What Is A Company Constitution? (2020 Update)
A company constitution is not always a legal requirement, but it is always a good idea to have one in place. Find out more in this article.
A company constitution governs a company’s internal management. A Constitution is an essential and crucial document that oversees the activities of your company as well as the relationship of your company’s directors and shareholders.
Why do I need a constitution?
Having a constitution is both a legal requirement for some companies and is part of good business management practice. You are required to adopt a constitution when registering your company. The Australian Securities and Investment Commission (ASIC) requires that you choose between having your own constitution, adopting the Corporation Act’s replaceable rules, or a combination of both. It is necessary then to have had either drafted up your constitution or be seeking to adopt the replaceable rules before registering your company. Company constitutions should cover:
- Your company’s structure
- The issue and transfer of shares
- Share certificates
- Governance of meetings
- Voting procedures
- Company secretary
What are the replaceable rules?
All Australian companies are governed by the Corporations Act. This piece of legislation sets out various laws that companies and company office holders must abide by. The Corporations Act also contains a set of replaceable rules which can act in place of a constitution and govern a company’s internal management.
The following is an example of the provision which the replaceable rules cover:
- Offices and employees (i.e. powers of directors);
- Inspection of books (i.e allowing members to inspect books);
- Directors’ meetings (i.e.how director’s meeting should be run);
- Meeting of members (i.e.how voting should be carried out);
- Shares and transfer of shares (i.e. provisions about paying dividends);
You can choose at any time to modify or displace the replaceable rules by way of your own constitution. Note also that the replaceable rules do not apply to companies that have a sole member/director. They are also not applicable where the member/director is the same person.
How do I create a company constitution?
You can create your company’s constitution yourself, seek the advice of a company lawyer or use ASIC’s replaceable rules. When you register your company through Lawpath, you will be provided with an amenable company constitution. It’s crucial that you have an effective constitution that will govern your company’s internal management.
Amending your company’s constitution
You can modify or repeal provisions within your constitution by passing a special resolution. For a special resolution you must give at least 21 days notice and the agreement of usually 75% majority of votes cast. A company is required to provide an up to date copy of their constitution seven days after request from a member of the company (or payment, if payment is charged). It is, therefore, imperative to have an up to date Constitution.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.