Which is safer for a company: Constitution or Replacement Rules?

Company Constitution vs Replaceable Rules? Which is better. Either can govern your company. Your company must have a set of rules. The rules are either in:

  1. a Constitution – document that you get when you build your Company; or failing that
  2. Replacement Rules – which are set out in the Corporations Act 2001

I have just reviewed a company incorporated on a non-law firm’s website. To ‘save time’ the non-law firm website adopted Replacement Rules for:

  1. one person is the sole director and sole member;
  2. a Self-Managed Super Fund corporate trustee (special purpose company)

However, both of these must have a Constitution. Why people choose to build legal documents on a non-law firm’s website mystifies me. Who carries the PI insurance? Is Legal Professional Privilege retained? Who is giving the legal advice?

Company Constitution vs Replaceable Rules

In any event, the Replaceable Rules are the bare minimum. There are many additional powers that a Company should have – that only a Constitution (preferable prepared by a law firm) contains.

Also the Replaceable Rules change at the whim of the current government. While the changes may benefit ‘society’ they may not be in the best interests of the shareholders. In contrast, Constitutions can be amended at any time by the shareholders.

When you build your company on a law firm’s website – Legal Consolidated Barristers & Solicitors, you:

  1. retain legal professional privilege
  2. benefit from the law firm’s PI insurance
  3. get legal advice and we can even help you answer the questions
  4. access a Sample of the document with Explanatory Notes
  5. receive a letter on our law firm’s letterhead explaining the document that you built

Only a law firm provides the above

Our Constitutions contain:

  1. My Doctorate was on business succession planning and accordingly our pre-emptive rights are cutting edge
  2. Tag along requirement forcing the minority shareholders to sell with the majority shareholders
  3. Accountant friendly, GAAP compliant valuation powers
  4. Profit distributions even when there is no ‘profit’ for ATO purposes
  5. Over 30 different classes of shares
  6. Directors and shareholders using Skype and the Internet
  7. Built in Division 7A Loan Deeds

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