With the Annual General Meeting (AGM) season on the horizon, now
is the perfect time to review your company's constitution to
consider whether it requires updating. Amendments to a constitution
require shareholder approval by way of a special resolution - that
is, 75% of shareholders present and voting at the meeting. So, the
AGM is an ideal time to propose an amendment to your company's
constitution to ensure it is both up to date and relevant for your
company's structure and objects. After all, there's nothing
like a spring clean!
Some issues to keep in mind when reviewing your constitution are
You may want to consider adopting a totally new constitution if
your current constitution is older than say 10 to 15 years. A
constitution this old will likely be out of date and is unlikely to
incorporate the more recent amendments to the Corporations
Act. Any reference to the old Corporations Law is a
good indication that your constitution may be in need of a total
The old test that dividends could only be paid out of a
company's profits was replaced in 2010 by an amendment to the
Corporations Act. The relevant test now requires that:
a company not pay a dividend unless its assets exceed its
the payment of the dividend is fair and reasonable to the
company's shareholders as a whole
the payment of the dividend does not materially prejudice the
company's ability to pay its creditors.
A constitution which still refers to the "profits
test" will require the company to satisfy the new assets test
as well as the old "profits test" before it can declare a
dividend. It would be useful, in these circumstances, for the
dividend provision in the constitution to be replaced by reference
to the new test.
Refreshing proportional takeover protections
A company can protect itself from a potential proportional
takeover (a takeover for only part of the shares of the company) by
including a provision in the constitution which makes proportional
takeover bids subject to shareholder approval. This protection,
however, ceases to apply after three years. So, you may want to
refresh your company's proportional takeover provisions if it
is due to expire within the next 12 months.
Direct voting allows shareholders to cast votes towards
resolutions without attending meetings or appointing proxies to
vote on their behalf. More and more companies are now using direct
voting as a more efficient method of running shareholder meetings.
However, in order to implement direct voting you would need the
appropriate provisions in your company's constitution. So, an
amendment to your constitution to permit direct voting is worth
Unmarketable parcel facility
An unmarketable parcel facility allows a company to sell small,
unmarketable parcels of shares on behalf of their holder. This
ability is beneficial to the company since it reduces the high
administrative costs in maintaining a large number of small
shareholdings. The company's power to deal with unmarketable
parcels should be set out in its constitution and, if it's not
there, would be worthwhile including to provide the maximum
flexibility going forward.
Although under the Corporations Act a company has the power to
issue preference shares, the rights attaching to the preference
shares must be set out in the constitution or must be otherwise
approved by a special resolution of shareholders. It is worthwhile
reviewing your constitution to ensure that it includes appropriate
terms for preference shares.
Does your constitution allow for use of technology in holding
shareholder and director meetings? Also, can documents be given to
your shareholders by email? If not, then these are useful
provisions to include in your constitution.
Here to help
Please contact Middletons' Corporate & Commercial Group
if you would like assistance with reviewing or proposing amendments
to your company's constitution in time for your company's
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Middletons has been awarded a 2012 EOWA Employer of Choice for
Women citation acknowledging our commitment to workplace
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).