Understanding the Singapore Model Company Constitution

A company constitution is a key corporate governance document that outlines the rules by which a company must operate. One option founders have when incorporating their company is to adopt a standardized document known as the Model Company Constitution. In this article, we will delve into the specifics of Singapore Model Company Constitution, discuss its key components, highlight the benefits of adopting it, and also explore scenarios where it may not be suitable. Furthermore, we will guide you through the process of changing the Model Company Constitution and help you make an informed decision between choosing a customized constitution or sticking with the model.
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What Is a Company Constitution?

A company constitution, also known as articles of association, is a core corporate governance document. It spells out the rules and regulations on how the company should be governed, states the rights and responsibilities of the directors, shareholders, and company secretary. In Singapore the minimum set of information that should be included is as follows:
  • Company’s name and registered office address
  • Business activities and how its operations will be carried out
  • Liabilities of the members of the company
  • Total amount of share capital and number of issued shares
  • Rules and regulations on governance (For example, transfer of shares, manner of calling for Annual General meetings or Extraordinary General Meetings, appointment and resignation of directors, secretary).

Based on the above minimum requirements companies are free to create their own constitutions specifying all the information that founders consider to be necessary. At the same time, If founders do not wish to create their own constitution, they may choose to adopt a Model Constitution.

What is a Model Company Constitution?

A Model Company Constitution is a standard or generic constitution that a company can choose to adopt during its incorporation. It meets all the legal requirements and can be suitable for most companies, unless you want to include some specific corporate governance rules. In Singapore, the Model Company Constitution is provided in the Companies (Model Constitutions) Regulations 2015.

Model Constitution “From Time to Time” and “At a Point in Time”

In Singapore, companies can choose between adopting the Model Constitution in force “from time to time” or “at a point in time”. If a company chooses to adopt the Model Constitution in force from time to time, it would be taken to have adopted any changes to the provisions in the Model Constitution as made in the law over time, without having to go through any procedures to amend the Model Constitution that it has adopted. Adopting the Model Constitution in force at a point in time would mean that the Model Constitution adopted is fixed, unless the company subsequently makes amendments to it by shareholder’s resolution.

Key Components of the Singapore Model Company Constitution

The Singapore Model Company Constitution outlines the rules and regulations governing the company’s operations. It contains the following key sections:

General Information on the Company

This section of the model constitution outlines fundamental details about the company, like the name of the company, the registered office address, the amount of share capital and states that the liability of the members is limited.

General Meetings

This section outlines the requirements and procedures for holding company general meetings, including annual and extraordinary general meetings:

  • Annual General Meeting (AGM): The company is required to hold an annual general meeting each year.
  • Extraordinary General Meetings (EGM): Any general meetings other than the AGM are classified as Extraordinary General Meetings. An EGM can be called by any director.
  • Notice of General Meetings: At least 14 days' notice must be given for any general meeting.The notice must specify:
    • The place of the meeting.
    • The date and time of the meeting.
    • The general nature of any special business to be transacted.

Powers and Duties of Directors

This section outlines the roles, responsibilities, and powers of the company directors:

  • General Management: The business of the company is managed by the directors, either directly or under their supervision.
  • Borrowing and Securities: Directors have the authority to borrow money. They can mortgage or charge the company’s assets, including property and uncalled capital. They can issue debentures and other securities, either outright or as security for debt, liability, or obligation.
  • Seals and Registers: Directors can manage any official seal and register.
  • Appointment of Attorneys: Directors may appoint attorneys via power of attorney to act on behalf of the company.
  • Execution of Documents: All financial instruments such as cheques, promissory notes, drafts, bills of exchange, and receipts must be executed by any two directors or as determined by the directors.

Secretary

  • The Singapore company secretary must be appointed by the directors.
  • The terms of appointment, remuneration, and conditions are decided by the directors.
  • The directors have the authority to remove the secretary at any time.

Seal

  • Custody: The directors are responsible for ensuring the safe custody of the company seal.
  • Usage: The seal can only be used with the authorization of the directors or a committee appointed by the directors for this purpose.
  • Execution of Documents: Any document to which the seal is affixed must be signed by a director. It must also be countersigned by either the secretary, a second director, or another person designated by the directors for this purpose.

Financial Statements

Directors' Responsibilities:

  • The directors must ensure that proper accounting and other records are maintained.
  • They must distribute copies of financial statements and other documents as required by the Companies Act.
  • They have the authority to decide if, to what extent, at what times and places, and under what conditions the company's accounting and other records are available for inspection by members who are not directors.

