A company constitution sets out the rules that govern the relationships surrounding a company from the director to the stakeholder. While it is a document that is not legally required, it assists in governing and shaping the internal management of a company. Companies usually turn to adopting a constitution when they register their business. However, a company with no constitution will apply the ‘replaceable rules’ by the Corporations Act 2001.
A company constitution will typically include the following details:
- Structure of the Company
- Administration and organization of meetings
- Voting procedures
- Execution of documents
- Dividends
- Rights of shareholders, issue and transfer of shares
While the ‘replaceable rules’ can be modified and altered based on the company’s requirements and policies, there are some rules mandatory for companies that cannot be altered. These rules do not apply to a sole director company, or a single shareholder.
Here are some of the benefits of having a company constitution:
- Formulating a company constitution will be a cost effective solution for your business and will avoid relying on ‘replaceable rules’ that automatically apply to your company with no constitution.
- ‘Replaceable rules’ are basic rules that fits with all companies. Whereas, adopting a constitution will cover everything that your company needs.
- A constitution works as an agreement that can be tailored and modified based on the needs of your company. While you cannot change certain guidelines of ‘replaceable rules’.
If you wish to create your company’s constitution, you can do this by using ‘replaceable rules’ or seeking advice of a business consultant or company lawyer. It is crucial to ensure that your constitution is effectively governing your company and assisting in the operation of your business.
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