Importance of Company's Constitution under Corporations Act 2001

This assignment highlights the importance of the constitution which govern the rules and regulations of the company. It mainly divides into three parts, and all the parts reflect the important provisions of the assignment. The first part defines the importance and regulations of the company’s constitution, the second part defines the modification in the constitution and power of the company to modify the document, and the last part defines the protection of minority shareholders in this context. The subject is Corporations Act 2001 and the course code is not mentioned. The course name and college/university are also not mentioned.

Corporations Act 2001
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Corporations Act 2001

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Executive Summary:
This assignment highlights the importance of the constitution which govern the rules and
regulations of the company. This assignment mainly divides in three arts, and all the arts reflect
the important provisions of the assignment. First art defines the importance and regulations of
the company’s constitution, second art defines the modification in the constitution and power of
the company to modify the document, and last art defines the protection of minority shareholders
in this context.

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Contents
Executive Summary:....................................................................................................................................2
Introduction:...............................................................................................................................................4
Governing document...................................................................................................................................4
Modification of constitution........................................................................................................................5
Minority shareholders protection...............................................................................................................6
Conclusion:..................................................................................................................................................8
References:..................................................................................................................................................8

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Introduction:
The document which governs regulations, provisions, and relationships of the organization is
known as the constitution of the company. Constitution of the company is the most important
document of the company which ensures baseline for the company. As this document also guide
the management of the organization in conducting the operations of the business and also
manage the operations. Corporation Act 2001 is the law which governs the company structure in
Australia. Constitutions and provisions related to the constitution is defined under the
Corporation Act 2001.
This paper is divided into three parts, and all the parts of the paper define the important
provisions of the company’s constitution.
Governing document
Company’s constitution is the document which is defined under the corporation act 2001, as Act
states that constitution is the document which creates an agreement between the company and its
directors, members, and officers. It also creates an agreement between the members of the
organization. Organization can create the constitution either before or after the registration of the
organization with the ASIC.
Section 136 of the Act states that, if constitution is adopted by the organization before the
registration of the organization with the ASIC then it is the most important requirement that each
and every member of the organization signed the constitution and agreed with the terms of the
constitution in writing. In case constitution is adopted by the organization after the registration
then it is important for the corporate to ass resolution of special nature in terms of adopting the
constitution of the company.
Another section 233 of the Act defines the provisions related to the power of the Court; as this
section states that court possess the power under this section in terms of ordering the
organization to adopt the company’s constitution.
Control is hold by the company in context making amendments and rescinds the company’s
constitution, and for doing this organization needs to pass the special resolution in the company.
28 days’ notice period is required by the public listed organization for passing the special
resolution for this purpose. However, in case of other organizations, only 21 days’ notice period
is required. For passing the resolution of special nature, organization required almost 75% votes
and such votes must be given in the favour of the resolution passed by the company (Corporation
Act, 2001].
It is necessary to understand that organization can create their own constitution, and this power is
given by the provisions of the corporation act 2001 such as constitution can be framed by using

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the replaceable rules. The actual aim of the constitution is to regulate the both internal and
external relations, as it guides the internal members how to deal with each other and also how to
deal with the outsiders from the company.
Constitution required to incorporate replaceable rules within it, which means, corporation act
2001 does not define the rules and regulations, but replaceable rules are the once which needs to
be incorporated. It must be noted that, these rules can be amended in terms of the business and
activities of the organization (ASIC, n.d.).
After considering all the facts of this part, it can be said that constitution of the organization is
the most important of the company. In other words, it is the special type of contract which not
only binds the organization but also binds the shareholders of the organization. This document
binds the present and future shareholders of the organization and outsiders of the organization
also. It is necessary to understand that, constitution is not the contract which only binds the
parties of the contract, but it is the document which binds all those persons who deal with the
organization in some manner.
Modification of constitution
It is possible for the organization to modify the constitution of the company, and this can be done
by the organization by following the provisions of section 136. Section 136 of the Act states the
regulations which are used to modify the constitution of the company. As stated modification in
the constitution can be made by the company and for this, organization needs to ass the special
resolution with at least 75% votes which must be given in the favour of the resolution. It must be
noted that, 75% votes cast in the favour of the resolution holds the authority to modify the
constitution of the company.
These amendments are implemented on each and every person of the organization, which means,
both majority and minority shareholders of the organization are bind by these amendments.
These amendments are implemented in that situation also in which minority shareholders does
not cast their vote in the favour.
However, power to amend the constitution of the company is not possessed by the organization
in case constitution states any such provision which defines the extra requirement to be fulfilled
for the purpose of modifying the constitution of the company. This reflect the obligation of the
members to fulfil this additional requirement, and these requirements can be in any form such as
resolution needs to assed by unanimously by all the members of the organization. There are
number of circumstances when both majority shareholders and directors modify the company’s
constitution for getting advantage for themselves. In other words, if director and majority
shareholders incorporate any such changes in the constitution which results in disadvantage and
loss for the minority shareholders of the organization, and it also results in the oppression.

