Last Updated October 24, 2023
What is a Company Constitution?
A Company Constitution documents a company’s management rules. This document creates a contract between the company, its members, its directors, and the company secretary. A Company Constitution is a convenient resource for members or shareholders looking to review all internal management rules.
A Company Constitution will cover:
- Company details and structure
- Voting procedures
- Shareholder rights and meetings
- Director powers and meetings
- Officer details
A company can adopt a Company Constitution at the time of registration or later by special resolution.
The Corporations Act 2001 contains a set of standard replaceable rules which apply by default to your company unless your constitution replaces them. LawDepot’s Company Constitution template starts with these replaceable rules and customises them according to your specifications.
Company Constitutions are also known as Corporate Bylaws.
Does a company need a constitution?
Having a Company Constitution isn't a legal requirement because the replaceable rules will automatically apply to your company if you don’t adopt a Company Constitution. However, you will need to draw up a Company Constitution to replace or amend the rules if any of the Corporations Act's default replaceable rules are not suitable for your company.
The Australian Securities and Investment Commission (ASIC) requires a company to either create its own Company Constitution or follow the replaceable rules in the Corporations Act 2001.
A proprietary company that is a special purpose company needs to have a constitution in the company's records. However, you don't have to log it with the government. A special purpose company is one that is created for a set purpose, rather than general business (e.g. a not-for-profit company).
How do I write a Company Constitution?
You can easily create a customised Company Constitution by completing LawDepot’s questionnaire. Using our template will ensure you complete the necessary steps.
1. Name and register your company
Start by providing your company's name and Australian Company Number (ACN). Every company needs a unique name. The ASIC website allows you to check the availability of names before you register.
"Proprietary Limited" or "Pty Ltd" must be a part of your company's name if it is a proprietary company limited by shares. A proprietary limited company is a private company with at least one shareholder and no more than 50 non-employee shareholders.
The ASIC provides every company registered under the Corporations Act 2001 with a unique nine digit number called an ACN. All public documents issued by the company must include the ACN.
2. Decide on shareholder meeting rules
What per cent of voting shares constitutes a quorum?
A quorum is the minimum number of shareholders that must be in attendance at all times for a meeting to proceed. Attendance can be in person or by proxy.
Requiring a specific percentage of shareholders to be present in a meeting ensures a minority group doesn't make important decisions on behalf of the company (e.g. 51 per cent of shareholders must be present for a simple majority or 75 per cent for a more decisive majority).
Is your company a sole member/sole director proprietary company?
A sole member company operates with a single owner rather than multiple owners, while a sole director proprietary company is a company with a single shareholder who is also the sole director.
This structure simplifies the internal decision making of the company. Because there is only one decision-maker, no shareholder or director meetings are needed. Therefore, the replaceable rules are not suitable and do not apply to such companies.
LawDepot’s Company Constitution template is designed specifically for sole member/sole director Australian companies.
Is remote communication permitted as a form of attendance?
There may be instances where it’s more practical for a shareholder to attend a meeting through remote communication. A shareholder can attend a meeting through phone or video conference if your Company Constitution allows remote communication.
Can shareholders form voting trusts?
A voting trust is a legal trust that combines shareholders' voting power by temporarily transferring their shares to a third party (the trustee). The third party is usually obligated to vote in accord with the desires of the participating shareholders.
Voting trusts are useful when a company has minority shareholders who have limited interest or voting strength in the business. They can also help resolve conflicts of interest, retain majority control, and prevent hostile takeovers.
Is cumulative voting allowed when electing directors?
Cumulative voting allows a minority shareholder to take all the votes they'd typically use in multiple directors' elections and apply them all to a single director's election.
For example, suppose a company holds five elections for five potential directors, and a minority shareholder has two votes in each election (ten total votes). In that case, cumulative voting allows the shareholder to apply their combined ten votes to a single director's election.
Cumulative voting can prevent a majority shareholder from choosing all the directors of a company.
3. Create rules for director meetings
A Company Constitution should establish how much notice is necessary to call a directors’ meeting. LawDepot’s Company Constitution template allows you to choose:
- Reasonable notice
- A number of hours
- A number of days
What qualifies as reasonable notice is up for interpretation and depends on the established business practices within the company. Select a different option if you prefer a more definitive notice for directors’ meetings.
Your company may find it appropriate to stop a director from voting on issues where there is a potential conflict of interest. A conflict of interest occurs when a director’s personal interests clash with the interests of the company. This is a problem because a director has a responsibility to act in the best interests of the company.
Additional factors to consider include:
- How many directors will your company have?
- Can the company lend money to officers, directors, or employees?
- What per cent of directors need to be present for a meeting to proceed?
- Will remote communication be permitted?
4. Choose an officer structure
State in your Company Constitution whether directors, incorporators, or shareholders will appoint officers.
There are two types of officer structures your company can choose: simple or complex.
A simple officer structure consists of a president, a treasurer, and a secretary. A complex officer structure might consist of a CEO, COO, CFO, president and a number of vice-presidents.
How do I get a copy of a Company Constitution?
A company must provide a current copy of the Company Constitution within seven days to any member who requests it. The seven day period begins after the company receives payment, if there's a fee for obtaining the document.
How to amend a company constitution?
A company can make changes to its constitution by passing a special resolution. A vote of 75 per cent of voting shares in favour of the amendment is necessary for a resolution to pass.
A special resolution needs a minimum of 28 days’ notice for publicly listed companies, while any other company needs at least 21 days’ notice.