A company constitution is a key governance document for the internal management of a company. Its purpose is to define how a company operates, and in conjunction with the shareholder’s agreement clarify the relationship between the company’s directors and shareholders. The constitution can include rules about:
- Shareholder rights and different classes of shares
- Appointing and removing of directors
- The powers and responsibilities of directors
- Company meeting and voting procedures, and
- The process for amending the constitution
Does my company need a constitution?
Not all companies need a constitution. The Corporations Act 2001 (Cth) has a basic set of rules for the management of companies, known as the replaceable rules, which will apply to your company unless they are displaced or modified by a company constitution.
This means that you have the option of:
- Using the replaceable rules from the Corporations Act
- Drafting your own company constitution, or
- Using some combination of both
However, if your company is a ‘no liability’ public company, or a ‘special purpose company’, it must be governed by a company constitution.
Why would I want one?
Although it is not a strict legal requirement to draft your own constitution, there are a number of benefits for choosing to do so. It can be tailored to your own company’s operations, giving you more flexibility than simply using the replaceable rules.
In some cases, the replaceable rules impose strict obligations, whereas in others, they are too simple or not relevant to your company’s needs. In both cases, drafting your own constitution gives you more control over your internal governance.
How to adopt or alter a company constitution
Your company can adopt a company constitution when it is registered with ASIC, or at any time afterwards. If you want to adopt a constitution after registration, or alter your existing constitution, you must pass a special resolution at a company meeting.
In order to adopt or alter a constitution, a company must:
- Issue a notice for a general meeting and include the proposed special resolution. The notice should include the date, time and location of the meeting, and the general business to be discussed in the meeting, including the intention to pass the resolution. Public companies must give at least 28 days notice before the meeting, whereas all other companies must give 21 days.
- Pass the special resolution at the general meeting. At least 75% of votes cast must be in favour of the resolution in order for it to pass. Further, any other requirements set out by any existing company constitution rules for passing resolutions must be followed.
To sum up
Whether your company is legally required to have one or not, a company constitution can be a useful governance tool. Having a constitution, whether you draft one from scratch or create one in combination with the replaceable rules, can make your internal management processes suit your company’s specific needs.
If you need assistance with reviewing or drafting a company constitution for your business, get in touch with us via the contact form or by calling 1300 337 997.
Daniel is a paralegal at OpenLegal. He is a final year business and law student at the University of Technology Sydney, majoring in finance and legal futures. His interests are newlaw, legal technology and commercial law.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
