Why does your company need a constitution?

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The Companies Act requires a company to have some form of constitution, and also governs what that constitution contains.

Regardless of whether you use a “long form” or “short form” constitution, it is essential to be aware of the Act’s mandatory, presumptive and optional provisions.  If you don’t adopt a constitution, your company will be governed by the default provisions under the act.  Here we outline a few of the main provisions to give you an idea of what cannot be contracted out of and what is acceptable to alter. 

Mandatory provisions

  • Minority buy-out rights in favour of shareholders who oppose a major transaction, amalgamation or amendment to constitution.
  • Major transactions being approved by special resolutions.
  • Directors’ duties.

Presumptive provisions

(will automatically apply unless altered)

  • Majority required for passing a special resolution at 75%.  This can be increased but not lowered.
  • Shares rank equally  (1 share = 1 vote).
  • New shares must first be offered to existing shareholders. This is known as pre-emptive rights.

Optional provisions

(can only be relied upon if the constitution expressly permits it)

  • Pre-emptive rights can be applied on the transfer of shares.
  • One Director to sign on behalf of company if witnessed.
  • Ability for company to issue redeemable shares.

A company’s constitution is a public document that is searchable on the Companies Office website.  Therefore, it may be worthwhile implementing a Shareholders’ Agreement (not a public document) if your company is after more privacy.

If you would like to discuss your company documentation in more detail, and better tailor it to suit your needs, please get in touch with our business law specialists.

Our thanks to Chris Taylor for writing this article