Corporate Law Assignment

This report analyzes the constitution of a company registered under the Corporations Act 2001(Cth) and its amendments. It assesses the requirements to secure rights of minority stakeholders and amendments in the constitution of the company and limitations of authority of the majority stakeholders in context of variations in the powers and authorities of members.

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Executive Summary
As per Section 140(1) of the Corporations Act 2001, company’s constitution and its changeable
rule which relate to the company has their influence between the company and each of its
members, amongst corporation and every directors and company secretary and between every
members of company. The members agree to perform as per rules and constitution.
As per Section 140(2), the members are not bound by the alternations done in the constitution
and rules, unless they agree to it in writing regarding the matters which require them to take
additional shares.The matters relating to an increase in the liabilities of the members for their
additional contribution to the share capital.
It also pertains to imposing limitations on right to allocate their stakes of members until
alterations are completed in relation to change in the nature of the company from public
company to proprietary company and insertion of provisions related to proportional takeover into
the constitution of the company.
So, in this report, the matters related to the constitution of corporation incorporated under the
Corporation Act 2001(Cth) and its amendment would be assessed. The requirements to secure
rights of minority stakeholders and amendments in constitution of company and limitations of
authority of the majority stakeholders in context of variations in the powers and authorities of
members would also be analyzed.

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Contents
Introduction.................................................................................................................................................3
Governing Document of the company registered under the Corporations Act 2001(Cth) and its purpose...3
Requirements for amending the constitution and their effectiveness in safeguarding the interest of
minority shareholders..................................................................................................................................5
Limits of the majority shareholders regarding variations of the rights of members in the context of
amendments in the constitution of the company..........................................................................................8
Conclusion.................................................................................................................................................10
e erenceR f s.................................................................................................................................................11

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Introduction
The constitution of a company is document which states laws administering relation between
action of corporation and shareholders. When the company is registered in Australia, it must
adopt the constitution either on or after its registration.
The Act does not contain the provisions regarding the inclusion of the rules in the constitution.
The constitution of the company shall alter the requirements of Corporation Act which are
applicable as changeable laws and specifies those which should or should not applicable on the
company. The constitution is a distinct and particular format of a contract which limits the
corporation and its members who consent to accept the constitution and includes perspective
stakeholders.
The constitution of the company has the effect of the contract amongst corporation and every
member of corporation and each of other participants of company, each director and company
secretary according to it every person gives consent to comply with requirements of company’s
constitution to the extent they make applicable to that person. So, in this report , Section 140(1)
of Corporations Act 2001 (Cth) shall be applied in context of amendments made in it to
safeguard the rights of the minority stakeholders and limits imposed on the authority of majority
stakeholders upon variation in the rights of the members (Baxt, 2016).
Governing Document of the corporation registered as per Corporations Act 2001(Cth) and
its objects
As per Section 134 of Corporations Act 2001 (Cth) the internal management of the company is
regulated by requirements of the Corporations Act 2001 which are applicable upon corporation

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as changeable rules or the constitution or a mixture of both. As per Section 140(1) of the
Corporation Act 2001(Cth), a constitution is called agreement between the corporation and each
of members and directors of corporation. It can also be executed amongst the corporation and
company secretary and the members and every member (ASIC, 2017).
As per Section 136, the constitution can be adopted by the company before or after it is set up . if
it is adopted prior to its registration, then every member should give their consent on the terms of
constitution in writing. In case if it is adopted after registration, then a special resolution must be
passed to adopt it. The company can also alter or revoke constitution by the specific resolution.
A notice of 28 days must be served in case of publicly listed company and notice of 21 days
must be for some companies for passing a special resolution. For it to pass successfully, at least
75% votes must be cast in favor.
The corporate contract has many features as held in the case of High Court in Bailey v/s NSW
Medical Defence Union Ltd (1995) 132 ALR 1 that the terms of the constitution of the company
can be changed without contract of all members, as specific resolution would require three fourth
of majority votes (Bottomley,2013).
The replaceable rules in the Corporations Act 2001(Cth) and they form the basis of the set of
regulations for administering the company. They do not apply to the proprietary company if the
same person holds the position of director and shareholder. The replaceable rules can be altered
or resolved if the provisions to do so are mentioned in the constitution.
The purpose of adopting the constitution in a company is its adaptability to the individual
operations of the company. It gives greater flexibility and surety in governance and permits its

