Short Answer: if your company does not have a Shareholders Agreement then rules governing decisions that can be made are set out in the company’s constitution. If your company does not have a company constitution then the replaceable rules in the Corporations Act set out rules governing your company.
A company constitution is a document that sets out the rules governing the relationship between the company, its directors and shareholders. The constitution will bind the company and current and future shareholders.
The constitution can incorporate or modify some of the replaceable rules that are found under the Corporations Act.
So if you have a constitution for your company it will set out the rules that apply to running/operating your company. The constitution can modify or amend or even replace the replaceable rules found under the Corporations Act. But looking at this the other way, if your company constitution does not replace or modify a replaceable rule then the replaceable rule will still apply.
Think of it this way, the replaceable rules under the Corporations Act set out the base set of rules that apply. These base rules can be amended, modified or replaced completely in the constitution and if the replaceable rules are completely replaced in the constitution then they no longer apply. Then over the top of the constitution you can have a shareholders agreement that will generally override the company constitution, but bear in mind that whilst a shareholders agreement may be expressed to override a constitution often both of those documents deal with slightly different issues and so are most often read together.
Ok so what are these replaceable rules that we have mentioned. Well they are found in s141 of the Corporations Act. Before we go any further if you are a sole shareholder and a sole director of your company then the replaceable rules do not apply to you. If you want to see a full list of replaceable rules visit the ASIC site and it will give you an overview of all the replaceable rules. Here are some of the main ones:
- Voting of a director when director has a personal interest
- Powers of directors
- Managing director – power to appoint and power of
- Power to appoint director
- Remuneration of directors
- Resignation of directors
- Removal of director by members
- Inspection of books
- Director’s meetings
- Meetings of Members
- How many votes a shareholder has
- Transfer of shares
In the absence of a constitution these rules set out how you can do certain things in a company. But remember if you do have a constitution then the constitution can override or change any of the replaceable rules.
Why do people put in place a Constitution?
People forming companies put in place a constitution because it is more specific and more comprehensive than simply relying on the short replaceable rules that are found in the Corporations Act. Also a constitution is generally clearer with more detail that what you would find under the corresponding replaceable rule.
We hope that’s clear as mud! If you need a hand wading through the murky waters give us a call and we will guide you through the corporate quagmire.