When running a company, it is important to set rules that govern all directors, shareholders, members and employees. In this article, we will explain what a memorandum and articles of association is and whether your business needs one.
What is a memorandum and articles of association?
Companies registered before July 1, 1998 were required to have a constitution known as the memorandum and articles of association. A company constitution governs a company’s internal and external activities. It is a contract between the company and the directors, the company and the members and between members.
There are two separate documents to a memorandum and articles of association:
- memorandum of association
- articles of association.
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Memorandum of Association
A memorandum of association is a document that regulates a company’s external affairs. It usually states the company’s name, its form and structure, the company’s objects* and shareholder liability.
*Under section 125 of the Corporations Act 2001 (Cth), a company can choose to include an objects clause in its constitution.
Articles of Association
An articles of association is a document that regulates the company’s internal affairs. The articles of association outlines the rights and responsibilities of the directors and shareholders. It also states:
- the contractual relationships between the directors, shareholders and members
- the transferring of shares
- conducting board meetings, AGMs and SGMs
- voting and appointment procedures.
Do I need a memorandum and articles of association?
Well, this depends on your company’s registration date.
A company registered before July 1, 1998 will need a memorandum of association and articles of association. These companies may choose to keep their memorandum and articles of association, and this will still be considered a valid constitution. However, a company registered after July 1, 1998, does not need these two documents. Instead, your company may be governed by the replaceable rules under section 141 of the Corporations Act 2001 (Cth).
Replaceable Rules
The replaceable rules, found in the Corporations Act, are a set of minimum rules for managing a company and all those employed by it. They are ‘replaceable’ in that if a company chooses to adopt a constitution, it can choose to either incorporate that rules or replace it with its own. The Australian Securities & Investments Commission has provided a summary of all thirty-nine replaceable rules, here.
Do the replaceable rules apply to me?
The replaceable rules can apply to public and proprietary companies. However, they do not apply to a proprietary company where the sole director is also the sole shareholder.
Some rules only apply to public or proprietary companies. For instance, only a proprietary company may remove a director from office and appoint another person by resolution (s 203C). Additionally, other rules may be replaceable by proprietary companies but mandatory for public companies such as when dealing with a proxy (section 249X).
Need further advice?
Having a constitution is imperative. However, it is also important to review it to ensure that the constitution or memorandum and articles of association reflect the current needs of the company. If you do not have a constitution, we can get you started, here. If you require clarification regarding your memorandum and articles of association or constitution, we recommend seeking assistance from our lawyers.
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