- A company constitution is a document that contains the rules governing the relationship between and activities of the company, its directors and shareholders.
- A company or corporation is created as a discrete legal entity when ASIC registers it following an application made by a person, whether corporate or individual.
- There are six main types of companies. If a company is not a proprietary company, it is known as a public company.
Types of Companies
A corporation is a company or group of people that is capable of suing and being sued and has the power to acquire, hold and dispose of property. Corporations have perpetual succession and are managed centrally under a board of directors. Generally, corporations have shared ownership by contributions of capital. It is possible to have a 1-person company; however, a company cannot have more than 50 members under the Corporations Act.
The Corporations Act states that a company registered must be one of six available types
- Proprietary companies
- Limited by shares
- Unlimited by share capital
- Public companies
- Limited by shares
- Limited by guarantee
- Unlimited by share capital
- No liability company
Companies Limited by Shares
A company limited by shares must be formed with a share capital. A company’s share capital is the total amount contributed or promised to be contributed by its members as proprietors to be expensed in the company’s business on terms that the claim of the contributors to cover their contribution.
A company’s internal management is governed by replaceable rules contained in the Corporations Act or by a constitution or by a combination of both.
- Registering a business name is not the same as registering a company or corporation. You can register a company through a provider who use software that deals with ASIC.
- Before registering a company, you must decide whether the internal management will operate under replaceable rules, a constitution or a combination of both
- Written consent must be obtained from people who agree to become the company’s director, secretary and its members.
Corporate and Company Constitutions
A company’s internal management may be governed either by the “replaceable rule” provisions of the Corporations Act, or by a constitution, or by a combination of both.
A company constitution is a document that generally specifies the rules governing the relationship between and activities of the company, its directors and shareholders.
Adoption of a Constitution
A company can adopt a constitution on registration if each person specified in the application for registration as a member agrees in writing or after registration by passing a special resolution which adopts the constitution.
Replaceable rules are provisions in the Corporations Act that apply to companies formed after July 1998 or companies formed before that date that have repealed their constitutions. However a company may displace or modify the replaceable rules with the company’s constitution. Failure to comply with the replaceable rules, as they apply to the company, is not automatically a contravention of the Corporations Act.
Altering the Constitution
A company may displace or modify any one or more of the replaceable rules by adopting a constitution. If a corporation has adopted a constitution it can later be modified or repealed, in whole or part, by passing a special resolution at a general meeting of the company’s members.
Frequently Asked Questions about Corporations and Company Constitutions
Q: When are corporate bodies related?
A: One body corporate is related to a second body corporate when:
- It is a holding company of the second body corporate
- It is a subsidiary of the second body corporate
- It is a subsidiary of a holding company of the second body corporate
Q: What is a share?
A: A share is a contract between the company and the shareholder giving the shareholder a bundle of rights against the company. Rights include to attend and vote at meetings of members, to payment of any dividends that the company may declare; and to a return of capital if the company is wound up and is able to pay all its debts
Q: What are ‘unlimited companies’?
A: In unlimited companies, members are not directly liable to creditors of the company and are not normally used by trading ventures.
Q: What is a subsidiary company?
A: A company will be a subsidiary to another company if the holding company controls the composition of the first body’s board (controls taken to be if the other body can appoint/remove all or the majority of the directors on the first mentioned board). It can also be a subsidiary company if the holding company is in a position to cast or control more then 50% of votes cast at a general meeting or the holding company has more than half the issued share capital of the first body. A company can be a subsidiary of a subsidiary.
Q: What is corporate governance?
A: Corporate governance is the framework of rules, relationships, systems and processes by which authority is exercised and controlled in corporations. It encompasses the mechanisms by which companies and those in control are held to account.
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