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Before you lodge an application to register a company you must decide how the company will be internally managed. That is, you'll need to decide if its internal governance operates under:
- the replaceable rules in the Act (not applicable for sole director/shareholder proprietary companies – see special rules below)
- its own constitution
- a combination of both.
Replaceable Rules
The basic rules for internally managing a company are included in the Act as 'replaceable rules'. The table under s.141 of the Act sets out the provisions of the Act that apply as replaceable rules.
A company may take advantage of the replaceable rules in the Act to govern its internal management - it does not need to have a written constitution of its own. This means that companies choosing to be governed by the replaceable rules will not incur the expense of keeping their constitutions up to date with the law - even in the event that the replaceable rules are amended. (Refer to more detailed information about replaceable rules.)
Special rules for sole director/shareholder proprietary companies
A proprietary company with a single shareholder who is also the sole director has no need for a formal set of rules governing its internal relationships - whether those rules are the replaceable rules under the Act, or otherwise set out in a constitution. Accordingly, s.135(1) of the Act provides that the replaceable rules do not apply for such companies.
Where the replaceable rules do not apply by operation of s.135 of the Act, it does not mean that sole director/shareholder proprietary companies have to adopt a constitution (although they may do so if they wish). Such companies only need rules to allow them to conduct business and which deals with contingencies. The Act sets out some basic rules that are only applicable for sole shareholder/director proprietary companies, especially regarding the rights and powers of the director - as follows:
- s198E(1) sets out the powers of directors of single director/single shareholder proprietary companies
- s198E(2) deals with the power of a single director/single shareholder proprietary company to sign, draw, accept, endorse or otherwise execute negotiable instruments
- s202C deals with remuneration of a single director who is also the single shareholder of the company and reimbursement of all expenses incurred by that director in connection with the company's business
- s201F sets out special rules for the appointment of directors for single director/single shareholder companies.
Although a sole shareholder/director proprietary company may still have a constitution, the rules in s198E, 202C and 201F cannot be modified.
If an additional director is appointed or an additional person takes up shares in a single director/single member company, the replaceable rules will automatically apply to the company – except to the extent that they are displaced by a constitution adopted by the company.
Constitution
A company may choose to adopt a constitution rather than use the replaceable rules:
- 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 constitution, a copy must be lodged with us when applying to register the company.
- The Act requires that a no-liability company must be a public company and requires it to have a constitution that restricts its activity to mining purposes only. A no-liability company (NL) must, therefore, lodge a copy of its constitution with the application.
- For most company types you can choose whether or not to state the company's objectives in its constitution. However if the company is a no-liability company it must, under the Act, state its objectives.
If the company states its objectives it is restricted to them unless they are later changed by a special resolution of the members. A company's constitution may define legal rights, duties and restrictions of the company. If you decide that the company should have a constitution, you should get legal advice on its content.
© Australian Securities & Investments Commission. Reproduced with permission.
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Company governance
