Guide
Shareholders Agreement vs Constitution: What's the Difference?
Two documents, two different jobs — and why Australian startups need both.
Founders regularly conflate the two documents — or assume one replaces the other. It doesn't. A company constitution and a shareholders' agreement do different jobs, and any Australian startup with more than one shareholder needs both.
The Constitution
The constitution is the company's foundational document. It is filed with ASIC (or replaces the replaceable rules in the Corporations Act 2001). It governs the company — how directors are appointed, how meetings are held, how shares can be issued, what quorum is needed for a resolution.
Key features:
- Binds the company and every shareholder by force of statute (s 140 Corporations Act)
- Public — anyone can request it from ASIC
- Amended by special resolution (75% of shareholders)
- Deals with structural things: share classes, director powers, dividends, winding up
The Shareholders' Agreement
The shareholders' agreement is a private contract between the shareholders (and usually the company). It governs how the shareholders behave with each other — the commercial and relationship terms of who owns what.
Key features:
- Contractual — binds only the parties who sign it
- Private — never filed publicly
- Amended by unanimous consent (or whatever threshold the agreement itself specifies)
- Deals with commercial matters: vesting, drag/tag-along, pre-emptive rights, deadlock, exit
Side-by-Side
| Feature | Constitution | Shareholders' Agreement |
|---|---|---|
| Public or private | Public (filed with ASIC) | Private contract |
| Binds | Company + all shareholders (statutory) | Only signing parties |
| Amend by | 75% special resolution | Unanimous (usually) |
| Governs | Company mechanics | Shareholder behaviour |
| Vesting | No | Yes |
| Drag / tag-along | Rare | Yes |
| Reserved matters / vetoes | No | Yes |
| Board composition rules | Sometimes | Yes (investor board seats) |
What Goes in Which Document
Constitution: share classes and rights, share issue mechanics, director appointment and removal, meeting quorum, dividend framework, buy-back rules, winding-up.
Shareholders' agreement: founder vesting, good/bad leaver, pre-emptive rights on new issues, right of first refusal on transfers, drag-along, tag-along, reserved matters requiring investor consent, board composition, information rights, deadlock resolution.
What Happens if They Conflict
On statutory matters (share issue procedure, meeting mechanics), the constitution wins. But the shareholders' agreement can require each shareholder to vote the constitution consistently with the agreement's terms — and Australian courts enforce that contractual promise. The practical answer: draft them together so they never conflict in the first place.
What Startups Get Wrong
- Relying on the ASIC "template" constitution — it doesn't contemplate multiple share classes, ESOP, or investor rights
- Skipping the shareholders' agreement — leaving vesting, drag-along and leaver provisions unwritten
- Amending one without the other — after a raise, both documents usually need updating
Related Reading
- Founders' Agreement Australia: 11 Clauses Every Co-Founder Needs
- Founder Vesting Schedules Australia
- What is a Shareholders' Agreement?
Frequently Asked Questions
Do I need both a constitution and a shareholders' agreement?
Yes, if you have more than one shareholder and plan to raise capital. The constitution governs the company; the shareholders' agreement governs how the shareholders behave with each other. They serve different purposes.
If the two documents conflict, which one wins?
The constitution generally prevails on matters of company law (share issues, director appointments, meetings), because it is registered under the Corporations Act. But the shareholders' agreement can bind shareholders contractually to act consistently with it — and courts will enforce that contract.
Do I need a constitution at all — isn't the replaceable rules enough?
For a single-shareholder Pty Ltd, the replaceable rules in the Corporations Act are usually fine. Once you have multiple shareholders, external investors, or ESOP, you need a bespoke constitution.
Is the shareholders' agreement public?
No. Only the constitution is filed with ASIC and part of the public record. The shareholders' agreement is a private contract between the parties — a real advantage for commercial terms you don't want competitors to see.
Next Step
See our shareholders' agreement service for fixed-fee drafting of both documents, or book a 15-minute discovery call.
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