Amending Corporate Charters: Bylaws And Constitution Changes

A company's constitution and bylaws can be changed, but the process varies depending on the company structure and the jurisdiction in which it operates. In Australia, for example, companies can choose to be governed by an internal company constitution or by the replaceable rules outlined in the Corporations Act 2001. A company constitution is a document that establishes the rules and operations of a company, including the relationship between its shareholders and directors. It can be modified frequently to suit the company's needs, whereas replaceable rules can only be changed through law reform. Bylaws, on the other hand, outline the workings of a corporation and common topics include the election and role of directors, accounting and finance procedures, and rules governing the transfer of shares and ownership.

Company constitutions vs replaceable rules

Under Australian law, a company can be managed through an internal company constitution or by using replaceable rules outlined in the Corporations Act 2001. A company constitution is a document that contains a set of rules governing the operation of a company and the relationship between a company's shareholders and directors. It can be adopted before or after registration. If it is adopted before registration, each member must agree in writing to the terms of the constitution. If it is adopted after registration, the company must pass a special resolution to adopt the constitution. A company can change or repeal its constitution by passing a special resolution, which requires at least 28 days' notice for publicly listed companies and 21 days' notice for other company types. For the resolution to pass, at least 75% of the votes cast must be in favour.

Replaceable rules, on the other hand, are a basic set of rules for managing a company that are outlined in the Corporations Act. They are an easy way to manage a company's governance, especially for smaller companies, as they are ready to use and do not require any time, money, or resources to prepare. Replaceable rules do not apply to a proprietary company if the same person is the sole director and sole shareholder.

A company constitution has several advantages over replaceable rules. It allows for customisation of rules based on the company's needs and current situation, providing greater flexibility in managing the business. The rules in replaceable rules are generally stricter and more basic and generalised, so they might fail to satisfy the company's specific needs. A company constitution can be modified frequently, whereas replaceable rules can only be modified through law reform.

However, it is important to note that the use of a company constitution is not mandatory for every proprietary company. The use of company constitutions is particularly important for companies that don't have ordinary share arrangements, as well as for 'special purpose' and 'no liability' public companies, for which a constitution is mandatory.

Adopting a constitution before or after registration

A company may choose to adopt a constitution rather than use the replaceable rules in the Corporations Act 2001. If it is a proprietary company, it does not have to lodge its constitution when applying to register the company. However, if a public company adopts a constitution, a copy must be lodged with ASIC when applying to register the company.

A company can adopt a constitution before or after registration. If the company adopts a constitution before registration, each member must agree in writing to the terms of the constitution. If a company chooses to adopt a constitution before registration, it will need to ensure that all members agree to the terms of the constitution before the application is lodged.

If a company adopts a constitution after registration, the company must pass a special resolution to adopt the constitution. A special resolution needs at least 28 days' notice for publicly listed companies and 21 days' notice for other company types. For the resolution to pass, at least 75% of the votes cast must be in favour.

A company's constitution may define the legal rights, duties, and restrictions of the company. It is important to note that if a company states its objectives in its constitution, it is restricted to them unless they are later changed by a special resolution of the members. Therefore, it is recommended to seek legal advice on the content of the constitution before finalising it.

Special purpose companies and mandatory constitutions

A company's internal management can be governed by either a company constitution or the replaceable rules in the Corporations Act 2001. The replaceable rules are not mandatory and can be excluded by a constitution. They are a series of brief provisions that do not provide the specificity of a constitution.

Special purpose companies have additional statutory requirements in 2025, and failure to comply can risk the company's recognised status or incur heavy penalties. A Special Purpose Company Constitution is similar to a regular constitution in that it sets out the key matters for running the company. However, it must specify the company's unique purpose and establish strict guidelines on how income is utilised. It should also detail how funds are allocated, ensuring that any income is reinvested to further the company's mission.

A company may choose to adopt a constitution rather than use the replaceable rules in the Corporations Act 2001. If it is a proprietary company, it does not have to lodge its constitution when applying to register the company. However, the constitution must be kept with the company's records so it is available if required. If a public company adopts a constitution or a combination of replaceable rules and a constitution, a copy must be lodged with ASIC when applying to register the company.

A company can adopt a constitution before or after registration. If the company adopts a constitution before registration, each member must agree in writing to the terms of the constitution. If the company adopts a constitution after registration, the company must pass a special resolution to adopt the constitution. A company can change or repeal its constitution by passing a special resolution, which requires at least 28 days' notice for publicly listed companies and 21 days' notice for other company types. For the resolution to pass, at least 75% of the votes cast must be in favour.

Bylaws and their role in a corporation's operations

When forming a corporation, a set of bylaws must be established by the board of directors. Bylaws are the regulations of a corporation, outlining the basic rules for the conduct of the business and its internal management. They are legal guidelines that govern how the business will operate, detailing the day-to-day running of the company and providing a clear framework for decision-making and business conduct.

The bylaws cover a range of areas, including the composition of the board, the election or appointment of directors, their terms, roles, and responsibilities. They also outline the rules for the board's operations, such as the number of directors required for a quorum, the frequency of their meetings, and their decision-making process. Additionally, the bylaws define the key officers of the corporation, their duties, and the process for their selection or removal. These officers are responsible for the day-to-day management of the company.

Bylaws also govern shareholder meetings, including the frequency, notification process, voting rights, and decision-making during these meetings. They address conflicts of interest among board members, ensuring decisions are made in the corporation's best interest. Furthermore, bylaws can be amended by the board, allowing for the evolution of governance structures.

While most corporations are required to have bylaws, the level of detail can vary. Bylaws are tailored to meet the specific needs of the business, and they can be amended as required. They are an important tool for consistent and transparent corporate governance, providing a clear framework for the corporation's operations and ensuring compliance with legal requirements.

How a company constitution can be modified

A company's constitution is a contract that defines its legal rights, duties, and restrictions. It is a set of rules that govern the internal management of a company, outlining the relationship between the company, its directors, and shareholders. A company may choose to adopt a constitution or use the replaceable rules set out in the Corporations Act 2001. These replaceable rules are a basic and simple guide to corporate governance, but they are not as comprehensive as a constitution.

Now, coming to the key part, a company's constitution can be modified or repealed by passing a special resolution. This process involves providing advanced notice of at least 21 days for other company types and 28 days for publicly listed companies. The resolution requires a minimum of 75% of the votes cast to be in favor of the changes. It is important to note that certain sections of the replaceable rules, such as S198E, 202C, and 201F, cannot be modified.

Additionally, if a company changes or repeals its constitution, it may be required to lodge a Form 205 Notification of Resolution with ASIC. This is specifically applicable to public companies that have made such changes.

It is worth mentioning that companies can utilize services like Cleardocs to update their constitutions. Cleardocs offers a tailored approach, allowing companies to create a constitution that suits their specific needs and complies with current laws.

In conclusion, while a company's constitution can be modified, it is a formal process that requires careful consideration and a significant level of agreement among the company's members.

Frequently asked questions