The M/A is one of the documents required to form a company as required by s 16(1) CA 1965. It is known as the external constitution of the company. This is because it contains matters between the company and outsiders.
The M/A is important for the following reasons:
  it provides the main characteristics of a company
  it defines what the company is
  it sets out how the company’s business and affairs are to be conducted.
The M/A must contain certain compulsory clauses as provided in s 18 of CA 1965, otherwise the M/A is considered not complete and the CCM may not allow the company to be registered.

Compulsory Clauses
The compulsory clauses of the M/A are as follows:

Name clause as required by s 18(1)(a) of CA 1965 – this will state what the company’s name is. For example, the name of the company could be ‘Alpha Sdn Bhd’, ‘Alpha Bhd’ or ‘Alpha Sdn’. Thus from the name of the company, one would be able to identify the type of company, i.e. whether it is a private limited company, public company or private unlimited company. In the examples stated above, Alpha Sdn Bhd is a private limited company; Alpha Bhd is a public company; and Alpha Sdn is a private unlimited company.

Objects clause as required by s 18(1)(b) of CA 1965 – this will state what the object of the company is. Thus, one would be able to know what the business of the company is. It is important to understand that the objects clause sets a limitation on the activities of company.

Share capital clause as required by s 18(1)(c) of CA 1965 – this will provide what the authorised share capital of the company is. The clause will also provide the division of the share capital, e.g. the authorised share capital of Alpha Sdn Bhd is RM10,000 divided into RM1 share each. This means that the nominal or par value of the share is RM1 and the company is authorised to issue up to 10,000 shares. It should be noted that this clause is only applicable for a company limited by shares (whether it is a public or private company). It will not apply to a company limited by guarantee since such a company does not have a share capital. As regards to a private unlimited company, this clause will be present in its M/A.

Liability clause as required by s 18(1)(d)(e) and (f) of CA 1965 – this will state what the liability of the company is. The company could be limited by shares, limited by guarantee, limited by shares and guarantee or, it could be an unlimited company. Thus the liability of a member will depend on the type of the company. Creditors should be aware as to what type of company they are dealing with. Those who wish to invest in a company should also be aware of the liability clause so that they know the nature of their liability.

Subscribers clause as required by s 18(1)(g) of CA 1965 – the clause requires information as regard to the names and addresses of the subscribers to the M/A.
Association clause as required by s 18(1)(h) of CA 1965 – this clause requires subscribers to the M/A to take up the number of shares agreed.

With regard to a private company, the M/A or the A/A must provide for the restrictions as contained in s 15 CA 1965.

OBJECTS OF A COMPANY – s 18(1)(b), CA 1965
The main function of the objects clause is to define the activities in which the company wishes to engage. It is usual for companies to enumerate a wide range of activities, whether or not they intend to participate in all of them. The objects clause usually has provisions regarding the main or independent objects, dependent objects and power.

The object of a company must be legal, otherwise it can be deregistered by being struck off the ROC: s 308, CA 1965.

The object of a company is important for the following reasons:
  To determine the nature of the company’s business.
  It defines what the company’s powers are.
  It states the purpose for which the company exists.
  To determine the legal capacity of the company.
The objects clause restricts or limits the company’s capacity. A company must act within is objects clause or there may be dire consequences, including winding up under s 218(1)(e) of CA 1965 – see Re German Date Coffee Co (1882).

The object of the company must be lawful: s 14(1), CA 1965.
If the ROC finds that a proposed company is likely to be used for unlawful purposes or any purpose affecting the peace, welfare, security, public order, good order or morality in Malaysia or national security or public interest, the ROC may refuse the register the company: s 16(8) CA 1965.

When a company does an act that is beyond its objects clause, i.e. it enters into a contract that is beyond its corporate powers or acts beyond its legal authority, such an act is called an ultra vires act.

Common Law Position
At common law, if a company does an ultra vires act, the contract or the act is null and void. An ultra vires act is void and cannot be ratified even if the company wishes to ratify it.

Facts: The Company’s object was to make, sell and hire railway carriages. The Company entered into a contract to build a railway in Belgium. The contract was approved by the shareholders at its general meeting.
Held: The contract is ultra vires since the objects clause does not empower the Company to build a railway in Belgium. The contract is void in its inception because the Company did not have the capacity to make such on contract. Furthermore, since it lacked the capacity to make the contract, how can it have capacity to ratify it? Hence, the contract cannot be ratified even if it is approved by all the shareholders of the company.

