Lecture 7: Company Constitutions & Replaceable Rules

Lecture 7: Company Constitutions and Replaceable Rules

• Company Constitution: A document outlining rules for internal management of a company.

  • Until July 1, 1998, companies were formed by registering a memorandum and articles of association, a joined document comprising a company's constitution.
  • The memorandum defined the company's name, share capital structure, objects and members' liability.
  • The articles outlined the contractual relationship between the corporation and its members, senior officers and amongst members.
  • The Corporations Act 2001 (Cth) repealed previous sections for forming a company's constitution.

• Replaceable Rules: A set of provisions in the Corporations Act 2001 (Cth) providing guidelines for managing corporations.

  • These are often mandatory for public companies, and are not alterable in their application.
  • Only one replaceable rule exists currently relating to proxy appointments.
  • Replaceable rules do not apply to companies where a single person is both Director and Shareholder.
  • A provision of a section or subsection of the Act, intended for application as a replaceable rule, can be dislodged/modified by a company's constitution.
  • These rules are grouped into categories: officers and employees, inspection of books, directors' meetings, members' meetings, shares and transfer of shares.

• Topic Overview: Includes:

  • Company Constitution
  • Replaceable Rules
  • Corporate Governance
  • Board of Directors
  • General Meetings

• Company Adoption Process:

  • On registration: All applicants agreeing in writing to the constitution terms, before application.
  • After registration: The company passes a special resolution, or a court order requiring the adoption via Corporations Act 2001 (Cth) s 233.
  • Public companies needing to register with the ASX are required to have a constitution. No liability companies must state their sole object as mining in their constitution.

• Modifying or Repealing a Constitution:

  • A company can modify or repeal its constitution using a special resolution.
  • A special resolution requires notice as outlined in Corporations Act 2001 and approval by a 75% vote of eligible members.
  • The company may need court approval to modify or repeal a constitution created from a court order.

• Lodging Requirements:

  • Public companies must lodge a copy of the special resolution for adopting, modifying, or repealing the constitution within 14 days after it is passed.
  • Documentation needs to be lodged with ASIC.
  • ASIC can require a consolidated copy of the constitution.

• Statutory Contract: The constitution and replaceable rules function as a contract between:

  • The company and each member.
  • The company and each director, secretary.
  • Members and other members.
  • Involves each individual agreeing to uphold the constitution and all rules.

• Rules not binding immediately (after company registration):

• Changes requiring the members take up additional shares, increasing liability (to pay money/contribute to the share capital) or imposing/increasing restrictions to transfer shares. Certain exceptions (e.g., changes in company type/introducing proportional takeovers) exist.

• Outsider's Enforcement:

  • Outsiders cannot enforce the statutory contract regarding a company's governance. (case in point: Eley v Positive Government Security Life Assurance Co Ltd (1876), specific case facts discussed in the notes).

• Company Governance Under the Constitution:

  • Rights under the statutory contract are limited to members’ capacities.
  • Articles of association creating rights/obligations between members, do create rights and obligations between members and the company. Articles concerning general rights/obligations held by members (not in relation to the member as an individual person) does.