Inconsistency Between Shareholders` Agreement and Constitution in Singapore
Shareholders` agreements and constitutions may seem similar, but they serve different purposes for a company. A shareholders` agreement is a private contract between shareholders, outlining their rights, responsibilities, and obligations towards each other and the company. On the other hand, a constitution is a legal document that sets out a company`s fundamental principles and rules, such as the purpose, powers, and procedures for decision-making and governance.
When a company creates a shareholders` agreement and a constitution, it is crucial to ensure that both documents are consistent and aligned with each other. However, there may be instances where there is a discrepancy or inconsistency between the two, which can cause confusion, disputes, and legal issues.
In Singapore, the Companies Act (Chapter 50) requires all companies to have a constitution, which may include provisions on share capital, share transfers, board powers and duties, dividend payments, and shareholders` meetings. The constitution is a public document and must be filed with the Accounting and Corporate Regulatory Authority (ACRA).
A shareholders` agreement, however, is not mandatory, and its contents are not publicly available. It is a flexible and customizable document that can reflect the unique needs and preferences of the shareholders, such as voting rights, share buyback provisions, exit options, and dispute resolution mechanisms.
Despite their differences, a shareholders` agreement and a constitution must complement each other and not contradict each other. For example, a shareholders` agreement cannot override the constitution`s provisions that are mandatory under the Companies Act, such as the appointment and removal of directors, the number of shares and classes of shares issued, and the quorum and voting requirements for general meetings.
Moreover, any amendments to the constitution must follow the procedure and requirements set out in the Companies Act and the constitution itself. Any deviation from these rules may render the amendments invalid or illegal, which can affect the validity of the shareholders` agreement that references or depends on these changes.
Therefore, it is advisable for companies to seek legal advice and guidance when drafting a shareholders` agreement and a constitution. A competent lawyer can ensure that both documents are consistent, compliant, and enforceable, and that they provide adequate protection and benefits for all parties involved.
In conclusion, inconsistency between a shareholders` agreement and a constitution can lead to legal complications and disputes, and may undermine the integrity and effectiveness of a company`s governance and operations. Therefore, it is essential to establish a coherent and clear framework for both documents, and to ensure that they reflect the best interests and expectations of the shareholders and the company as a whole.