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stakeholders to have effective control as it grows or transforms over time (Sealy and
Worthington,2013).
The constitution also helps in amending the balance of power amongst the shareholders and
directors when there is an evident gap in control. The shareholders can be empowered to direct
or overrun the decisions made by the directors of the company.
It was stated in the case law Andy Kala Pty Ltd v/s EJ Doherty (Northcote ) Pty Ltd (1995) 13
ACLC 1630 , the court had to decide if the clause in the articles of association of the company
which suggested a method for resolving the disputes amongst the members of the company
created a contractual obligation on the members to accord their consent under the process. It was
held that such provisions were not enforced under statutory contracts (Yogaratnam, Xynas and
O'Connell,2016).
Similarly, it was decided in case of Forbes v/s NSW Trotting Club [1977] 2 NSWLR 515 that
the expert punter who was barred from admission to the tracks managed by the company does
not have the authority to impose provisions in the articles of association of company (Law Skool
Pty Ltd., 2018).
Requirements for amending the constitution and their effectiveness in safeguarding the
interest of minority shareholders
The constitution of a company can be amended if the special resolution is passed along with 75%
majority votes. It is contradictory to other forms of contract which requires all the parties to
accord their consent to the amendments made. So 75% votes may amend the constitution and

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they would bind the minority shareholders even they have casted vote against changes until there
are other needs in general law or constitution or constitutional safeguarding laws.
The constitution of a company cannot be amended if it is specified that additional requirements
must be complied with prior to making any amendments. It may comprise of a fulfillment of an
additional condition, passing of the undisputed resolution by the shareholders and obtaining the
consent of a particular person. When provisions are stated in company’s constitution, then extra
requirements must be fulfilled prior to its amendments (Davies et al.,2016).
However, the chances for the minority stakeholders for conveying with the extra needs can
safeguard their interests against the decisions made by the majority shareholders a company
cannot confine its powers to amend the constitution and it cannot be stated by the constitution
that it cannot be amended and any such restriction is invalid.
However, there are some changes which cannot restrict stakeholders and Corporations Act and
Common Law safeguard interests of stakeholders against alterations and revocations of the class
rights. They also safeguard the minority shareholders in the context of changes to requirements
of company’s constitution that aims at acquiring their shares or rights attached to them. They
protect them against the amendments done in the specified provisions in the constitution of a
company (Redmond, 2012).
The minority shareholders have the right to vote against the proposed change and they are not
bound to the alterations made in the constitution provided if there is a separate provision
mentioned in the constitution regarding this. They have the power to negotiate with the terms of
the constitution and it raises their probability of protection of the interests of the minority
shareholders against the majority ones.

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In Punt v Symons & Co Ltd (1903) 2 Ch 506, it was held by the Court that corporation may not
exclude its power to alter its articles through a contract (Hudson,2017).
In the case law of WCP Limited v Gambotto & Anor (1993) 11 ACLC 457 the High Court of
Australia changed flow of powers of company in respect of minority stakeholders. Mr. Giancarlo
Gambotto was victorious by overcoming the effort of Industrial Equity Ltd (IEL) to acquire
shareholdings in WCP Ltd with the help of altering its articles of association. This case law
represents an interventionist approach and it lays down the opportunity to implement a new
stringent rule for testing the validity of such alterations of the articles of the company.
In case law of Bundaberg Sugar Ltd & Anor v Isis Central Sugar Mill Co Ltd [2006] QSC 358, it
was considered by the Supreme Court of Queensland that this case does not affect all the
shareholders in an equal manner. It was argued that the resolution which provided that the share
of the members who ceased to be suppliers of sugar in the company shall be forfeited by the
company. It created a regime that all the members who ceased to be the suppliers of sugar to the
company shall be liable to have their shares forfeited (Bottomley et al., 2017).
In case held by Crumpton V/s Morrine Hall Pty Ltd 1965 NSWR 240, it was held that any
variation in the class must have the consent from all the shareholders of that class since the
constitution does not contain any specific provision on the variation clause. Any alterations in
the class rights by the company without complying with the various procedures as set in the
articles would be ineffective. Passing a special resolution in the general meeting would not be
sufficient (Hannah, 2013).

