We’re all familiar with the fact that constitutions tend to be the leading set of rules which forms the basis of how an entity operates. Nations require constitutions and since 1998, so do Australian companies, with legislation mandating that companies needed both a memorandum of association and articles of association.
Before going further with this piece, we should emphasise that this article will be generally focused on the position of companies formed after July 1998 which was the date where companies were required to adopt a constitution.
What are the statutory requirements of a company constitution?
Under the provisions of the Corporations Act 2001 (the Act), companies can either implement their own constitution, use the replaceable rules found in the Act, or have a combination of both in regards to the rules that will guide the internal management of the company.
Section 136(1) of the Act outlines the following ways in which a company can adopt a constitution:
- a company may adopt a constitution on registration if each person specified in the application, who consents to being a member, agrees in writing to the terms of the constitution before the application is lodged; or
- a company registered without a constitution, may adopt one upon the passing of a special resolution.
Alternatively under s 233 of the Act, the court can also make an order requiring the company adopt a constitution (the oppression remedy).
Public companies that have a constitution are required to lodge a copy and any relevant special resolutions with the Australian Securities and Investments Commission (ASIC) within 14 days.
Are there content requirements in regards to the constitution?
Outside of specific types of companies, the Act does not specify what should be contained within a company’s constitution but for the most part, the rules regarding the internal management of the company will generally outline how matters such as shareholders’ rights, the conduct of shareholders’, how directors are appointed and renumerated, directors’ powers, and directors’ meetings will be some of the matters which generally will be referred to in the constitution.
Companies that do not carry the term ‘limited’ in its name, under s 150(1) provides that the constitution of such companies:
- only pursue charitable purposes and their income should be applied to promoting those purposes;
- prevents a company from making any distributions to members, and paying fees to directors;
- requires that any other payments the company wishes to make to directors, must be approved by the directors.
Mining companies under s 112 of the Act, which deals with no liability companies, mandates that such a company must state that mining is the company’s sole purpose and as a consequence, the company has no contractual right to recover calls made on its shares from any shareholder who fails to pay.
Meanwhile, companies which are ‘limited,’ must adopt a constitution that is in line with the ASX Listing Rules: ASX Listing Rule 15.11.
Can a company’s constitution restrict its activities?
Companies can include object clauses within its constitution which outlines and restricts the activities in which the company may engage in under s 125(2) of the Act. Object clauses aren’t mandatory but may provide an indication regarding the nature of the business.
Any person wishing to explore company law within the Corporations Act should contact a legal practitioner who will be able to help.