Guide
Company Constitution Australia: Do You Really Need One?
When the replaceable rules are enough, and when they aren't.
Every Australian Pty Ltd starts life with a set of default rules — the "replaceable rules" in the Corporations Act. Most single-founder companies never need more than that. Every company that plans to raise capital, issue employee equity, or have more than one class of share needs a bespoke constitution.
What a Constitution Actually Is
A company constitution is the internal rulebook of the company. Once adopted, it binds:
- The company and each shareholder
- The company and each director / company secretary
- Each shareholder in their capacity as a shareholder
This binding effect comes from section 140 of the Corporations Act — it operates as a statutory contract, not a private one.
Replaceable Rules vs Constitution
Sections 134 and 141 of the Corporations Act set out the "replaceable rules". These are default provisions covering things like director appointments, meetings, voting, share issues, and dividends. They apply automatically unless the company adopts a constitution that displaces them.
| Feature | Replaceable Rules | Bespoke Constitution |
|---|---|---|
| Cost | $0 | $500–$1,500 to draft |
| Multiple share classes | Limited | Yes — ordinary, preference, ESOP |
| Preference share rights | Not really supported | Yes — dividend prefs, liquidation prefs |
| Transfer restrictions | Limited | Full board approval / ROFR |
| Compulsory transfer (leaver) | No | Yes |
| Electronic execution | Basic | Full modern provisions |
When the Replaceable Rules Are Enough
- Sole shareholder / sole director Pty Ltd
- Family company with no external investors and no plan to raise
- Company with a single class of ordinary shares
When You Need a Bespoke Constitution
- Multiple shareholders — especially co-founders
- You plan to raise capital (SAFEs, convertible notes, priced rounds all need proper share class support)
- You are issuing employee equity via an ESOP
- You want preference shares (investor rounds usually require them)
- You want compulsory transfer on leaver events
- You want restrictions on who can hold shares (competitor block, foreign ownership)
What Goes in a Good Startup Constitution
- Share capital — classes, rights, restrictions, board power to issue
- Preference share terms — dividend rights, liquidation preference, conversion, anti-dilution
- ESOP framework — the constitutional basis for issuing options
- Share transfer mechanics — board approval, right of first refusal
- Compulsory transfer — leaver events triggering forced buy-back
- Director appointment / removal — board size, investor board seats
- Meeting mechanics — quorum, notice, electronic meetings, circular resolutions
- Dividend framework — power to declare, share of profits per class
- Winding up — how proceeds are distributed across classes
- Modern execution — s 127 electronic signing, split execution
Constitution vs Shareholders' Agreement
These are two different documents that work together. The constitution is public (filed with ASIC), binds via statute, and governs company mechanics. The shareholders' agreement is private, binds via contract, and governs commercial dealings between shareholders. See our side-by-side comparison.
How to Adopt or Change a Constitution
- At incorporation: the constitution can be adopted as part of the incorporation process
- After incorporation: by special resolution at a general meeting (75% of votes cast)
- Amendment: also by special resolution — plus a separate class approval if the change affects the rights of a class of shares
Related Reading
- Shareholders Agreement vs Constitution
- Founders' Agreement Australia
- Corporations Act 2001 Explained
Frequently Asked Questions
Is a company constitution mandatory in Australia?
No. A company can operate under the 'replaceable rules' in the Corporations Act 2001 without a written constitution. But once you have multiple shareholders, external investors, or ESOP, a bespoke constitution is effectively required.
What's the difference between replaceable rules and a constitution?
Replaceable rules are default provisions in the Corporations Act that apply if you don't have a constitution. A constitution replaces or modifies those defaults with your own rules. Both bind the company and shareholders by statute (s 140).
Can I change my constitution later?
Yes — by special resolution (75% of votes cast at a general meeting). But changes affecting class rights need approval from that class of shareholders too.
How much does a bespoke company constitution cost?
$500–$1,500 + GST for a standard startup constitution supporting ordinary + preference shares + ESOP. Bundled with incorporation and shareholders' agreement, it is typically part of a $3,500–$5,500 startup setup package.
Next Step
See our Startup Legals service for constitution + shareholders' agreement bundled at fixed fee, or book a 15-minute discovery call.
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