An ultra vires contract cannot be enforced by or against the company. In other words, the company cannot sue or be sued. The company cannot be sued for damages for not performing the contract since the contract is null or void. It also means that a company can avoid a contract on the basis that it is beyond its objects clause although it may have initiated the idea.
Although this may seem unfair to the other party to the contract, it is justified on the basis of the doctrine of constructive notice. This doctrine provides that since the objects clause is a compulsory clause in the M/A, which is a public document available for public inspection at the ROC, the other party should have checked to find out whether the contract is within the capacity of the company.
It is assumed that the other party to the contract would have checked the objects clause of the company. The fault is upon him if he did not check the objects clause – Ernest v Nichols (1857).

The reason the common law provides that an ultra vires act is null and void is to protect the members and creditors of the company, i.e. it is to ensure that their investment is only used for the company’s business – Cotman v Brougham (1918).

Generally, members and creditors invest in a company only after ascertaining its objects clause, i.e. the business of the company. If a company were to use the investment for purposes other than its object, this would be unfair to the members and the creditors. On the other hand, it is not practicable for a person to check the objects clause of a company each time he is dealing with the company. Moreover, a company may decide to venture into a new business that would be profitable or beneficial to the company.

Position under CA 1965
Section 20(1) of CA 1965 provides that an ultra vires act is not invalid. This means that the company can sue or be sued on the contract. Furthermore, there is no need to ratify the ultra vires act since it is valid under s 20(1) of CA 1965.
Although this may imply that a third party need not check whether the company’s act is within its objects clause, note that there is also no express provision in CA 1965 that abolishes the doctrine of constructive notice.
CA 1965 has not abolished the doctrine of ultra vires but has modified the effect in that an ultra vires act is valid. Thus, a company that acts beyond its objects clause would still be guilty of an ultra vires act.

Although s 20(1) of CA 1965 provides that an ultra vires act is valid, the following implications should be noted:
Section 20(2)(a) of CA 1965 provides that a member of a company or a debenture holder secured by a floating charge may restrain the ultra vires act. This is to protect the members who may have invested in a company based on the objects and business of the company. The member can restrain the company from misusing the company’s assets for some other purposes.

This right is only available to those specified in the provision – PAMARON HOLDINGS SDN BHD v GANDA HOLDINGS BHD [1988] 3 MLJ 346.
The High court held that an application for relief under s.20 could be made only by persons specified in that section and not outsiders. In this case, the Plaintiff and the defendant entered into a written agreement for the sale and purchase of shares in a private limited company. The defendant defaulted in the payment of the purchase price and the plaintiff applied for summary judgement against it. In opposing the application, the defendant contended, inter alia, that the transaction was ultra vires the plaintiff company.
Allowing the application, the court held that under s.20 a person other than a debenture holder or the minister may not raise ultra vires. The defendant, being an outsider and not a debenture holder or the minister had no right under the section.


The restraint is only available if the contract has been entered into but has not been completed yet – HAWKESBURY DEVELOPMENT CO LTD v LANDMARK FINANCE LTD (1969) 2 NSWR 782 .

Hence if the restraint is successful, it will affect the other party who has contracted with the company as regards the ultra vires act. In such a case, s 20(3) of CA 1965 provides that if any party suffered any loss due to restrain under s 20(2)(a), the party can be compensated

In practice, this provision does not truly protect members and debenture holders because normally it would be the directors and not the members who would know if the company has or intends to commit and ultra vires act. It would be unlikely that the BOD would inform the members since such act would in all likelihood be initiated by the BOD as the ‘mind’ of the company. With regard to debenture holders, they are even worse off than the members as being outsiders, they would likely not know the happenings in a company. Furthermore, the provision under s 20(2)(a) is restricted to debenture holders who are secured by floating charges and not fixed charges or those creditors who are not secured by any charges.

Section 20(2)(b) of CA 1965 provides that the company or a member can bring action against present as well as former officers where there is an ultra vires act. This provision is included because the officers of the company should have known the objects clause of the company and that the particular act is ultra vires. The purpose of this provision is to deter officers from making the company carry out an ultra vires act. Note that in the event an action is brought against the officers, it does not affect the validity of an ultra vires act by virtue of s 20(1) CA 1965.

Section 20(2)(c) of CA 1965 provides that the Minister can petition to the court to wind up the company. This provision will be invoked in cases where the company has completely diverted its business from its original business, i.e. its objects.

If a company or its management wishes to avoid the implications of s 20(2)(a)-(c) of CA 1965, the company is advised to alter its objects clause. An objects clause of a company can be altered by passing a special resolution: s 28(1), CA 1965. The notice must be given to all members and debenture holders: s 28(3) CA 1965.

However, holders of not less than 10% of the company’s issued capital or debentures can apply to the court to cancel the alteration. This must be done within 21 days from the date the resolution was passed as provided in s 28(6) CA 1965. Thereafter, the court will decide whether to allow the alteration of the objects clause.
MEMORANDUM OF ASSOCIATION MEMORANDUM OF ASSOCIATION Reviewed by Kamaruddin Mahmood on 9:07:00 PTG Rating: 5

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