Most of you will know that constitutions are like any other legal document—they need to be periodically reviewed and amended to remain compliant with changing legislation. But another reason to update your constitution is to take advantage of changes that might benefit your company. This is particularly relevant for companies older than 2002 (when the Corporations Act 2001 was amended) or those operating under a Memorandum and Articles of Association from before 1998.
So we’ve made it easy to update or convert your constitution online using our CCASA Docs platform. You’ll have all the documents you need in no time!
A company constitution is a set of rules that governs the way your company is run and the relationships between shareholders, directors and company activities. Constitutions are tailored to each company and agreed upon by the shareholders, rather than being dictated by the Corporations Act 2001.
Some companies choose to have replaceable rules instead of a constitution (or a combination of both) but there are many good reasons to set up a company constitution.
Proprietary companies must have a constitution and we specifically look at how those companies can benefit from updating or converting their constitution in this article.
Let’s step back in time. If your company is older than 2002, your constitution may not reflect changes that were introduced to the Corporations Act 2001 at that time. For example, the new legislation indicates that companies only require a minimum of one director, rather than two. Any company wishing to operate with a sole director are advised to check their constitution and update it if an allowance for this is not already in place. Legislation also now allows for companies to operate without a company secretary or company seal.
Updating your company constitution to incorporate these rules gives your company greater flexibility in its structure and activities. Remember that if your constitution differs to the rules of the Corporations Act 2001, you must abide by the rules of your constitution first and foremost, so it’s important to make these updates.
Companies established even earlier might be operating under a Memorandum and Articles of Association (M&A). Some M&As (which involve two separate documents rather than the single document of a constitution) have been around for a very long time and often don’t allow for ease of use or efficient compliance. But if your company still has an M&A in place, you must abide by those rules regardless of how old or outdated they are.
Many M&As stipulate rules that have since been amended to reduce administrative red tape and improve the efficiency of corporate regulation. For example, M&A legislation made it mandatory for proprietary companies to hold an Annual General Meeting, which is no longer required and can be achieved by circulated resolution.
As well as this, a shareholder of a proprietary company can now appoint a proxy, rather than only shareholders of public companies. And shares no longer have any par value, meaning that companies are no longer bound by any authorised share capital limit.
Another reason to update your constitution is to change your company type from a ‘special purpose’ company to a ‘trading’ company, in order to trade. Or if you have no need to trade, you may choose to convert from a ‘trading’ company to a ‘special purpose’ company. While this means the company can only be a trustee of a self managed super fund, it lowers your annual ASIC fees.
There are so many things to consider—it can also be beneficial to change from a limited company to a proprietary limited company, which requires a new trading constitution.
You may have misplaced your constitution? If you can’t locate your company’s original constitution, CCASA Docs makes it easy for shareholders to adopt a constitution by special resolution. You may need to speak with your legal advisor, however, as the update doesn’t advise on share classes and rights, which is usually referred back to the original.
And finally, you might want to convert from replaceable rules to a formal constitution. Luckily, you can now do this quickly and easily.
You’ll need your company name, ACN, state of incorporation and confirmation of whether your company is a trading or SMSF trustee only, as well as the names of the shareholders of the company (and ACNs of the companies if corporate shareholders are in place).
It only costs $199 (including GST) to upgrade your constitution and the benefits can be of high value to your company.
Contact Craig at email@example.com or Lisa at firstname.lastname@example.org if you have questions around updating or converting your constitution. We also recommend you seek legal and/or accounting clarification on the constitution documents and how they can be used in your circumstances.
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