enforceable).

b. Intellectual Property Rights:

  • Clarify ownership and use of intellectual property created by the company or its employees.

c. Indemnity and Insurance:

  • Consider including indemnity clauses for directors and officers against legal liabilities incurred while performing company duties.

9. Professional Guidance

  • Corporate Secretary and Legal Advice: Engage a corporate secretary or legal professional to ensure that the constitution meets Singapore’s legal standards and aligns with your business structure.
  • Custom Drafting: If your business has unique needs, consider drafting a custom constitution instead of relying entirely on the Model Constitution.