Replaceable rules & the company constitution

A company is not required to have a constitution.

Instead, a company can rely on certain provisions in the Corporations Act 2001 called “replaceable rules” to govern its internal management.

The replaceable rules apply to without a constitution that were registered on or after 1 July 1998 as well as companies registered prior to that date that repeal their constitution after that date.  

It is common for a company to modify or displace the replaceable rules by adopting a constitution. There are many reasons a company may choose to modify or displace a replaceable rule. The rule may not adequately deal with a particular issue or the rule may not be commercially desirable.

For example:

There is a replaceable rule which provides that before a company can issue shares to a third party, the shares must first be offered to existing shareholders (Corporations Act 2001 s 254D). This pre-emptive right could impede a company’s ability to quickly raise capital — as is often required in times of financial distress or as may be required to act on an opportunity. Therefore, it may be practical to modify the rule through a company constitution.