Corporations and their Governance
Companies formed after 1 July 1998 can have a simple set of rules known as “a Constitution” in place of what was previously called “Memorandum and Articles of Association”.
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.
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