Constitution

A Constitution for a company is a contract that usually determines the rules that dictate the relationships between, and actions of, the company, its shareholders, and directors.

The Australian Securities and Investment Commission (ASIC) under the provisions of the Corporations Act 2001 (the Act), stipulates that companies can either utilise their own Constitution, adopt the replaceable rules located in the Act, or implement an amalgamation of both in relation to the edicts that will direct the management and administration of the company.

A Constitution can be adopted prior to, during, or post registration. If the Constitution is ratified before registration, each shareholder needs to agree, in writing, to the provisions of the Constitution. The company must pass a special resolution to adopt the Constitution if it is ratified after registration.

Having a Constitution, or adopting the Acts replaceable rules, is both a legal requirement for most companies in Australia but is also part of best business management practice.

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