Summary
- Before the Corporations Act 2001 (Cth), a company’s internal governance was split across a memorandum of association (covering company objectives, name, share capital, and shareholder relationships) and articles of association (covering operational governance, director powers, and share transfers).
- Companies incorporated before 1998 may still validly rely on these documents, but those incorporated after 1998 are governed by the Corporations Act’s 39 replaceable rules, which apply automatically unless the company adopts its own constitution.
- Older memorandums and articles of association may contain outdated provisions that restrict business operations or create administrative burdens, and companies seeking investment should review these documents to ensure they support strategic flexibility and do not present governance red flags.
- This article is a guide to memorandums and articles of association for business owners in Australia, explaining their historical role, how the Corporations Act changed corporate governance requirements, and when updating these documents may be appropriate.
- LegalVision is a commercial law firm that specialises in advising clients on corporate governance and company structures.
Tips for Businesses
Review your memorandum and articles of association regularly, particularly if your company was incorporated before 1998, to identify outdated provisions that may restrict operations or deter investors. If adopting a new constitution, ensure it is approved by special resolution with at least 75% shareholder support. Tailor any new constitution to your company’s specific operational structure and ownership arrangements.
Before the Corporations Act 2001 (Cth), a company’s internal governance was split across two separate documents: the memorandum of association and the articles of association. While these documents have largely been replaced by the company constitution and the replaceable rules, many companies incorporated before 1998 still rely on them.
These documents still govern many companies incorporated before 1998 – this is entirely valid. This article explains what each document covers and how the law has evolved.
Memorandum of Association
A memorandum of association typically lists the objectives of the company. Previously, a company could not perform any activities that fell outside of this scope. Doing so was considered ‘ultra vires’, or beyond the company’s power to do so. If a company performed an ‘ultra vires’ action, it became void, even if it was legal. This rule is no longer the case.
The memorandum of association also sets out:
- the name of the company;
- its share capital structure;
- the registered physical office of the company; and
- the relationship between the company and shareholders, including the liability of the shareholders.
Articles of Association
The articles of association cover everything to do with the operational framework and internal governance of the company. They also confirm the contractual relationship between members by setting out the powers, rights and obligations of the company’s members and senior officeholders.
Further, the articles govern operational matters such as the:
- appointment and powers of directors;
- appointment and powers of the company secretary;
- conduct of the board and general meetings; and
- issue, rights and transfers of shares.
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The Corporations Act
The Corporations Actflooded the corporate governance space with changes. Now, a single document – the company constitution – replaces the memorandum of association and articles of association.
If your company was incorporated before 1998, it is entirely valid to still rely on both documents rather than a company constitution. However, if you registered your company after 1998, there is no longer the requirement to have any written document that outlines your company’s corporate governance framework.
Additionally, the Corporations Act’s replaceable rules now govern companies who choose not to adopt a company constitution. These rules automatically apply if a company’s constitution is silent about a particular issue covered by one of the 39 replaceable rules. Therefore, it is now possible to govern your company through a combination of the replaceable rules and your own company constitution.
Other Jurisdictions
Companies in other countries continue to use memorandum and articles of association. Each country has its own set of documents regarding the internal governance of a company. Likewise, such documents may have different purposes or content, depending on the particular legal requirements of each country. The documents may also go by different names. For example, articles of association may sometimes be known as articles of incorporation. You might be interested in incorporating a company overseas or have questions about corporate governance documents for an overseas company. In this case, it is best practice to seek legal advice from a legal practitioner in that jurisdiction.
Time for an Update
If your company still uses its memorandum and articles of association, it might be worth updating them. Documents may contain outdated provisions that could inadvertently restrict business operations or create unnecessary administrative burdens.
For instance, older memorandums might specify narrow business objectives that limit a company’s ability to pivot or expand into new markets, even though the ultra vires doctrine no longer applies. Similarly, articles of association drafted decades ago may prescribe cumbersome meeting procedures or share transfer mechanisms that do not align with modern business practices or digital communication methods.
Companies should regularly review these documents not only for legal compliance but also to ensure they support efficient business operations and strategic flexibility. This is particularly important for companies seeking investment, as investors often scrutinise governance documents for potential red flags or operational constraints that could affect the company’s growth prospects or exit strategies.
How to Adopt a New Constitution
For companies currently operating under a memorandum and articles of association, adopting a modern constitution requires specific approvals under the Corporations Act. The company must first draft the new constitution. The constitution should be tailored to address private company-specific concerns, including share transfer restrictions to maintain ownership control, streamlined decision-making processes that reflect closer shareholder relationships, and provisions that accommodate the company’s particular operational structure.
Once drafted, the proposed constitution must be approved by:
- a special resolution at a general meeting; and
- requiring at least 75% of the votes cast by shareholders entitled to vote on the resolution; or
- by written resolution signed by all shareholders.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
Before the Corporations Act, it was common to govern a company’s internal management through a memorandum of association and articles of association. If such documents are still relevant to your company, you might want to update them to reflect modern company law. Today, the Corporations Act’s replaceable rules automatically apply to companies incorporated post 1 July 1998. Likewise, there is no longer a requirement to have any corporate governance documents.
If you have any questions regarding your business or your corporate governance documents, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced business lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
A memorandum of association is a document that outlines the key details of a company. Such details include the company’s name, its share capital structure and the registered physical office of the company. It also lists the relationship between the company and its shareholders.
Articles of association cover everything related to the company’s operational framework and internal governance. They confirm the contractual relationship between members by setting out the powers, rights, and obligations of members and senior officeholders.
If your company was incorporated before 1998, it is entirely valid to rely on both a memorandum and articles of association, rather than a company constitution. Today, the general rule is that there is no longer a requirement to have any corporate governance documents in place. However, you can still choose to adopt a company constitution. If not, the replaceable rules apply.
Older documents may contain outdated provisions restricting business operations, narrow objectives limiting expansion, or cumbersome procedures misaligned with modern practices. Investors also scrutinise governance documents for red flags affecting growth prospects.
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