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11. What should be Company’s internal operating rules - Constitution or Replaceable rules?

A company’s internal management may be governed by:

·         provisions of the Corporations Act that apply to the company - known as replaceable rules;

·         a Constitution; or

·         a combination of both

So what is difference between a Replaceable rules and constitution?

Replaceable rules

The basic rules for internally managing a company are included in the Corporations Act 2001 known as 'replaceable rules'. A table of replaceable rules can be found in the Corporations Act. The following table indicates the subject of the rule and the relevant section of the Corporations Act that covers each rule. The content of each of those sections in the Corporations Act applies as the replaceable rule.

A company may use the replaceable rules for its internal governance. This means the company does not need to have its own written constitution with the expense of keeping the constitution up to date with the law, even in the event that the replaceable rules are amended.

A company may include in its constitution (by reference or otherwise) a replaceable rule that does not otherwise apply to it. Also, a provision of a section or subsection that applies to a company as a replaceable rule can be displaced or modified by the company’s constitution



A company may choose to adopt a constitution rather than use the replaceable rules.

The Constitution has the effect of a contract between:

·         the company and each member;

·         the company and each director;

·         the company and the company secretary;

·         a member and each other member.

Proprietary companies do not have to lodge their constitution when applying to register the company. However the constitution must be kept with the company's records so it is available if required.

The following companies must be governed by a constitution:


·         public companies 'Limited by Guarantee' who are applying to omit the word Limited from their name under section 150;

·         'No Liability' public companies under s112;

·        'special purpose companies' that want to obtain the reduced annual review fee under item 103 of the Corporations (Review Fees) Regulations 2003.

Special rules for sole director/member proprietary companies

A proprietary company with a single member(shareholder) who is also the sole director has no need for a formal set of rules governing its internal relationships.

Such companies do not have to adopt a constitution (although they may do so if they wish).

If an additional director is appointed or an additional person becomes a member, the replaceable rules will automatically apply to the company, unless they are replaced by a constitution adopted by the company.