How to Change a Company Constitution

Every company in Australia is governed by its own set of rules that lays out how the company makes decisions and is governed. Most companies set these rules out in a company constitution. So, what happens when you need to change your company constitution? This article will explain the process.

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What is a Company Constitution?

In Australia, the rules that govern how a company is run can be contained in either:

• the ‘replaceable rules’ set out in the Corporations Act 2001 (Cth);
• a constitution; or
• both a constitution and replaceable rules.

These rules will deal with things like: 

• the process for appointing directors;
• the powers of directors;
• how a company can issue and transfer shares;
• the rights attaching to shares; and
• the process of running director members and decisions that members can vote on.

A company constitution is a document that has the effect of a contract between the company and each member, director and company secretary. Normally, the company’s constitution will displace the ‘replaceable rules’.

What Amendments Can You Make to a Company Constitution?

A company can amend all provisions in their constitution, provided they follow a proper procedure. Common amendments to a company constitution include:

• adding new classes of shares; 
• amending quorum thresholds for director or member meetings;
• introducing specific types of resolutions (such as a unanimous resolution) for certain key decisions affecting the company (such as a sale of business); and
• introducing pre-emptive rights on the transfer of shares.

While a company may validly go through the process of amending a constitution, an amendment may still give rise to the following issues:

1. unless a member agrees in writing, the amendment will not be binding on them, so far as the modification:
   • requires the member to take up additional shares;
   • increases the member’s liability to contribute to the share capital of, or otherwise to pay money to, the company; or
   • imposes or increases restrictions on the right to transfer shares a member already holds (unless the amendment relates to a change from a public to a proprietary company) or to insert a proportional takeover approval provision;
2. the change could amount to oppression against minority shareholders.

How to Change Your Constitution

A company may modify its constitution, or a provision of its constitution, by special resolution. However, a company’s constitution may state further requirements, for example, that a specific shareholder needs to approve the resolution.

In addition to the requirements in the Corporations Act and the company’s constitution, the company will also need to consider their shareholders agreement. This might require a form of special approval for a constitution change, for example, the requirement of a unanimous or special majority resolution.

In most cases, the company can change their constitution by either:

• passing a written unanimous circulating resolution of the shareholders; or
• calling a general meeting of shareholders and passing a special resolution (being least 75% approval by shareholders entitled to vote on the resolution).

Unanimous Circular Member Resolution

This is arguably the simplest process to amend the company’s constitution. The typical process under the Corporations Act is as follows:

1. a company may pass a resolution without holding a general meeting if all the members entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution;
2. separate copies of a document may be used for signing by members if the wording of the resolution and statement is identical in each copy; and
3. the resolution is passed when the last member signs.

A company’s constitution may also contain specific provisions relating to how a unanimous circular member resolution may be passed. Normally, the directors would draft a written resolution and send it to all the members to review and sign. The document would set out:

• the proposal to amend the constitution;
• what the amendments are, and possibly an explanation as to why they are being proposed; and
• that by signing the resolution, the shareholders agree to that amendment.

The drawback to this process is that if one or two shareholders refuse to sign the resolution, the company would have to call a general meeting and follow the general process below.

General Meeting

To call a general meeting of shareholders, the company will need to follow the specific processes set out in its constitution, the Corporations Act and shareholders agreement (if any). Relevantly, there are crucial matters to consider, including:

• who has the power to call a general meeting;
• how much notice do you need to call the meeting, and what the notice must contain;
• how do you hold the meeting;
• who can act as chairman, and what powers they maintain;
• the voting rights of members;
• the appointment and voting of proxies; and
• how do you deal with adjourned meetings?

Typically, a general meeting for private companies will:

1. be called by the directors;
2. require at least 21 days’ notice is given to shareholders unless a shorter notice period is agreed to by members with at least 95% of the votes;
3. include a notice setting out details of the meeting’s location (and telephone/video conference details) and an explanation of the proposed constitution amendments and how proxies may be appointed and vote;
4. not provide the appointed chairman of the meeting with a casting vote; 
5. vote by show of hands, where each member will have one vote. On a vote-by-poll, each member will have one vote for each share (which has voting rights) they hold.

What to Do After the Constitution is Changed

If you are a private company, there is no need to lodge the new constitution with the Australian Securities and Investments Commission (ASIC). However, you must keep a copy of the company’s records. Furthermore, you must provide a current copy within seven days to any member who requests it.

If you are a public company, you must lodge copies of the new constitution with ASIC and the special resolution adopting the new constitution within 14 days of passing the resolution.

Key Takeaways

If your company needs to change its constitution, it is important to be aware of and follow the processes set out in your constitution, Corporations Act and shareholders agreement. This will ensure that the updated constitution is valid and enforceable.

For more information about amending your company’s constitution, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

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