Governing document of the organization is the constitution of the company which not only governs relationships in the organization, but also regulates the actions conducted by the organization. There are number of provisions of the Corporation Act 2001, which defines the components related to the constitution of the company.
This paper discusses the provisions related to the constitution of the company in different parts. Lastly, brief conclusion is stated.
Constitution is the governing document of the corporations which are listed in the Corporations Act 2001. Constitutions is the considered as the contract between the company and each member of the company, company and each director of the company, company and the officers of the company, and between the members of the company.
It is possible for the company to adopt the constitution either before or after the registration of the company. As stated by section 136 of the Corporation Act 2001, in case company adopts the constitution before the registration then it is important that each and every member of the company must settle in writing to the terms. In case company adopts the constitution after the registration, then organization required to pass the Special resolution for the purpose of adopting the constitution.
Section 233 of the Corporation Act 2001 states, Court holds the power to order the company to adopt the constitution.
Company holds the control to make changes and repeal the constitution adopted by them, and this can be done by passing the special resolution. It must be noted that, special resolution passed by company in this context required the 28 days-notice in case of the public listed company, and 21 days-notice in case of the other companies. For the purpose of passing the special resolution, at least 75% votes needs to be cast in the favour of the resolution.
As stated by the provisions of the Corporation Act 2001, it is possible for the companies to implement their own constitution, by using the replaceable rules defined in the Act, or have the combination of both in terms of the rules that provide guidance for the internal management of the company.
The main purpose of the constitution is to govern the internal as well external relations of the organization. It can be said that it only frames the enforceable powers and duties in terms of the shareholders of the company, and not in the personal capacity as the shareholders of the company.
It must be noted that, no rules are defined by the Corporations Act 2001 which required to be incorporated under the constitution of the company, but in case it is adopted by the company then it must reflect the replaceable rules which are modified in terms of the relations and activities of the company.
Therefore, it can be said that company’s constitution is the special form of contract which mainly binds the company, shareholders, and any person who at the initial stage agreed to adopt the constitution of the company or any other future shareholders of the company. It is clear that constitution of the company is not like another contract of the company which only binds those who are the parties of the contract (ASIC, n.d.).
Section 136 of the Act defines the provisions related to the modification of the company’s constitution under the Corporation Act 2001. Company can change or repeal its constitution by passing the special resolution, and at least 75% of the votes must be cast in the favour of the resolution passed by the company. In other words, 75% favourable votes can amend the constitution of the company and these amendments also bound the minority shareholders, even though such minority shareholders vote against the amendments.
It is not possible for the company to amend the constitution of the company if such constitution states the extra necessities that must be obeyed by the company before making any amendment in the constitution. This might include the obligation that extra condition of the constitution must be complied, such as consent of any person is got and the resolution is passed universally by the members.
In number of situations, majority shareholders and directors of the company make amendments in the constitution of the company, but such amendments cause disadvantage to the minority shareholders of the company and results in oppression.
Oppression generally occurred at the time when minority shareholders of the organization are subjected to the unfairness by the control exercise by the majority power over the country. Actions conducted by the majority shareholders of the company and directors of the company in bad faith are considered as the oppressive conduct, and any such conduct is considered as oppressive conduct even such conduct is undertaken lawfully and in good faith but results of that conduct cause disadvantage or burden on the minority shareholders of the company. It must be noted that such conduct must be of such nature as it is considered commercially unreasonable and unfair (Legal vision, 2015).
These additional requirements can be considered as the opportunity for the minority shareholders of the organization, which means, these extra supplies give the protection to the minority shareholders of the company that might have adverse monetary penalties on them and all these additional requirements make the amendments in the company’s constitution more difficult. However, it is not possible for company to restrict its statutory power to amend the constitution by including any such provision in the constitution, and in case any such restriction or provision is included then it would be considered as invalid.
