Constitution – Key Areas

When putting together the Constitution of a company there are certain key areas/matters to be taken into consideration/reviewed.

The Constitution is a document which formalises the division of power between shareholders, directors and officers of a company and provides the operational framework/rules for the control, governance and management of the company.

So, the areas to be considered should include:

Shares

  • Classes of shares – some of which may have restrictive rights (eg, to receive dividends only, but not vote)
  • Power of directors (most usually) – or shareholders – to create new classes/issue more shares
  • Pre-emptive rights – particularly relevant with a small number of shareholders; unworkable in a large public company
  • Share certificates vs holding statements – the ‘modern’ way
  • Control over share transfers – but impossible with a stock exchange listed company
  • Should there be proportional takeover restrictions (need to refresh every 3 years)

Shareholders

  • Direct voting – the ‘new’ way in lieu of proxies well(……in addition to)
  • Meetings – does the chairman get a casting vote
  • Is 2 sufficient for a meeting quorum
  • Notice period – 21 or 28 clear days minimum

Directors

  • Shareholder ratification after board appointment
  • 3 year rotation (mandatory for stock exchange listed companies)
  • Quorum for meetings: 2 or ‘more than half’ the number of directors
  • Does chairman get a casting vote
  • Circulating resolutions – to be signed by all directors or only a majority
  • Minimum period [before a shareholder meeting] of say 6~8 weeks for an ‘outsider’ to give notice to stand as a director
  • Alternate director rules

Administration

  • Dividends – declared by directors (most common) or shareholders – and not to be restricted to payment out of profits – needs wider ‘positive net equity’ provision
  • Bank accounts – to be operated on by directors, with minimum 2 to sign, or whoever they empower

*Originally written by Company Secretary, an Australian virtual company secretary service.

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