AYB230 · Corporations Law
Company Registration & Constitution
This Topic 2 chapter covers how a company is born and governed internally — choosing a company type (s112), registering with ASIC (s117/s119), and the internal rulebook of replaceable rules vs a constitution, which operates as a statutory contract (s140). It also deals with promoters' fiduciary duties and pre-registration contracts (s131). It is examined as an ILAC problem: identify the right structure or the binding relationship, then check whether the right resolution threshold or ratification requirement was met.
What this chapter covers
- 01Company types (s112): public vs proprietary; the four liability types
- 02Proprietary and small proprietary companies (s45A); no public fundraising (s113)
- 03Registration with ASIC (s117), existence on registration (s119), company powers (s124)
- 04Replaceable rules vs a constitution; when a constitution is mandatory
- 05The constitution as a statutory contract (s140): the three binding relationships
- 06Changing the constitution: special resolution (≥75%, s136) and member protections
- 07Promoters' fiduciary duty: disclose interest + disclose profit + obtain consent
- 08Pre-registration contracts (s131) and promoter personal liability
Statutory contract & changing the constitution (ILAC, s140/s136)
- +1Issue: Was the constitutional change validly made, and is it binding on Tomas?
- +2Law: The constitution is a statutory contract (s140). Changing it requires a special resolution of at least 75% (s136). A change is not binding on a member if it restricts the transfer of their shares without consent (s140(2)).
- +1Application: The resolution was carried on only 62%, which is below the 75% special-resolution threshold, so it fails. Even if it had passed, a new pre-emption restriction on transfer would not bind a dissenting member like Tomas without his consent.
- +1Conclusion: The change is invalid for want of a special majority and, in any event, would not bind Tomas because it restricts his share transfer without consent.
Key terms
- Proprietary company (s45A)
- A company with no more than 50 non-employee members that cannot raise funds by public offers (s113, Ch 6D) unless crowd-source funded. A small proprietary company meets at least two of three thresholds — consolidated revenue under $50m, consolidated assets under $25m, fewer than 100 employees — and is generally exempt from preparing audited financial statements (s292).
- Replaceable rules vs constitution
- Replaceable rules are the Corporations Act's default internal-management rules; a constitution is the rulebook a company devises for itself. Some companies must adopt a constitution (no-liability companies, ASX-listed companies, a limited-by-guarantee company removing 'Limited'). Replaceable rules do not apply to a single director/shareholder company.
- Statutory contract (s140)
- The constitution and any replaceable rules take effect as a contract binding (1) the company and each member, (2) the company and each director and secretary, and (3) each member with every other member. Remedies differ per relationship — injunction or declaration for the member contracts, damages for the director contract.
- Special resolution
- A resolution passed by at least 75% of the votes cast (s9, s249L). It is required to change the constitution (s136), for a selective capital reduction, and other higher-stakes acts; an ordinary resolution needs only more than 50%.
- Promoter
- A person (active or passive) who takes steps to form a company. A promoter owes the company a fiduciary duty of good faith and to avoid conflicts; to contract with the company being formed they must disclose their interest, disclose any profit, and obtain the company's consent. Breach is remedied by rescission (and damages only on fraud).
- Pre-registration contract (s131)
- A contract entered into on a company's behalf before it is registered. It binds the company if (1) it was entered on the company's behalf before registration, (2) the company is later registered, and (3) the company ratifies it within an agreed or reasonable time. If not ratified, the promoter who signed is personally liable (s131(2)).
Company Registration & Constitution FAQ
What is the difference between replaceable rules and a constitution?
Replaceable rules are the default internal-management rules supplied by the Corporations Act; a constitution is a company's own custom rulebook that overrides or supplements them. A company can use one, the other, or a mix. Some companies must have a constitution — no-liability companies, ASX-listed companies, and a limited-by-guarantee company that removes 'Limited' from its name — and the replaceable rules do not apply to a single director/shareholder company.
Who is bound by the company's constitution?
Under s140 the constitution operates as a statutory contract binding three relationships: the company and each member, the company and each director and secretary, and each member with every other member. The available remedy differs by relationship — generally an injunction or declaration to enforce the member contracts, and damages for the director contract.
How do you change a company's constitution?
By a special resolution of at least 75% of the votes cast (s136). Even a valid special resolution does not bind a member if the change forces them to take up more shares, increases their liability to contribute capital, or restricts the transfer of their shares without their consent (s140(2)). A compulsory acquisition of minority shares also needs a proper purpose and to be fair in all the circumstances.
Is a promoter personally liable on a pre-registration contract?
Yes, if the company never ratifies it. Under s131 a pre-registration contract binds the company only if it is entered on the company's behalf before registration, the company is then registered, and the company ratifies within an agreed or reasonable time. If the company is never formed, fails to ratify, or ratifies but fails to perform, the promoter who signed on its behalf is personally liable (s131(2)).
Exam move
Split this topic into two rails. For the structure question, learn the s112 four liability types and the s45A proprietary thresholds (≤50 non-employee members; small proprietary = ≥2 of: revenue <$50m, assets <$25m, <100 employees) so you can name the right company type from the facts and explain the reporting and fundraising consequences. For the constitution question, treat s140 as a statutory contract (three relationships), and drill the special-resolution threshold (≥75%, s136) plus the s140(2) member protections. For promoters and s131, memorise the three-part ratification test and the personal-liability fall-back. Always cite the section, and on any resolution question check the majority arithmetic before anything else.