In other words, these additional requirements provide sufficient protection to the shareholders of the organization by ensuring that directors and shareholders do not make any such amendment in the constitution which provides undue advantage to the majority shareholders of the organization and cause disadvantage to the minority shareholders.
In terms of the above stated requirements, it can be said that above stated requirements are sufficient to protect the rights of the minority shareholders of the company. As these rights give power to the minority shareholders in case any oppression is conducted by the majority shareholders of the company or directors of the company (Riyanto, 2016).
Shareholders of the have number of statutory protections and rights, and this protection and rights are available despite of the fact the number of shares they hold. Section 232 of the Act states that, shareholders hold the right to apply to the Court for seeking the order in case majority shareholders or the directors of the company act in an oppressive and unfair manner towards the minority shareholders of the organization. For the purpose of seeking the order from the order, there is no requirement of the minimum shareholding, and this includes number of orders such as:
It must be noted that, minority shareholders of the organization does not hold an explicit power or right which allowed them to alter the share capital structure of the company or restrict the changes occurred to the constitution. However, rules stated under the Corporation Act 2001 in terms of the selective share buybacks and selective share capital reduction give huge scope for the minority shareholders to vote for preventing the changes to the capital structure of the company.
Corporation Act 2001 and Common law provides the defence to the shareholders of the company against different matters, such as:
It must be noted that power of the majority shareholders of the company in context of making amendments related to the expropriating the shares of minority shareholders or rights attaching to those shares is limited. This can be understood with the help of case law Gambotto v WCP Limited (08 March 1995) – [1995] HCA 12 (08 March 1995), in this case Court held that any such amendments are valid only if such amendments are done:
Majority of the Judges in this case stated that the valid exercise of the power for the purpose of expropriate shares of the minority shareholders requires the full disclosures in context of all the important information, an valuation conducted by the independent experts of any expropriate shares and payment made in context of the market value for the shares.
After the decision of this case, expropriation of the shares is permissible in those cases where continued shareholding of the minority shareholders would cause any disadvantage to the company. It is necessary to make sure that organization must complied with the regulations governing the principle business of the organization, and it is also important to protect and promote the interest of the company.
Court further stated that it is not possible to conduct the expropriation of the shares in case majority is only trying to seek and secure the benefits for themselves such as advantage related to the new corporate structure and commercial advantage. Decision of this case also states that minority shareholders of the closely held private companies by ensuring that majority shareholders of the company cannot expropriate their shares at less than the market value (Mitchell, 1994).
Section 140(2) of the Corporations Act 2001 states that interest of the minority shareholders of the closely held private companies are protected against the amendments made to the constitution of the company. As minority shareholders are not bound in context of any amendment which is made by the company after the date on which they become the shareholder of the company such as they also require the shareholders of the company to take up the additional shares, increase the liability of the shareholders for the purpose of contributing to the share capital of the company, impose and increase the restrictions in terms of the rights of shareholders to transfer the shares of the company. However, these amendments are binding on the shareholders if they agreed writing to be bound by the amendment (Legal Vision, 2013).
Conclusion:
Constitutions is the considered as the contract between the company and each member of the company, company and each director of the company, company and the officers of the company, and between the members of the company. The main purpose of the constitution is to govern the internal as well external relations of the organization.
References:
AICD, (2013). Don’t forget minority shareholders. Available at: https://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).
Legal Vision, (2013). Power to Amend a Company Constitution. Available at: https://legalvision.com.au/how-to-amend-a-company-constitution/. Accessed on 15th August 2018.
Legal Vision, (2015). What is minority shareholder oppression?. Available at: https://legalvision.com.au/what-is-minority-shareholder-oppression/. Accessed on 15th August 2018.
Mitcchell, V. (1994). Gambotto and the Rights of Minority Shareholders. Bond Law Review, Volume 6(2).
Riyanto, A. (2016). Protection of minority shareholders in Australia. Available at: https://business-law.binus.ac.id/2016/10/18/protection-of-minority-shareholders-in-australia/. Accessed on 15th August 2018.
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