The company constitution is the company law rule book for a company. Depending on the company type this will determine what format the constitution takes and how much detail is included. The constitution may be a simple or very detailed document depending on the activities and the rights of the shareholders. The constitution contains provisions set out in the Companies Act 2014 (the “Act”) and any other provisions that the company requires to run the company effectively.
Format of Constitution
The Act sets out the format for each company type:-
- Company Limited by Shares (LTD) – one documentation constitution
- Based on Schedule 1 of the Act
- Supplementary regulations – like an Articles of Association
- All other company types (DAC, PLC, UC, CLG)
- Two document constitution – Memorandum of Association & Articles of Association
- Based on Schedule 7 to Schedule 13 of the Act
- Memorandum – objects and powers
- Articles – internal rules for the administration of the company and holding meetings
Objects Clause
An LTD company has the power of a natural person so it can carry out any activities (other than listing debts and securities or acting as a credit institution or insurance undertaking).
All company types apart from an LTD company must have an objects clause. This is set out in the Memorandum of Association and often ancillary objects and powers are included so the company has sufficient powers to carry out the principal objectives.
Mandatory & Optional Provisions
The Act contains optional and mandatory provisions. Mandatory provisions apply to a company and cannot be amended in the constitution. However optional provisions may be disapplied or amended it the constitution.
Most of the optional provisions are in Parts 3 (Shares and Share Capital and Part 4 (Corporate Governance). An optional provisions is identified in the Companies Act where it states “save to the extent that the constitution provides otherwise or unless the constitution states otherwise”.
Many of the optional provisions are in relation to the holding of director and member meetings. An example of an optional provision is the quorum of a directors meeting in Sec 160(2)
The quorum necessary for the transaction of the business of the directors may be fixed by the directors, and unless so fixed shall be 2 but, where the company has a sole director, the quorum shall be one
A company may chose to increase the quorum to greater than 2 if required.
What provisions should a constitution contain?
As mentioned above this will depend on the complexity of the company, its shareholders and activities. Most of the standard provisions that apply to the company are set out in the Act however for ease of reference it may be helpful to set some of the most important provisions out in the constitution to avoid having to dig through the Act to find the appropriate section.
Some of the main provisions and clauses should include:-
- The Company Name
- The type of company
- The liability of the members
- The objects clause
- Ancillary objects and powers
- The share capital clause
- Rights of shareholders or members
- Powers to allot, repurchase and provide financial assistance
- Provisions regarding the transfer of shares
- Appointment and resignation of directors
- Director Meeting provisions
- General Meeting (member) provisions
- Company Seal
- Indemnity
- Subscriber Details
Shareholder Agreements
If there is a shareholder agreement in place the constitution should be prepared in conjunction with the agreement to avoid any potential conflicts.
How Can We Help?
If you require assistance in preparing a constitution or amending your existing constitution please feel free to contact us.
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