Members' Rights:

  • Members who are not directors do not have the right to inspect any accounts, books, or papers of the company unless this right is conferred by statute, authorized by the directors, or approved by the company in a general meeting.

Dividends and Reserves

Declaration of Dividends:

  • Dividends can be declared by the company in a general meeting but cannot exceed the amount recommended by the directors.
  • Directors have the authority to pay interim dividends if justified by the company's profits.

Reserves and Profit Management:

  • Dividends must be paid out of profits only.
  • Directors can set aside profits as reserves before recommending any dividend. These reserves can be used for any appropriate company purposes or invested as the directors deem fit.

Payment of Dividends:

  • Dividends must be apportioned proportionately to the amounts paid or credited on the shares for the relevant period.
  • Shares issued with special terms for dividend ranking will follow those terms.

Share Capital and Variation of Rights

This section outlines the following key points:

Issuance of Shares:

  • The company directors are responsible for issuing shares.
  • Shares can be issued with various rights and restrictions, such as preferred, deferred, or other special rights related to dividends, voting, return of capital, etc.
  • These rights and restrictions are determined by the directors and any ordinary resolution of the company.

Variation of Rights:

The rights attached to any class of shares can be changed if:

  • There is consent from holders of at least 75% of the issued shares of that class, or
  • A special resolution is passed at a separate general meeting of the holders of that class.

Lien

This section explains the company's right to place a lien on its shares and the process for enforcing it:

Company's Lien on Shares:

  • The company can place a lien (a legal claim) on shares that are not fully paid for, to secure any money owed to the company.
  • This lien also covers any dividends (profits paid to shareholders) on these shares.
  • The directors can choose to exempt certain shares from this lien.

Selling Shares with a Lien:

  • If money owed to the company is not paid, the company can sell the shares to recover the debt.
  • Before selling, the company must give a written notice to the shareholder, demanding payment and allowing 14 days for the payment to be made.

Calls on Shares

This section explains how the company can request additional payments (calls) from shareholders on their shares and the related procedures:

  • The directors can ask shareholders to pay more money on their shares, provided these payments are not already scheduled in the original share allotment terms.
  • Two conditions must be met for making a call:
    • There must be at least one month between each call.
    • Shareholders must be given at least 14 days’ notice specifying the payment.

Transfer of Shares

This section details the process and conditions for transferring shares within the company:

  • Shareholders can transfer their shares using a written instrument in a standard or any other form approved by the directors.
  • The transferor remains the official owner of the shares until the transferee’s name is entered in the electronic register of members.
  • Upon receiving the necessary documents, a director must lodge a notice of transfer with the Registrar.
  • The directors may refuse to lodge a notice of transfer if:
    • The shares are not fully paid.
    • They do not have approval of the transferee.
    • The company has a lien on the shares.

Transmission of Shares

This section addresses the procedures and rights related to shares when a shareholder dies or becomes bankrupt:

  • If the sole holder of shares dies, the company only acknowledges the legal personal representatives of the deceased as having any title to the shares.
  • If one of the joint holders of shares dies, the company only acknowledges the surviving joint holder(s) as having title to the deceased’s interest in the shares.
  • The estate of the deceased joint holder remains liable for any share-related obligations.
  • Anyone who inherits shares due to the death or bankruptcy of a shareholder can choose to:
    • Be registered as the holder of the shares.
    • Nominate someone else to be registered as the transferee of the shares.

Alteration of Capital

The company can make various changes to its share capital through an ordinary resolution. These changes include:

  • Consolidation and Division: Combining and dividing its share capital.
  • Subdivision: Splitting its shares such that the proportion of paid and unpaid amounts on each reduced share remains the same as the original share.
  • Cancellation: Canceling shares that have not been taken or agreed to be taken, or shares that have been forfeited, thereby reducing the share capital by the number of shares canceled.
  • Issuance of New Shares: New shares must be offered to existing shareholders before being issued to others.
  • Reduction of Share Capital: The company can reduce its share capital through a special resolution and any required legal consents.

Winding Up

Liquidator's Powers in Winding Up:

If the company is wound up, a special person called liquidator is appointed to handle this process. The liquidator can, with the approval of a special resolution by the company:

  • Divide all or part of the company's assets among the members or different classes of members.
  • Assign a fair value to the property being divided.
  • Transfer the whole or part of the company's assets to trustees on trust for the benefit of the contributories.

Member's Rights:

  • No member is forced to accept any shares or securities that carry any liability.

