Does your company need a Constitution?
Get the right advice to help your company, contact our expert commercial law team to up an appointment.
9 September, 2014 | Peter Smith
A constitution is not a compulsory document. If you do not have one, the provisions of the Companies Act 1993 (“the Act”) apply to and govern your company. However, you may not want these clauses to apply. It is not one size fits all legislation.
The most important function of a constitution is that it amends the standard provisions that are implied by virtue of the Companies Act. For example, a public company listed on the stock exchange will need a different constitution to that of a small private company with only two or three shareholders.
The reason why you need a shareholders agreement as well as a constitution is because a shareholders agreement is a private document containing the specific and detailed agreement between the shareholders of a company, as opposed to the generic details contained in a constitution.
A shareholders agreement, for example, sets out the financial structure of a company, the responsibilities of working directors and how shareholders can exit the company. These matters are not covered in a constitution. Shareholders agreements can have more specific details of the shares and the shareholders of the company, particularly in regards to the finances and funding of the company. For example, it can record exactly how much start-up capital was put into the company by the shareholders.
Even if your company has a shareholders agreement, it may still need a constitution as well.