Congratulations you are about to replace a company constitution on our law firm’s website. Build everything you need including:
Do not send a copy of the new constitution to ASIC. There are also no ASIC fees when you update the company constitution.
Companies are governed by:
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:
However, both 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.
Q: I have a new client. She went ahead and registered a new Company directly with ASIC. This is without talking to me first.
I asked her for all the Company details including a Constitution. She said she didn’t get a Constitution. I am surprised ASIC did not require a Constitution during the process of incorporating a Company.
Does ASIC provide her with a Constitution? Or do I build a Constitution at Legal Consolidated’s website?
A: The client is foolish:
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:
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.
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.
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.
The new constitution allows the company to issue preference shares under Australian law.
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.
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.
Your new Legal Consolidated Constitution contains a Division 7A Loan Agreement. It is part of the constitution. It works for existing and future members. All shareholders are deemed to have the Div 7A Loan Deed.
A “company seal” is a stamp. You apply the stamp on legal documents ‘signed’ by the company. Many Constitutions require all deeds signed by the company to by “signed under seal”. But, the signing under seal rule is abolished. 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 seal requirement. Other names for a “company seal” is a “corporate seal” and “common seal”.
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:
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.
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.
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.
Requiring illegal actions. Instead, update the company constitution to allow these correct powers:
A: Every Constitution is different. The accountant hopefully got the Company and the Constitution from a law firm. Look at the Company Constitution. It will have the name of the law firm that prepared the Constitution. If the Company Constitution is silent then it looks like you and the accountant have been duped. Update the Constitution ASAP.
You use the expression “Statutory constitution”. I think you mean “Replaceable Rules”. For the reasons set out above Replaceable Rules are bad. Escape the replacement rules by building the New Constitution.
A: Company Constitutions are deeds. Only lawyers can legally prepare deeds. You would not find an Australian accountant preparing a Deed. Instead, the accountant outsources preparing the Company Constitution to a law firm. Also see the above answer.
A: Sadly, unlike trusts, companies are highly regulated. We draft the Constitution under the laws of Australia. The Corporations Act fetters what we can do to protect the company, its directors and shareholders.
Build this new Company Constitution to replace:
Telephone us for free advice on building your replacement Company Constitution.
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
National Australian law firm
National: 1800 141 612
Mobile: 0477 796 959
Email: [email protected]