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Benefits of Singapore Model Company Constitution

The Singapore Model Company Constitution provides numerous advantages to companies, particularly those that are newly established or lack extensive legal resources. Here are some key benefits:

Regulatory Compliance

As it is provided by the Accounting and Corporate Regulatory Authority (ACRA), the Model Constitution ensures compliance with the Singapore Companies Act and relevant regulations.

Best Practices

The Singapore Model Company Constitution reflects best practices in corporate governance, providing a solid foundation for effective management and oversight in the company. It ensures that all parties have a clear understanding of the company’s governance structure, reducing ambiguity and potential disputes.

Ease of Adoption

The Model Company Constitution simplifies the process of establishing a company’s internal governance framework. Companies can readily adopt the template without the need for extensive legal drafting.

Cost-Effective

Using a pre-drafted template minimizes the need for extensive legal consultation and drafting services, thus reducing setup costs. Amendments to a standard template are often simpler and less costly than overhauling a customized constitution.

Flexibility

While the Model Constitution serves as a default framework, companies have the flexibility to modify provisions to better suit their specific needs, as long as these modifications comply with legal requirements.The template is suitable for various company sizes and can be adapted as the company grows and its needs evolve.

Investor Confidence

Adopting a widely recognized and regulatory-endorsed constitution can enhance investor confidence by demonstrating a commitment to good corporate governance practices. Clear and standardized governance structures are often more attractive to investors, as they reduce the perceived risks associated with governance issues.

When Are Model Company Constitutions Not Suitable?

While the Singapore Model Company Constitution offers a practical and efficient solution for many companies, it may not be suitable for every business. Here are some scenarios where a model constitution might not be the best fit:

1. Unique Business Requirements:

If a company has unique business requirements or complex governance structures, the Model Constitution may not provide the necessary flexibility. In such cases, a customized constitution may be more appropriate.

2. Shareholder Agreements:

If there are specific shareholder agreements in place, the Model Constitution may not adequately reflect these agreements. A customized constitution can incorporate these agreements to ensure all parties’ rights and obligations are clearly defined.

3. Regulatory Requirements:

Certain industries may have specific regulatory requirements that are not covered by the Model Constitution. Companies in these industries may need to develop a customized constitution that meets these requirements.

4. Venture Capital and Private Equity:

Start-ups and growth companies backed by venture capital or private equity investors often need to include specific provisions related to investor rights, board composition, and exit strategies. These provisions may not be sufficiently covered by the Model Constitution.

5. Family-Owned Businesses:

Start-ups and growth companies backed by venture capital or private equity investors often need to include specific provisions related to investor rights, board composition, and exit strategies. These provisions may not be sufficiently covered by the Model Constitution.

6. Specific Organizational Culture:

Some companies may have unique organizational cultures and values that necessitate tailored governance principles. For example, businesses that emphasize employee participation in decision-making might need specific provisions to formalize this approach.

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Changing the Singapore Model Company Constitution

Changing the Model Company Constitution in Singapore involves the following stages:
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1. Board Resolution

The process begins with a board meeting where the directors discuss the proposed changes. If the majority agrees, they will pass a resolution to change the constitution.

2. Shareholder Approval

The proposed changes must then be approved by the shareholders in a general meeting. This is known as a ‘special resolution’.

3. Filing with ACRA

Once the shareholders approve the changes, the company must file the copy of the special resolution and the copy of the altered constitution with ACRA via BizFile+ within 14 days.

4. Effective Changes

The changes take effect once they are registered by ACRA.

Choosing Between a Customized and a Model Constitution

As we can see, choosing between a customized and a model Singapore company constitution depends on your specific needs, complexity, and strategic goals of the business. While the model constitution offers a practical and compliant solution for many companies, a customized constitution provides the flexibility and specificity required for businesses with unique requirements and sophisticated governance needs. Careful consideration of these factors will help ensure that the chosen document effectively supports your company's governance, compliance, and operational objectives

Protect Your Income From Excessive Taxation

To effectively grow your business and maximize profits, it’s essential to understand the tax benefits available to you and your business. If you’re considering registering your company in Singapore, CorporateServices.com can help you navigate the process by helping select the correct corporate structure that will minimize your taxes while fully complying with all government laws, regulations, and DTAAs.
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If you are an entrepreneur who is going to incorporate your company in Singapore and need assistance, do not hesitate to contact our team at Corporateservices.com. We will not only ensure that your company constitution complies with Singapore's Companies Act, but also ensure that your company’s incorporation process and all further compliance requirements are in accordance with Singapore laws and regulations. With our help, you can confidently navigate the complexities of Singapore's regulatory environment and focus on growing your business. Contact us today to find out how we can assist you in establishing and managing your Singapore entity.

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