What is a company constitution?

A company constitution is an internal governance document that sets out how a company is run: how directors are appointed, how shares are issued and transferred, how decisions are made, how dividends are paid, and what powers shareholders and directors have. It can replace or work alongside the Corporations Act 2001 (Cth) replaceable rules.

What it covers

Director appointment, removal, and duties. Share issues and classes. Share transfer rules (including pre-emption rights). Dividend powers. Shareholder meetings and voting. Director indemnity. Drag-along and tag-along rights for sales of the company.

Public vs internal

A company constitution is an internal document – not lodged with ASIC (except some specific changes). Shareholders are bound by it as a contract. New shareholders inherit the rules on becoming members.

When you need a constitution

Any company with multiple shareholders that wants tailored governance. Companies with multiple share classes. Family companies with succession planning. Companies preparing for investment. Companies with employee share schemes.

Adoption

A company adopts a constitution by special resolution (75% shareholder approval). The resolution can be at a general meeting or a written resolution if unanimous. Replacing or amending an existing constitution follows the same process.

Summary

A company constitution is the rulebook that governs how a company operates internally. It replaces (or modifies) the Corporations Act’s default rules.

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.

Related reading

• Company constitution vs replaceable rules
• How to draft a company constitution
• Company constitution work