If a proprietary company does not adopt a Constitution, they will be automatically governed by the Replaceable Rules as outlined in the Corporations Act 2001.
Most companies have a Constitution which is drawn up prior to the registration of the company. The Constitution has the effect of a contract between:
- the company and each shareholder;
- the company and each director;
- the company and the company’s secretary;
- a shareholder and each other shareholder.
A company adopts a Constitution on registration of the company provided each person who agrees to become a shareholder agrees in writing to the terms of the Constitution.
A company may modify or repeal its Constitution, or a provision of its Constitution by passing a special resolution. A special resolution requires at least 21 days notice and the agreement of a 75% majority of votes cast.
Special purpose companies such as a superannuation trustee are required to have a Constitution designed for that company.
A corporation can however take advantage of the Replaceable Rules set out in the Corporations Act to govern its internal management, however in our view a company should have a modern constitution that takes account of changes in the law and our changing world. It is not difficult to update a company’s constitution.
It is important to note however that the Replaceable Rules do not apply where the same person is the sole director and shareholder. These companies must use a Constitution.
If you have any enquiries regarding the operation of corporations, then please contact our business law team at Everingham Solomons where Helping You is Our Business.
Click here for more information on Terry Robinson