Introduction to Memorandum and Articles of Association (M&A)
In today’s fast-paced and dynamic business environment, understanding the intricacies of Memorandum and Articles of Association (M&A) is essential for companies looking to establish themselves in Malaysia. The M&A serve as the foundational legal documents that shape a company’s identity, its rights and obligations, and its operational framework.
This article delves into the key aspects of M&A in Malaysia, shedding light on their significance, potential changes, and the concept of Entrenched Articles. Whether you’re a new startup navigating the world of business incorporation or an established company considering adjustments to your M&A, this guide offers valuable insights to help you navigate the regulatory landscape.
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Understanding the Memorandum and Articles of Association
The Memorandum
The memorandum of association, commonly referred to as the memorandum, delineates the relationship between the company and external entities.
The Memorandum of Association includes the following:
- Company’s name
- Registered office location
- Object clauses
- Powers of the company
- Limited liability of company members
- Authorized capital registered with SSM
Every company must have a memorandum, all of which follow a standard format and contain identical information, including:
- Company name
- Date of incorporation
- Type of company
- Act under which the company is registered
- Names and signatures of all subscribers (original shareholders or guarantors)
- Limited liability status of shareholders or guarantors
Individuals who append their names to the memorandum during incorporation become members of the company and remain so until they choose to depart. Member details are publicly accessible on the Companies House website under the company’s information.
The Articles of Association
The articles of association, typically referred to as articles, serve as the constitution of a company.
These articles outline the rules and regulations governing the internal management of a company and the conduct of its business.
Most limited companies adopt the Model Articles as a standard practice, though they can be altered when necessary. These Articles detail how the company is administered, governed, and owned by its members. They can also impose limitations on the company’s powers, which can be helpful when shareholders and directors have divergent opinions and are pulling the company in different directions.
The Model Articles cover the following areas:
- Directors’ powers, responsibilities, decision-making, appointment, removal, indemnity, and insurance
- Shares, distribution of shares, and dividends
- Capitalization of profits
- Shareholders
- General meetings
- Voting rights
If you wish to make amendments to these articles, such as issuing different classes of shares or adding or removing shares, you have the flexibility to do so. However, it is essential to notify Companies House during the company’s incorporation process for a review to ensure that the changes comply with legal standards.
Updates Regarding Memorandum and Articles of Association (M&A)
Here are the latest updates related to Memorandum and Articles of Association (M&A):
For companies that were previously registered under the previous law, Section 619(3) of the Companies Act 2016 offers a mechanism to maintain the validity and enforceability of their existing M&A. This provision ensures that the M&A of companies registered under the previous law remain effective under the Companies Act 2016.
Existing companies have the option to either entirely revoke their Constitution or make specific amendments to it. Should a company choose to abolish its existing M&A without adopting a specific constitution, a resolution must be passed to that effect.
In such a scenario, the company, each director, and every member will be subject to the rights, powers, duties, and obligations outlined in the Companies Act 2016, as specified in Section 31(3) of the Act.
Under the new Companies Act, a public company has the choice to have a constitution or not, with the exception of a company limited by guarantee. If an existing public company, excluding those limited by guarantee, decides to eliminate its constitution, it must obtain approval from its shareholders and notify the Suruhanjaya Syarikat Malaysia (SSM) of this decision. It is advisable for public companies, subject to other relevant laws, to adhere to the necessary requirements, such as seeking approval for the removal of the constitution or notifying the relevant regulatory authorities.
It’s important to note that the adoption of a Constitution is optional under the Companies Act 2016 (CA 2016). If you wish to adopt the standard Constitution provided by 3E Accounting for your company, a fee of RM400, inclusive of a stamping fee (RM200), applies. Additional charges may be incurred for customizing the Constitution.
Some of the special clauses included in the standard Constitution are as follows:
i. Signing of board resolutions by a majority of directors (instead of signing by all directors as required under CA 2016).
ii. Adoption of a common seal (useful for property transactions).
iii. Flexibility in the main venue of members’ meetings, allowing meetings to be held outside Malaysia (as required under CA 2016).
