How Does a Company Constitution Work?

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How Does a Company Constitution Work?

July 21, 2022         Maria Mubeen

What is a Company Constitution?

The purpose of a company constitution is to govern the relationships between company directors and shareholders. It is created to govern the management of the company and will generally include:

  • Rights of shareholders
  • Structure of company meetings 
  • Appointment, powers and removal of directors 
  • Guidelines for amending the constitution

Who Needs a Constitution?

If you are a public company or ‘special purpose’ company, which is a company created for a set of reasons rather than general business, you will be required to have a constitution for your company. However if your company is registered through the Australian Securities & investments Commission (ASIC) you have the option of:

  • Using replaceable rules set out under the Corporations Act
  • Creating your own constitution, or
  • Using a combination of both 

What Are The Replaceable Rules?

The Replaceable rules are found in the Corporations Act that allow a company to displace or modify the replaceable rules of the company constitution. However, companies are limited to some mandatory replaceable rules that cannot be displaced. This will differ for all company constitutions.

Process of Adopting a Company Constitution

Companies can adopt a constitution at any point before or after registering their business. The general process is as follows:

  1. Draft: you are able to draft your own constitution from scratch or hire a lawyer to assist you in creating one. 
  2. Issue a notice: a publicly listed company must give 28 days notice of a special resolution and general meeting. All other companies are required to provide a 21 day notice. The notice must provide the time, date and place of meeting and a general overview of what will be discussed in the meeting 
  3. Holding the meeting: in order for the constitution to be adopted a special resolution must be passed in which at least 75% of the voting members must vote in favour, this must be done in person in writing.

Key Takeaways

A company constitution allows companies to easily govern their internal management. Although it is legally required for publicly listed and ‘special purpose’ companies most companies will choose to adopt one. In order to adopt a constitution you will be required to draft and pass a special resolution. If you require assistance with drafting a constitution or reviewing your company constitution contact OpenLegal on 1300 337 997.

About Maria Mubeen

Maria is a legal intern at Openlegal and is currently in her third year studying Law and Business at UTS. Her interests are commercial law, contract law, and litigation.