Company Constitution vs Replaceable Rules

According to the Corporations Act 2001, a company’s internal management may be governed by the provisions of the act that apply to the constitution or replaceable rules of a combination of both (s135 & 136).
 

However the following companies must be governed by a constitution:
 

1.       Public companies ‘Limited by Guarantee’ who are applying to omit the word Limited from their name u/s 150

2.       ‘No liability’ public companies under section 112

3.       ‘Special purpose company’ that want to obtain that reduced annual review fee under item 103 of the Corporations act.
 

The constitution for most companies is drawn prior to the registration which makes a company legally compliant. It governs a company’s contract with third parties in the following ways:
 

1.       The company and each member

2.       Company and each director

3.       The company and the company secretary

4.       Between a member and another member

A company must provide up to date copy of the constitution to any member within 7 days of the request.

Replaceable rules on the other hand contain a detailed listing of the text of rules. These do not apply to proprietary companies where one person is the sole director and sole member (although a constitution can be adopted). The replaceable rules that govern the internal management of a company are set out in section 141 of the corporation’s acts. These rules govern matters relating to the following issues:
 

1.       Appointment of the directors

2.       Powers of the directors

3.       Regulations of both directors and members meetings

4.       Inspection of books

5.       Rights attached to a specific class of shares

6.       Transfer of shares

Whenever there is debate as to which one of them is better or is more suitable to a company we can conclude that a constitution gives its shareholders flexibility and greater certainty in the following ways:
 

1.       A constitution allows you to have all 20 classes of shares.

2.       A constitution contains comprehensive rules regarding calling and holding meetings.

3.       A constitution can contain comprehensive guidelines regarding day to day management of the company as compared to the

4.       Replaceable rules cannot be used for special purpose companies such as superannuation trustee companies.

5.       A company constitution can be amended and modified in accordance with the wishes of its members by calling and passing a resolution.

Under certain circumstances replaceable rules can enable minority shareholders to protect their interests against the decisions which may have adverse impact on them. In addition to this we see that a constitution can be accessed by both, the members of the company and the parties outside.