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Oppression is the term which defines the unfairness and disadvantage, and in this context,
oppression with the minority shareholders of the organization happened at that time when any
action of the majority shareholders cause disadvantage and loss to the minority shareholders of
the company. Any action taken by the majority shareholders or directors for their own good is
deemed as oppressive conduct. In other words, any conduct which is commercially not
reasonable or fair is deemed as the oppressive conduct under the Corporation Act 2001.
Corporation Act 2001 also introduces additional requirements for giving protection to the
shareholders of the organization. In other words, it is the opportunity given by the Act to the
minority shareholders, as it is the protection which protects the minority shareholders of the
organization against the penalties or any amendment which cause disadvantage to the minority
shareholders.
Company cannot prevent itself from using the legal power to make modification in the
company’s constitution by incorporating any rule in the constitution. If organization incorporates
any such provision then such provision is declared as invalid. It can be said that these additional
provisions ensure adequate protection for the minority shareholders, as the requirements confirm
that directors and majority shareholders does not make any such change in the constitution which
gives undue advantage to the majority shareholders and loss to the organization.
After considering the above facts one thing is clear that adequate provisions are identified by the
Corporation Act 2001 which provide protection to the minority shareholders against the wrong
conduct of the directors and majority shareholders.
Minority shareholders protection
Corporation Act 2001 ensure the protection for each and every shareholder of the organization
by introducing rights they hold, and all these rights are imposed in the shareholders without
considering the fact whether they are majority shareholders or minority shareholders. Section
232 of the Corporation Act 2001 defines the rights hold by shareholders of the company. This
section states that shareholder can seek the intervention of the Court if any director of majority
shareholders conducts any such action which is oppressive and unfair in nature. In other words,
if any action of the majority shareholder and directors cause disadvantage to the minority
shareholders, then such minority shareholders can apply to the Court for passing order against
the actions of the majority shareholders and directors. Orders seeking by minority shareholder
from the court include the following orders-
1. Any order which ensures the organization winding up.
2. Any order which cancels the amendment made by the organization in the constitution.
3. Any order which ensures the modification of the constitution of the company.
4. Ay order which Court consider right.

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Minority shareholders of the organization does not hold any such power through which they can
make necessary changes in the share capital structure of the organization or restrict the statutory
power of the organization to amend the companies constitution. There is an exception also, as
minority shareholder in terms of the regulations of the Corporation Act 2001 can restrict the
changes occurred in the capital structure of the organization such as buyback of shares and
selective share capital reduction give them power to restrict any such changes. Both common law
and statutory law provides the defences for the company’s shareholders in different situations,
such as-
1. Changes and cancellation related to the class rights.
2. Any specific changes which deals with the constitution provisions and may affect the
expropriating the shares or any rights hold by minority shareholders in that context.
It is necessary to understand that power possessed by majority shareholders of the organization
in terms of the changes made in expropriating the shares hold by minority shareholders of the
organization is restricted by law. In case law Gambotto v WCP Limited (08 March 1995) -
[1995] HCA 12 (08 March 1995), Court determine the question related to the expropriating the
shares. In this case, court held that such amendments were right if such amendment fulfil the
following conditions-
 Majority shareholders make the amendments for the right purpose.
 Such amendments does not cause any disadvantage to the minority shareholders.
Maximum number of judges related to this case held that valid use of the power in context of the
expropriate shares hold by the minority shareholders of the organization need the complete
disclosures related to all the important information. However, for this reason valuation of the
shares must be done by the independent experts and payment to the minority shareholders must
be made as per the market value of the shares.
After this case was decided by the Court, numbers of important provisions were introduced such
as majority shareholders and directors can only done the expropriate of shares if any such shares
cause huge loss to the organization and becomes the risk for the organization. In these situations
also organization needs to fulfil the regulations stated under the Corporation Act 2001, as these
regulations states that it is necessary for the organization to promote and secure the interest of the
organization.
Section 140(2) define the provisions which ensure the benefit of the minority shareholders in the
closely held private companies, as this section provides them protection against the changes
made in the company’s constitution. It must be noted that, minority shareholders are not obliged
in terms of any amendment which is made by the organization after the date on which individual
becomes the shareholder of the organization such as any requirement which impose obligation
on the shareholder of the company to buy more shares, increase the liability of the shareholders
in terms of the contribution made by the shareholders in the company’s share capital.

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It must be noted that, all these amendment obliged the shareholders if they agreed in writing to
get bond by these amendments made by the company (AICD, n.d..
Conclusion:
This assignment clearly reflects the importance of all the documents which governs the
regulations of the organization, and it also states the power of the company to do the same.
Company’s constitution is the document which is defined under the corporation act 2001, as Act
states that constitution is the document which creates an agreement between the company and its
directors, members, and officers. Assignment further states that, Minority shareholders of the
organization does not hold any such power through which they can make necessary changes in
the share capital structure of the organization or restrict the statutory power of the organization to
amend the companies constitution.
References:
AICD, (2013). Don’t forget minority shareholders. Available at:
http://www.companydirectors.com.au/director-resource-centre/publications/company-director-
magazine/2013-back-editions/april/opinion-do-not-forget-minority-shareholders. Accessed on
15th August 2018.
ASIC. Constitution and replaceable rules. Available at:
https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/constitution-
and-replaceable-rules/. Accessed on 15th August 2018.
Corporation Act 2001- Section 140.
Corporations Act 2001- Section 136
Corporations Act 2001- Section 232
Corporations Act 2001- Section 233
Gambotto v WCP Limited (08 March 1995) - [1995] HCA 12 (08 March 1995).

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Mitcchell, V. (1994). Gambotto and the Rights of Minority Shareholders. Bond Law Review,
Volume 6(2).