When starting a company, a key aspect to consider is how it will be run. This is called corporate governance. Generally, companies are run according to their company constitution or the replaceable rules in legislation, or a combination of both. This article outlines the replaceable rules to help inform your business.
What are replaceable rules?
The replaceable rules are basic rules set out in the Corporations Act 2001 (Cth) for managing a company. If a company does not choose to adopt their own company constitution, the replaceable rules will apply.
Should my company use the replaceable rules or a constitution?
The replaceable rules are a helpful starting point for corporate governance. They provide a basic guide for company management and take the guess-work out of deciding on certain rules for your business.
However, adopting your own company constitution and shareholders’ agreement allows you to tailor your corporate governance structure to your business. It gives you greater control and choice over how your company is managed.
Many businesses will choose to adopt a hybrid approach to corporate governance, using a combination of the replaceable rules and the constitution. You can pick which replaceable rules work for your business, and adopt your own rules for the ones that do not. Importantly, this hybrid approach will still require companies to adopt a constitution which sets out which replaceable rules have been changed.
What is a shareholders’ agreement?
A shareholders’ agreement works sets out the rights and obligations of shareholders within your company. While a company constitution sets out the rules for company management as a whole, a shareholders’ agreement is a binding contract relating specifically to shareholders. Often, it will clarify aspects relating to shareholder rights which are left out in a company constitution.
What do replaceable rules cover?
There are 41 replaceable rules covering a broad range of corporate governance areas including how decisions are made, how directors are appointed and how company meetings should be conduct.
Some of the replaceable rules are outlined below:
- Shareholders may appoint a company director by resolution passed at a general meeting;
- Directors may appoint a managing director of the company;
- Directors may resign by giving written notice to the company;
- Directors may call a meeting of shareholders;
- At least two shareholders must be present at all times during shareholder meetings;
- Directors may decide when dividends are payable, and how much will be paid; and
- Share transfers must be registered.
- The replaceable rules are basic rules set out in the Corporations Act for managing a company.
- Companies may choose to use the replaceable rules or adopt their own company constitution, or use a combination of both.
- Shareholders’ agreements work alongside a company constitution to clarify the rights and obligations of shareholder.
How can Gladwin Legal help?
Gladwin Legal are experts in company law. We can help with:
- All the legal work for your start-up business
- Drafting your company constitution or shareholders’ agreement
- Acting as your company secretary and dealing with ASIC and lodging the required documents on your behalf
- Providing tailored advice on your corporate governance structure and other company matters