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 may adopt a constitution either on or after registration.  The Corporations Act does not prescribe the rules that must be included in a constitution.  A company’s constitution may modify the provisions of the Corporations Act that apply as replaceable rules and specify the replaceable rules that do not apply to the company.

A constitution is a special form of contract as it binds the company, shareholders who initially agreed to adopt a constitution and any future shareholders, unlike other forms of contract that only bind those who are parties to it.

A company’s constitution has effect as a contract between the company and each member, a member and each other member and the company and each director and company secretary, under which each person agrees to observe the provisions of the constitution so far as they apply to that person.  This only creates enforceable rights and obligations in relation to shareholders in their capacity as shareholders of the company, not in their personal capacity.  It also does not create enforceable rights and obligations between the shareholders of a company and the company’s directors and/or company secretary.

Consequently, a shareholder may be precluded from enforcing any provisions in a constitution that confer personal rights, which may include the right to be employed by the company, non-compete provisions and provisions designed to protect the interests of minority shareholders.

Conclusion

A company constitution is an important document. Every company has one, and you will need to refer back to it before taking various decisions. Your company constitution works in conjunction with your company shareholders agreement, so make sure they’re both drafted well! To find a lawyer, contact LegalVision on 1300 544 755 and get the ball rolling today.

Matthew Payne

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