Every company in Australia is governed by its own set of rules that lays out how the company will run. Many companies set these rules out in a company constitution. So, what happens when there’s a change to the company, its business activities or people, and you need to update the constitution? This article will explain how to change your constitution and the steps you need to follow to ensure the new constitution is valid.
How Does a Company Constitution Work?
In Australia, the rules that govern how a company is run can be contained in:
- the clauses set out in the Corporations Act 2001, known as ‘replaceable rules’;
- a constitution; or
- both a constitution and replaceable rules.
Private companies and ‘no liability’ public companies must have constitutions. The constitution can be adopted before or after the company is registered.
What Amendments Can You Make to a Company Constitution?
Common changes to a company constitution include:
- implementing a new company structure;
- allowing a sole director;
- meeting requirements of a new licence or funding arrangement; or
- responding to any changes to the law.
You may also need to amend the constitution if there is a court order that asks you to change specific aspects. However, not all amendments are allowed. There are some restrictions to amendments that:
- affect certain voting rights of shareholders; or
- change certain provisions of the constitution.
Steps to Change Your Constitution
To change the company constitution, company members must pass a special resolution at a general meeting to approve the changes. The procedure to change the constitution must follow certain steps for the updated constitution to be valid. These include:
- reviewing the constitution. The first step is to check whether the existing constitution contains any special requirements about how you should change it or any rules that you need to keep in the new constitution. Note that a company constitution cannot contain a clause that restricts the ability to change it;
- issue a notice. A company has to give notice of a special resolution and general meeting. A publicly listed company must give at least 28 days notice of the meeting. All other companies must give at least 21 days notice. The notice should include the time, date and place of the meeting, the general business that you will discuss and the intention to pass the resolution;
- general meeting. To adopt a new constitution, the company must pass a special resolution at a general meeting. At least 75% of the voting members of the company must vote in favour of the resolution for it to pass. However, you will also need to follow any other requirements for passing resolutions that are set out in the original constitution;
- proxy voting. Members who can’t attend the meeting can appoint another person to act as their ‘proxy’ and the proxy can then vote on the resolution on their behalf. The member will usually need to complete a form to appoint the proxy, and the form must be taken to the meeting.
What to Do After the Constitution is Changed
Once the company has passed the special resolution to change the constitution, certain steps must be taken. If you are a private company, there is no need to lodge the new constitution with ASIC (Australian Securities and Investment Commission), but you must keep a copy with the company’s records. Furthermore, you must provide a current copy within seven days to any member who requests it.
However, there are different rules if the amendment to the constitution is to change the company from a private company to a public company. If so, the company must lodge copies of the new constitution with ASIC and the special resolution adopting the new constitution within 14 days of the resolution being passed. The new constitution takes effect from the date the special resolution is signed.
Overall, if your company needs to change its constitution, it is important to be aware of what changes are allowed. It is also essential to follow the correct guidelines for formally updating the constitution. This will ensure that the new constitution is valid and enforceable. If you have any questions about company constitutions or need assistance with amendments to a constitution, you can contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
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