Definition of a Company Constitution
A company constitution is a document that specifies the rules governing the relationship between and activities of the company and its shareholders. The definition of a company constitution will differ depending on its legal status in each country. In Hong Kong, a company constitution is an integral part of the incorporation of a company. It is prepared as part of the incorporation process of a company; therefore, all new companies in Hong Kong are expected to possess an official company constitution. A company’s strict adherence to its company constitution will ensure that best practices are followed in the operation of the company.
The company constitution stipulates the governing rules of a company for the purposes of management of the relationship between its activities, directors, and shareholders. The rules which govern the company’s operations are not stated by any official law in Hong Kong. Such rules which are to be stated in the company constitution are usually customized and agreed upon by the shareholders of the company after accepting assistance from lawyers or compliance experts. Due to the fact that company constitutions typically require shareholders’ input, they are usually used in conjunction with shareholder agreements.
Why Company Constitutions Are Important
When a company is established, its constitution must be established either during or after registration. A constitution is a unique type of contract. This is because the constitution connects the company, the current shareholders, and any future shareholders. A company’s constitution serves as a contract between the company and each of its members. It also serves as one between all members of the company as well as one between the company and each director and company secretary. According to a company’s constitution, each person involved is to observe the provisions of the constitution in the way which they apply to that person. Therefore, a company constitution creates enforceable rights and obligations which relate to shareholders and their status as shareholders of the company. However, it does not create enforceable rights and obligations between the shareholders of a company and the company’s directors or its company secretary. Therefore, a shareholder will usually be prevented from enforcing any provisions of a constitution which might confer personal rights. Such provisions may include the right to be employed by the company, provisions which inhibit competition, and provisions designed to protect the interests of minority shareholders.
Aside from the fulfillment of legal obligations, a company constitution provides many benefits to a newly-incorporated company. It includes all the important information regarding the process of incorporation while also detailing the company members’ rights as well as the relationship between all company members. It also ensures that every member of the company will agree to respect the provisions mentioned in the company constitution. For this reason, the company constitution serves as an important form of defense against any potential conflicts as well as lawsuits.
Due to the fact that the company constitution is a legally binding contract between the company and its members, the members may opt to take action which would bring about the enforcement of its provisions. Similarly, the company itself might also choose to enforce the provisions of the company constitution in order to compel its members to be in compliance with the constitution.
Articles of Association The Articles of Association are the primary component of a Hong Kong company’s constitution. They serve as the primary legal code governing the actions of the company because they are a set of internal regulations that governs the day-to-day operations of the company. They contain the name of the company, the names of its initial members, and any object clauses. Articles of Association have to be submitted to the Companies Registry at the time of incorporation as well as when there are any subsequent changes. At least one shareholder must be mentioned in the Articles of Association. Every shareholder who is mentioned is required to own at least one share of the company.
Historically, most countries’ company laws required two documents to serve as the rules which would comprise the constitution of the company. These documents are the Memorandum of Association and the Articles of Association.
The first document, the Memorandum of Association, defines the company structure, its business objectives, and the liabilities of its members. These rules apply when dealing with third-party figures from outside the company. The Articles of Association, on the other hand, describe the company regulations, internal governance policies, and company members’ rights. These rules apply to activities which take place within the company.
However, in many parts of the world, both of these documents have been combined into one. When these documents are combined, they are collectively referred to as the Memorandum and Articles of Association. This combined document is to be regarded as an official company guidebook which is to serve as a rulebook for all company members.
In Hong Kong, there once was but is no longer a requirement to have a Memorandum of Association. This means that the Articles of Association is now the only constitutional document which states all the rules and regulations that govern the company. These rules apply internally as well as towards third parties. According to the previous stipulations of the Companies Ordinance, a company formed in Hong Kong had been required to have a Memorandum of Association as well as Articles of Association. However, according to the current stipulations of the Companies Ordinance, a company incorporated in Hong Kong is only required to have Articles of Association, thus abolishing the requirement for a Memorandum of Association. Any information which had been required to be contained in the Memorandum of Association is now to be mentioned in the Articles of Association.