Modifying Articles and Provisions
Can I Change the Articles after Incorporating?
You can indeed make changes to the Articles after incorporation, but this process requires a special resolution. To proceed, members must pass a special resolution approving the changes, and the final document with the alterations must be submitted to Companies House within 15 days of the resolution’s passage. Seeking professional advice is advisable when considering changes to the Articles.
Understanding Entrenched Articles of Association
Entrenched Articles might not be a familiar term, and most companies won’t encounter them. In essence, Entrenched Articles involve including a special clause in the Articles, making it more challenging to pass a resolution. Instead of a simple majority vote, additional provisions or procedures must be met before a resolution can pass. Any clause requiring more than a special resolution is known as an “Entrenched Provision,” defined under the Companies Act 2006 (Section 22):
A company’s articles may include a provision (“provision for entrenchment”) stating that specified articles can only be amended or repealed if conditions or procedures are met, which are more restrictive than those for a special resolution.
Provision for entrenchment can only be included in the company’s articles at formation or by amending the articles with unanimous member agreement.
Provision for entrenchment does not prevent articles from being amended with unanimous member agreement or by order of a relevant authority.
This section does not affect a court or relevant authority’s power to alter a company’s articles.
Entrenched Articles are less common for companies with a single shareholder. However, they can be valuable in joint ventures, particularly if minority shareholders require more control over specific company changes. For instance, an Entrenched Provision may necessitate a unanimous vote for certain alterations.
Adopting Entrenched Articles
If your company wishes to adopt Entrenched Articles or Entrenched Provisions, Companies House must be notified within 15 days of the amendment. You can use Form IN01 upon incorporation or Form CC01 for amendments to existing Articles. Include a copy of the revised Articles with the form submission.
Removing Entrenched Provisions
Should you decide that Entrenched Provisions are not suitable for your company and want to remove them, notify Companies House using Form CC02 within 15 days of the amendment taking effect. Additionally, complete a Statement of Compliance (Form CC03) and include a copy of the revised Articles and the resolution consenting to the amendment with the forms.
Can I Remove a Subscriber’s Name from the Memorandum?
No, you must not alter the Memorandum of Association, even if a person leaves the company or undergoes a name change. Therefore, it is crucial to exercise caution when providing information during this process.
Conclusion
Navigating the landscape of Memorandum and Articles of Association in Malaysia is a crucial endeavor for both new and existing companies. These documents not only define your company’s identity but also dictate the rules that govern its operations.
Understanding the possibilities for change, as well as the concept of Entrenched Articles, can empower businesses to make informed decisions as they evolve. In an ever-changing business world, staying well-versed in the nuances of M&A is essential for companies aiming to thrive and adapt to new challenges.
Frequently Asked Questions (FAQs)
Can I change my company's Memorandum and Articles of Association (M&A) after registration?
Yes, you can make changes through a special resolution, subject to legal procedures.
What is the role of the Memorandum of Association?
It defines your company’s name, registered office location, business objectives, and authorized capital.
What are Entrenched Articles of Association?
These are clauses that make it harder to pass a resolution, requiring more than a simple majority vo
How do I adopt Entrenched Articles?
Notify Companies House within 15 days of amending the Articles, including a copy of the revised Articles.
How can I remove Entrenched Provisions?
Notify Companies House via Form CC02 within 15 days of the amendment, along with a Statement of Compliance and the revised Articles.
Can I change a subscriber's name in the Memorandum of Association?
No, you cannot alter the Memorandum, even if a subscriber leaves or changes their name.
What happens if I don't submit changes to Companies House in time?
Failure to submit changes within 15 days may result in legal complications.
Are Model Articles mandatory for limited companies?
No, but they are commonly used as a default option and can be altered as needed.
Is adopting a specific constitution mandatory for public companies in Malaysia?
Public companies have the option to adopt or not adopt a constitution, except for companies limited by guarantee.
Can I change the Memorandum and Articles to suit my business's specific needs?
Yes, you can modify these documents to align with your company’s operational methods and procedures.
