Company Constitution

Typical Contents of a Company Constitution

While specific components vary by jurisdiction, a constitution commonly specifies regulations around:

• The powers and responsibilities of directors
• Shareholder rights and meeting procedures
• Requirements for financial reporting and auditing
• Dividend payment declaration processes
• Procedures for director appointment and removal
• Transfer and transmission procedures for shares
• Bylaws regulating company operations
• Processes for dissolving the company

The constitution encapsulates governance guardrails.

Serving as Governing Reference

The constitution is the definitive reference for guiding compliant company oversight. Directors are obliged to follow prescribed processes and ensure adherence. Ignorance of governing regulations is no legal defence.

What is the Basis for Key Governance Policies?

Many board policies and processes derive from constitution provisions. For example, insider trading definitions, financial controls, board nomination approaches, and ethics codes inherit foundational practices.

Reinforcing Board Authority

The constitution may specify certain powers reserved exclusively for the board rather than management, such as dividend declarations, major transactions, director appointments, and compensation limits. This shapes oversight authority.

Defining Shareholder Rights

From voting rights to access to information to channels for redress, the constitution codifies baseline shareholder rights that cannot be abrogated. However, additional rights may still be granted.

Providing Director Protection

By following processes defined in the constitution, directors gain certain legal protections from personal liability for corporate losses. Compliance enables insulation.

Embedding Checks and Balances

To prevent excessive power concentrations, the constitution prescribes counterbalances like independent director requirements on committees and processes for removing directors.

Allowing Customisation

While foundations are set, companies can customise certain regulations through bylaws and policies layered atop constitution provisions. This allows adaptation within guardrails.

Guiding Amendments and Waivers

The constitution stipulates processes for approval of amendments by shareholders and conditions for any waivers or exemptions from compliance. Changes require deliberate action.

Underpinning Continuity

The constitution provides stability of governance through discrete board terms, executive transitions and strategic shifts. Consistent rules ease disruption.

Protecting Core Values

By prescribing ethical conduct and prohibiting practices like improper insider transactions, the constitution safeguards the integrity of the enterprise.

The constitution forms the legal scaffolding on which skilled boards construct excellence in governance and create sustainable value. Understanding this critical document represents foundational fluency for directors.

Example of a Company Constitution

Below is an example overview of key components that may be included in a company's constitution:

Company Name and Registered Office Address

Official legal name and registered business address

Share Capital

• Authorised share capital amount and equity structure

Shareholder Rights

• Voting rights, access to information, meeting participation

Dividends

• Process for declaring and paying dividends

Board of Directors

• Board size, structure, eligibility criteria, elections, meetings, duties

Company Secretary

• Role, appointment and removal process

Share Transfers

• Rules for transferring and transmitting shares

Audit Requirements

• Auditor appointment process, financial reporting duties

General Meetings

• Laying out shareholder meeting rules and procedures

Notices

• Communication methods for official company notices

Indemnity

• Director liability protections and company indemnity

Amendments

• Process for amending the constitution

Winding Up

• Steps for dissolving the company

A constitution provides the legal scaffolding for company governance. The board can build out details through bylaws and policies.