Company constitution vs replaceable rules
Replaceable rules are the Corporations Act's default. A constitution is your tailored alternative. Here's when each fits.
Replaceable rules are sections 198A onwards of the Corporations Act 2001 (Cth) that apply to companies as default governance rules unless replaced or modified by a constitution. They cover basics like director powers, meetings, and share transfers. A custom constitution replaces or modifies them with rules tailored to your specific company.
What replaceable rules cover
Director appointment and removal. Director powers. Meetings of directors and shareholders. Share transfers (including transmission on death). Dividend declarations. Notice requirements.
Where replaceable rules fall short
Generic share transfer rules without pre-emption rights. No drag-along or tag-along provisions. Limited director indemnity. No specific dividend class rules. No tailored decision thresholds. Suits a single-shareholder company; rarely suits anything more complex.
When a constitution is worth it
More than one shareholder. Multiple share classes. Specific governance needs (decision thresholds, board composition, family succession). Investment-ready company. Sale-ready company. Companies with founders’ agreements that need codifying.
Cost vs risk
A custom constitution is typically a few thousand dollars. Disputes that arise from inadequate replaceable rules can cost tens of thousands to resolve. The constitution is cheap insurance for any company that’s grown beyond a single shareholder.
Summary
Replaceable rules are the Corporations Act’s default. A constitution is your tailored alternative. Here’s when each fits.
Talk to Sam about your situation
If this article raised questions for your own circumstances, Sam Michele offers free 20-minute initial consultations. Learn more about our company constitution work, or book a consultation.
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Disclaimer: This article is general information only and does not constitute legal advice. Estate planning is deeply personal - every family's circumstances are different. For advice specific to your situation, please contact Rosewood Succession Solicitors.