The company rules – ok?

Lisa Galbraith, CEO

After you decide on the name for your new company, you need to decide which set of rules will apply to how you want to internally manage your company.

ASIC gives you 2 choices if you have a company: replaceable rules or a company constitution. You must select one of these options because they both provide the legal arrangement around how the company will interact with its members and among the directors and how members will interact between each other. It will aid in the smooth running of your business. Shareholders will know how decisions are made, directors will know how to notify shareholders of important changes. Helping keep everything running smoothly and reduce misunderstandings.

So how are they different?

Replaceable rules

These are the default option. The Corporations Act provides a list of rules that can govern you company. The big advantage of the rules are you don’t need to keep your rules updated when the law changes – it happens automatically and you wont need any legal advice as to what rules you need. It is also easy for everyone to find the rules as ASIC keeps them online for you.

Unfortunately, if your company is a sole director company, then you can’t use the replaceable rules. You need to use the special rules set out in the Act. As a sole director, you only need the rules that allow you to conduct business and rules to deal with certain contingencies. Replaceable Rules also don’t work for special purpose companies.

Constitution

A constitution is attractive to many people as it gives you a chance to shape how you would like your company to operate, you can put in place some different rules.

For example, if your company issues new shares, under the Replaceable Rules, then it must offer them to the existing shareholders in proportion to their current holding. If you have your own Constitution, then the company can have a different process.

A constitution is also the only option available for special purpose companies that want to have the lower annual review ASIC fee.

Some other things to think about:

1. You don’t need to tell ASIC which option you have selected — but you must keep your constitution in your company records so it can be reviewed if required.
2. If you can’t decide, then you can start with Replaceable Rules and change to a constitution later. (To make the change, you can use our change to constitution document package.)
3. You can also decide to do a mix of Replaceable Rules and a constitution.

Once the decision is made you must give a copy of the rules or the constitution to every shareholder and director.

A Constitution at Cleardocs

When you register a company through Cleardocs, you automatically get a Constitution. This is because of the increased flexibility a Constitution offers.