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Limits of the majority shareholders regarding variations of the rights of members in the
context of amendments in the constitution of the company
As per Part 2F.2 of Corporations Act 2001, the constitution of company does not lay any specific
procedure to cancel the variation of the class of shares. In that case, the procedure for making
alterations should be decided by passing 75% of the majority votes by the shareholders. If the
process is already mentioned in the constitution, then it has to be followed for making alterations
regarding the cancellation of dissimilarities in the shares of the members.
It permits the minority shareholders to negotiate with the majority ones regarding the variations
in the constitution. It may be said that limitations exist on rights of majority stakeholders in
respect to authorities and powers of the members. The minority shareholders have the rights to
complain to the Court about the activities of the majority shareholders (McLaughlin, 2013).
If in the Court’s opinion, it is held that majority stakeholders are not acting in interest of
corporation, then it may give the judgment to wind up constitution of the corporation or it may
pass an order for changing the management of corporation. The Corporations Act 2001 (Cth) in
Australia assists the person whose interest has been affected because of the actions of the other
members of the company.
If the majority of shareholders fail to conform with statutory requirements of the Act, then
aggrieved person may apply to the Court for remedies. It has been mentioned in Section 1324 of
the Act. The minority shareholders can utilize the statutory injunction so that the company
complies with the rights bestowed to them under the Corporation Act in Australia. One of such
rights is participating in the general meeting and to cast their votes in the meeting.

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The companies follow the doctrine of majority rule in general. It has an inherent risk involved in
it. Section 246 of the Corporations Act 2001(Cth) comes to rescue of minority shareholders. It
provides the rights and remedies to the class of shareholders. It says that if the constitution of the
company has not mentioned any procedure for variations in the class rights of the shareholders,
then the rights can be shared or revoked by passing 75% votes. If the constitution provides some
procedure for the same, then it has to be followed(Paolini,2014).
As held in Wood v Odessa Waterworks Co (1889) 42 Ch D 636, the question raised was whether
the memorandum comprise of an agreement not between corporation and its stakeholders of
company but also amongst its stakeholders. Another issue was if minority shareholders could
prevent the company from acting in a specific way. In the given situation it was held that paying
dividends was opposing to decision by the majority stakeholders. The claimants were granted the
injunction regarding the payment of the surpluses as it was found that no steps were taken for
amendments of the articles for allowing the payment of surpluses as majority cannot force
minority for accepting resolution (Shepherd, 2013).
In the case of Ngurli Ltd v McCann (1953) 90 CLR 425, it was held by High Court that the
controlling director could not use his fiduciary powers to issue the shares at par to the exclusion
of two minority shareholders. The majority stakeholders misuse their authorities on minority by
functioning their vote to alter constitution thereby changing structure of power and authorities of
shareholders (Kershaw, 2012).
It was held in Niord Pty Ltd v Adelaide Petroleum NL (1990) 54 SASR 87 it was held that
whenever the name of the member has been removed from the register, remedies u/s232 of
Corporations Act 2001(Cth) are available to them (Hannigan,2015).

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Conclusion
Hence, to conclude, it can be said that the most crucial document of the company is its
constitution. It helps in making the shareholders powerful. So, it is advised the constitution must
be framed appropriately so that the powers amongst the members are divided in an equivalent
manner.

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References
ASIC(2017) Constitution and replaceable rules [online] Available from: https://asic.gov.au/for-
business/registering-a-company/steps-to-register-a-company/constitution-and-replaceable-rules/
[Accessed 1st September , 2018]
Baxt, R.(2016) Corporations Legislation 2016. Thomson Reuters Australia, Limited.
Bottomley, S.(2013) The Constitutional Corporation: Rethinking Corporate Governance.
Ashgate Publishing, Ltd.
Bottomley, S., Hall,K., Spender, P. and Nosworthy, B.(2017) Contemporary Australian
Corporate Law. Cambridge University Press.
Davies, P.L., Gower, L.C.B. , Worthington, S. and Micheler, E.(2016) Gower's Principles of
Modern Company Law. Thomson Reuters (Professional) UK Limited.
Hannah, L.(2013) The Rise of the Corporate Economy. NY: Routledge.
Hannigan, B.(2015) Company Law. Oxford University Press.
Hudson, A.(2017) Understanding Company Law. NY: Taylor & Francis.
Kershaw, D.(2012) Company Law in Context: Text and Materials. OUP Oxford.
Lawskool Pty Ltd. (2018) Administrative Law Summary [online] Available from:
http://www.lawskool.com.au/ [Accessed 2nd September , 2018]
McLaughlin, S.(2013) Unlocking Company Law. NY: Routledge.

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Paolini, A.(2014) Research Handbook on Directors Duties. Edward Elgar Publishing.
Redmond, P.(2012) Directors' duties and corporate social responsiveness. UNSWLJ, 35, p.317.
Sealy, L. and Worthington, S.(2013) Sealy & Worthington's Cases and Materials in Company
Law. Oxford University Press.
Shepherd, C.(2013) Key Cases: Company Law. NY: Routledge.
Yogaratnam ,J., Xynas, L. and O'Connell, A.(2016) Corporations Law: In Principle. Thomson
Reuters Australia, Limited.