Three ways to set the rules
Whichever way a company chooses, ASIC says it and its people must still follow every other rule in the Corporations Act.
All the replaceable rules
The default for a proprietary company. Use all of them and you don’t need a constitution; some public companies can use them too.
A constitution of its own
Written to suit the company, using all, some or none of the replaceable rules.
Some of each
A constitution for some things, the replaceable rules for the rest. Where the constitution is silent on a topic a replaceable rule covers, that rule applies.
What the replaceable rules are
They are not one chapter of the Act. Each is a section marked as a replaceable rule, and section 141 holds a table of which provisions they are. ASIC groups them by topic: company officers and employees, access to the company’s books, directors’ and shareholders’ meetings, and shares and dividends. Because the Act changes, ASIC says to check its latest version.
Reading them is the quickest way to see what “the default” means for your company. A selection follows, in plain words with the section number; ASIC’s page reproduces each rule in the Act’s own wording.
| Topic | What the default says | Section |
|---|---|---|
| Who runs the company | The business is managed by or under the direction of the directors, who may use all the company’s powers except those the Act or constitution reserves to a general meeting. | 198A |
| Directors’ meetings | Unless the directors decide otherwise, the quorum is 2 directors, present throughout. | 248F |
| Directors’ decisions | A majority of the votes cast passes a resolution, and the chair has a casting vote if needed. | 248G |
| Deciding without a meeting | Where there is more than 1 director, a resolution passes when every director entitled to vote signs a document in favour; it passes when the last one signs. | 248A |
| A director resigning | By written notice to the company at its registered office. | 203A |
| Removing a director | A proprietary company may remove a director by resolution, and appoint someone else in their place. | 203C |
| Issuing new shares | In a proprietary company, new shares of a class are first offered to that class’s existing holders, in proportion to their holdings, unless a general meeting authorises otherwise. | 254D |
| Dividends | In a proprietary company, subject to the terms of the shares, the directors may pay dividends as they see fit. | 254W(2) |
| Transferring shares | A proprietary company’s directors can decline to register a share transfer, for any reason. | 1072G |
| Seeing the books | The directors, or a general meeting, may authorise a member to inspect the company’s books. | 247D |
Under the default, then, directors decide on dividends and can refuse a share transfer for any reason. A company that wants something different can say so in a constitution, and ASIC notes that shareholders’ rights may be set out in the replaceable rules, a constitution or a shareholders agreement.
One director who is also the one shareholder
The replaceable rules do not apply to a proprietary company whose sole director is also its sole shareholder; there are special rules for these companies in the Act. ASIC points to section 135(1), and its list notes section 198E for the powers of a single director who is also the single shareholder.
What a constitution is
ASIC describes a constitution as a contract between the company and its members, directors and secretary, and also between the shareholders themselves, explaining how the company will be internally managed. It should set out rules for company governance, who can do what, meetings of directors and members, shares and dividends, and anything else important to the company. ASIC says you may need legal help to write one.
Some companies must have one:
- any company that wants to change part of a replaceable rule, or not use all of them;
- a no liability public company;
- a special purpose company that wants a reduced annual fee.
Adopting or changing a constitution
A company can adopt a constitution before or after it is registered.
- Before registering: each member agrees to it in writing.
- After registering: the company passes a special resolution. Depending on the type of company, the vote needs a minimum of 3 or 4 weeks’ notice, and at least 75% of members at the meeting must support it. A court can also order a company to adopt one.
- Changing or repealing it also takes a special resolution. Repeal it and have none, and the replaceable rules apply.
Only some companies must tell ASIC about adopting, changing or repealing a constitution: public companies, and proprietary companies that have applied to become public. They do it on Form 205 within 14 days of the resolution, or late fees apply. A special purpose proprietary company keeps its copy with its records instead.
A special resolution can also be passed without a meeting if every member entitled to vote signs in favour, and a company with a single member can pass one by recording and signing the decision.
Once the rules are settled, the company is ready for its ABN and tax registrations.