Replace a Company Constitution on our law firm’s website

Congratulations you are about to replace a company constitution on our law firm’s website. Build everything you need including:

* law firm letter  – confirms we authored the document
* member minutes
* new constitution

For the constitution update, ASIC requires nothing from you

Do not send a copy of the new constitution to ASIC. There are also no ASIC fees when you update company constitution.

Every member signs member minutes to update company constitution

As we have drafted the update, each shareholder signs to give their consent. Can’t get every shareholder to sign? Please call.

Company Constitution vs Replaceable Rules

Companies are governed by:

* a constitution (recommended), or
* replaceable rules

We often review a company incorporated on a non-law firm’s website. To ‘save time’ the non-law firm website adopts replacement rules for:

1. a sole director, sole member company; or
2. a Self-Managed Super Fund corporate trustee (special purpose company)

However, both of these companies must have a constitution.

Replaceable rules (from the Corporations Act 2001) provide a basic set of rules for your company. They are not good. Few accountants, lawyers or advisers recommend them.

Replaceable rules are less than the bare minimum. There are many additional powers that a company should have. These are only found in a constitution.

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 shareholders. In contrast, shareholders amend constitutions anytime.

Eight benefits by updating the Company Constitution

The constitution you are building updates your company’s internal rules and procedures. It fully complies with the new changes to the Corporations Act. The eight benefits are:

1. Technology

Technology changes how boards communicate with employees and shareholders. Traditionally board decisions are mailed out in physical form to shareholders. The update reflects technology changes. The new constitution outlines how technology is used in meetings. Members do not need to attend meetings and can appoint a proxy.

2. Dividends

In 2010, the Australian government amended section 254 of the Corporations Act. This section governs how dividends are paid.

Before 2010 dividends are only payable from company profits. Now a company can declare dividends if:

1. its assets exceed liabilities; and

2. the payment is fair and reasonable; and

3. the payment does not materially prejudice the company’s ability to pay its creditors.

Under old constitutions, you are not able to pay dividends. Insolvency specialists pursue this argument. They challenge all dividends paid since 2010.

3. Share buy-backs

Share buy-backs allow companies to buy back its shares from shareholders. In Australia, there are five types: equal access, on-market, employee share scheme, selective buy-back and minimum holding. Replace a company constitution and ensure the legality of the buy-back.

4. Preference shares

The new constitution allows the company to issue preference shares under Australian law.

5. Single Director

Before 1995, two directors are required. This was a disaster for asset protection. Both directors go bankrupt along with the insolvent company.

Asset protection is having no assets in a risky person’s name. Instead, assets are in the safe person’s name. For a couple, this is the ‘man of straw and the woman of substance’.

Owe money to the ATO for PAYG or superannuation? All directors are liable automatically for these ATO debts.

The Law Simplification Act 1995 (Cth) reduces the minimum number of directors from two to one.

Now, most companies have a single director. Only one person goes down if the company is insolvent.

The new constitution you are building allows you to have a single director.

6. Directors can’t resign if two directors are requiredsingle director company can't resign

As stated above, only a single director is required. However, there are over 27,000 Memorandum of Articles of Association and 59,000 constitutions that still require two directors.

We review brand new company constitutions incorporated on non-law firm websites. Many still require the company to have two directors.

What if your rules say two directors – but one wants to resign? You lodge the correct form with ASIC to resign as a director. ASIC accepts the form. However, the resignation is void. This is against a company liquidator and a trustee in bankruptcy.

To rectify, update your company rules.

A company with insufficient officers breaches the Corporations Act 2001. You suffer penalties and are prosecuted.

7. Division 7A Loan Agreementremove common seal by updating company constitution

Get a Division 7A Loan Agreement with the update. This is part of the constitution. It works existing and new members.

8. Escape the company seal

A company seal (corporate seal or common seal) is a stamp. Many Constitutions require all documents signed by the company have a ‘seal’. No seal is required under the Company Law Review Act 1988 (Cth).

If your rules require a seal then a deed signed without a seal is invalid. Our new update gets rid of the requirement.

Four faults in old Constitutions and Memo & Articles of Association

Australian companies created before 1 July 1998 had a ‘Memo & Articles of Association’. Like old Constitutions, your Memo & Articles of Association still operates, but not well. Faults with the M&A include:

1. Mandatory Annual General Meetings each year

Many constitutions require AGM. If you fail to hold the AGM, your company is in breach. This is for both taxation and insolvency laws. The law no longer requires an AGM for Pty Ltd companies. Our new update gets rid of the requirement.

2. Only do as permitted

stating a ‘list of objects’. This is the purpose of the company. E.g. ‘sell fishing tackle and retail’. What if your company now does something else, such as acting as a trustee of a doctor surgery? Then you break the law. Your company is acting ‘ultra vires’. It is acting outside its powers. Again, your company is non-compliant. Legal Consolidated’s Constitution allows you to do anything a human can do – and more.

3. Two directors go bankrupt, instead of one

requiring two directors. As stated above, the laws have changed. You now only need one director. It is safer to only have one director in case the company goes insolvent.

4. Perform out of date and illegal actionsReplace a Company Constitution

requiring illegal actions. Instead, update the company constitution to allow these correct powers:

* exercise corporate powers
* issue and allot shares
* not avoid liability (a very strange requirement)
* transfer shares
* vote and proxies
* appoint directors and company secretary
* conduct general and director meetings
* sign bank documents, loans and mortgages (however this may be useful because banks often cannot enforce a loan made by a company that is still working under the old Constitution or M&A)
* no longer require a company seal


For more legal advice telephone us. We are a law firm. We can help you answer the questions to replace a Company Constitution.

Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJDupdate company constitution single director
Legal Consolidated Barristers and Solicitors
Australia wide law firm
Head Office: 39 Stirling Highway, Nedlands, WA 6009
Mobile: 0477 796 959
National: 1800 141 612
Email: brett@legalconsolidated.com

See also:

Convert old company to an SMSF Trust – Special Purpose company

Build a Division 7A Loan Agreement

ATO says ‘loans’ to a company was not a loan