We are often asked by corporate clients to review template company constitutions to ensure compliance with Malaysian laws.

Although some clauses in these templates may comply with the laws, they may not always reflect the clients’ intention.

The following are three common issues I encounter:

1. Waiver of pre-emption right

Section 85(1) of the Companies Act 2016 of Malaysia (CA 2016) provides that subject to the constitution, where a company issues shares which rank equally to existing shares as to voting or distribution rights, those shares shall first be offered to the existing shareholders in proportion to their shareholding.

Some template constitutions waive this pre-emptive right. Although this complies with the CA 2016, the shareholders may not want their shareholding to be diluted without their consent.

2. Notice of directors meeting to ever director in Malaysia

If a constitution follows the default position under the CA 2016, a notice of a board meeting should be sent to every director who is in Malaysia. This may pose a problem for directors residing outside Malaysia. For instance, a non-Malaysian shareholder who nominates a non-Malaysian director to the board would want to ensure the director is notified of all director meetings, even if the director is not in Malaysia.

3. Limited voting rights of preference shares not expressly provided

Preference shares, by definition under the CA 2016, do not entitle the holders to voting rights. However, preference shareholders may have certain limited voting rights if expressly provided in the company constitutions. For more information on this, please refer to my article or post in the comment section.

In conclusion, while a template constitution may comply with the CA 2016, it’s essential to consider whether its provisions truly reflect the intended arrangements.

#MalaysianCorporateLawyer

This post was posted on LinkedIn on 28 March 2024.