Company Constitution

WHEN SHOULD YOU USE A CONSTITUTION? 

A Constitution forms the basis of the internal governance rules of a corporation.   A company’s internal governance rules operate as a contract between the company and each member, the company and each director and company secretary and between a member and each other member.  This contract is created by statute and not the typical way by all parties who intend to be bound by the contract signing it.   A company’s internal governance rules will generally deal with the following, among other things:

•  appointment, removal and powers of the directors and company secretary;
• procedures for arranging and conducting directors’ meetings;
• special rights attaching to shares; and
• rules relating to the transfer of shares and payment of dividends.

 Instead of adopting a Constitution, a company’s internal governance rules may consist of the replaceable rules set out in the Corporations Act 2001 (Cth) or a combination of a Constitution which includes some of the replaceable rules.

The Replaceable Rules are set out in the Corporations Act and cover Officers and Employees, Inspection of Books, Directors’ Meetings, Meetings of Members, Shares and Transfer of Shares.

Also see Shareholder's Deed.

Limitations

The Constitution should not be used and will require amendments if, by way of example:

• a rule which is to apply to how the company is governed is not included in this Constitution;
• the replaceable rules are to govern the Company’s internal operations instead of adopting a Constitution;
• there is a single director/shareholder.  Special arrangements apply to the internal functioning of single director/shareholder companies;
• the company is a public company or a proprietary limited company that intends to list on the Australian stock exchange or a company limited by guarantee;
• the company has, or proposes to have, different classes of shares on issue;
• a shareholder is entitled to appoint a director;
• the chairman of the Board is not intended to have a casting vote;
• pre-emptive rights are required so that existing shareholders have an option to buy the shares of other shareholders wishing to sell.