What should you look out for in a Company Constitution?

What should you look out for in a Company Constitution?

The Company Constitution.

The more I look into the issue of longevity, the more Japan features. Did you know that Japan’s Constitution is the oldest unamended constitution in the world?

Anyways, back on point. Always pay attention to the Company Constitution. This is the document that regulates the activities of a company and sets out the procedure that governs the Company.

What should you look out for in a Company Constitution? I cannot narrow this down to everything important, as almost everything in a constitution is important. Based on litigation experience, however, these are some of the clauses you should pay attention to:

1. Shares – How are shares to be transacted? Any approvals needed? Is there any right of first refusal? How is the price to be determined?

2. Directors – Pay attention to appointment, powers, duties, termination. Too often we find cases where the termination of the director was improperly done, thereby nullifying the effect of the termination.

3. Corporate Secretary – Pay attention to the procedure for appointment and removal. In many disputes, the corporate secretary is key because they hold a lot of the information and documents.

4. Capital – Pay attention to the declaration of dividends and the level of reserves that are required, if any. We have had too many cases of trusting shareholders wondering why they never receive any dividends only to find that the simple reason is that the directors they trusted have been paying themselves bumper bonuses.

5. Indemnity – Pay attention to what officers of the company are indemnified for, by the company. This could include the issue of legal fees should a director be subject to legal proceedings. This is an issue in many cases we do.

6. Notices – If notices do not follow the prescribed procedure, they could very well be found to be invalid. Remember to include an email address or even a WhatsApp number. This could be useful especially when someone is avoiding the service of documents.

ACRA provides a Model Constitution: (https://lnkd.in/gKPwxnNj) but please do not think that it must be good because it is from ACRA. It may be excellently drafted but it may not serve your needs. Take the time to review and redraft so that it suits your needs and reflects the values of your company.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at: 

walter@silvesterlegal.com or info@silvesterlegal.com.

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