• 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 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 a board of directors centrally manages it. Generally, corporations have shared ownership by contributions of capital. It is possible to have a 1-member company; however, a proprietary 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; or
    • 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

You can form a company limited by shares with share capital. A company’s share capital is the total amount which members contribute or promise to contribute. Members act as proprietors to be expensed in the company’s business on terms that the claim of the contributors to cover their contribution.

A company can issue different types of shares to shareholders. You can issue shares with specific rights and restrictions attached to them. Types of shares include ordinary shares, preference shares, and bonus shares. 

Replaceable Rules

Replaceable rules are provisions in the Corporations Act that apply to companies formed after July 1998. Alternatively, replaceable rules apply to companies formed before that date that have repealed their constitutions.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.

The Corporations Act includes a list of 39 replaceable rules that companies can choose to adopt in their internal governance structure. The replaceable rules apply to companies unless a company’s constitution partially or wholly excludes them. Company resolutions can also exclude the use of replaceable rules. 

Internal Management

Replaceable rules govern a company’s internal management. The Corporations Act, the company constitution, or a combination of both is where you can find the replaceable rules that apply to your company. A company constitution is a document that generally specifies the rules governing the relationship between and activities of the company, its directors and shareholders. 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.

Directors’ Duties 

Directors of an Australian company must follow the directors’ duties specified in the Corporations Act. Therefore, failure to comply with directors’ duties can attract both criminal and civil penalties. Penalties include fines, damages owed to the corporation, or disqualification from directorship. 

There are four general duties directors must follow in their position: 

  • directors must act with care and diligence; 
  • directors must act in good faith; 
  • not misuse their position; and 
  • not use information gained in the course of their duties improperly. 

Altering the Constitution

A company may displace or modify any one or more of the replaceable rules by adopting a constitution. Therefore, if a corporation adopts a constitution, they can later modify or repeal it, in whole or part. This process requires passing a special resolution at a general meeting of the company’s members.

Key Takeaways

  • Registering a business name is not the same as registering a company or corporation. You can register a company through a provider who uses 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.
  • You must obtain written consent from people who agree to become the company’s director, secretary and its members.

How can LegalVision help me?

We have helped many companies with their legal issues, and it would be our pleasure to assist you. We provide fixed prices for your certainty and peace of mind. For more information on corporates and corporate constitutions, call LegalVision on 1300 544 755.

Frequently Asked Questions

When are corporate bodies related?

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; or
– it is a subsidiary of a holding company of the second body corporate

What is a share?

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, the payment of any dividends that the company may declare, and to a return of capital if the company is wound up and unable to pay all its debts.

What are unlimited companies?

In unlimited companies, members are not directly liable to creditors of the company. Unlimited companies are not normally used by trading ventures.

What is a subsidiary company?

A company will be a subsidiary to another company if the holding company controls the composition of the first body’s board. Control is shown if the other body can appoint or 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. Alternatively, if the holding company has more than half of the issued share capital of the first body. A company can be a subsidiary of a subsidiary.

What is corporate governance?

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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