Since 1998 companies have been able to either adopt a constitution, the Replaceable Rules or a combination of the two.
Replaceable Rules are “default rules” found in section 141 of the Corporations Act 2001 (Cth) (‘the Act’). They govern the powers of directors, appointment of directors, transfers of shares and rules relating to meetings. Small businesses with a sole director and sole shareholder company structure are not allowed to use Replaceable Rules.
A company may adopt a constitution instead. This is a more detailed document, which overrides the Replaceable Rules and operates as a contract between the company and each member, director and company secretary. A constitution is preferable where not all members or directors are related as it then becomes more important to be able to deal with issues that the Replaceable Rules do not traverse.
Companies with more complex affairs (eg unrelated members or members with different voting rights) may also consider a Shareholders’ Agreement which operates hand in hand with a constitution by further prescribing the conduct of members.
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