By Cecilia Fourie, 25th May 2017 (Updated 25th October 2017)
What is a Constitution?
A Constitution is a formal document that sets out the rules governing a company. It also defines the relationship between the company, shareholders, director and other officers of the company. As long as the Constitution does not conflict with the Companies Act 2014 or any subsequent amendments, it represents a binding agreement between the company and its shareholders and officers. This is an important legal document that has to be taken into consideration when registering a new company. A constitution should be filed with the CRO on incorporation and when a new Constitution is adopted, or a change has been made, a resolution of shareholders must be passed and copy filed with the Companies Registration Office for it to take effect.
Before the Companies Act 2014, Private Limited Companies had “Memorandum and Articles of Association.” The Companies Act 2014 has replaced the Memorandum & Articles of Association with a Constitution for LTD companies and hence becoming the new governing document for most companies. However, for other company types, such as a Company Limited by Guarantee (CLG), both terms are generally used within the document as they have a Memorandum & Articles within their constitution.
IMPORTANT NOTE: Any company set up before the Companies Act 2014 commenced on 1st June 2015, should update their Memorandum and Articles of Association so that it references the new legislation. This is very important should you wish to avail of any new company features that commenced as part of the Companies Act 2014 such as single director company. For more information on the new features, please refer to I didn’t Convert my Company, What do I do Now?
Is a Constitution Mandatory?
Yes. This is a legal requirement when forming a new company, it is up to the owners to decide if they will file a lengthy Constitution with their company documents. If the owners choose not to draw up a long Constitution the standard one page Constitution in the Companies Act 2014 will govern the company and active members, taking the Companies Act 2014 as it stands. With a Constitution in place, the rules contained in the Act will still apply but they can be negated or modified as laid out in the Constitution. However, in general, the Constitution cannot contravene or be inconsistent with the Act.
Can I Write a Constitution Myself?
Yes, is up to your discretion what items you’d like to include but it is strongly recommended that you use a licenced and experienced company formation agent and/or corporate service provider to ensure those items are in line with the Companies Act.
You may want to clarify how items that are covered by the Companies Act 2014 should be handled, provided that it does not contradict the Act. The benefit of having a Constitution in place is that there are a number of permissible features in the Constitution that are not found in the Act.
It is recommended that a company’s Constitution deals with the rights, powers and obligations of all people involved in the company. The main purpose should be to set out clear guidelines as to what conduct is acceptable by the officers and shareholders and indeed what is unacceptable. The Constitution can restrict the rights, privileges or legal capacity of the company, but it cannot increase these powers.
Types of Clauses to include in your Constitution
Constitutions are specific to the organisation, so you can decide what items you wish to cover when drafting same. The Constitution must be divided into paragraphs and numbered consecutively. The clauses to be included in the Constitution will vary depending on the structure of the company.
• THE COMPANY’S NAME: in the form of, [COMPANY NAME] Limited
• TYPE OF COMPANY: The company is a private company limited by shares registered under part 2 of the Companies Act 2014, the liability of the members is limited or The Company is a Company Limited by Guarantee, registered under Part 18 of the Companies Act, 2014.
• OBJECTS CLAUSE: A Designated Activity Company and Company Limited by Guarantee are obligated to have an objects clause.
Did You Know… Under the 2014 Act, a company limited by shares(ltd) is no longer obligated to have an objects clause, giving the company unlimited capacity.
• SHARES: The authorised share capital and the division of that capital into shares of a fixed amount of a certain value, the number of shares appointed to each investor
Did You Know… Under the 2014 Act, you can leave your authorised share capital unlimited.
• TYPES OF SHARES: It is possible for your company to issue different types of shares. For example, shares with larger voting rights or rights to dividends
• SHARE CERTIFICATES: How the company issues share certificates
• TRANSFER OF SHARES: How the company transfers shares and whether the directors of the company are restricted by the 2-month window to register the new shareholder under S. 95 of the Act
Did You Know… You can insert a “Pre-emption Clause” into the company’s constitution that will place an obligation on shareholders to offer the shares to the current shareholder before selling them.
• SHAREHOLDERS LOANS: (This is a type of financing provided by shareholders) How the company will issue loans to third parties
• REPAYMENT OF INVESTMENT: the terms of repayment of the shareholder’s investment on the winding up of a company
• DIVIDENDS: When are how dividends are paid out to shareholders
• MEETINGS OF THE DIRECTORS OF THE BOARD: How to call a meeting of directors, how many directors must be present. Proxy matters, cancelling meetings and the chairperson’s role
• QUORUM: Companies limited by guarantee will need to state in their constitution how many members and how many directors will make up a quorum for meetings.
• WEIGHT OF VOTES AT MEETINGS: This will be defined by terms of the issued shares. In companies limited by guarantee, the constitution must specify whether the director can or can’t vote.
• COMPANY DOCUMENTS: Process for documenting meeting minutes and resolutions
• COMPANY SECRETARY: What is the role and duties of a company secretary
Did You Know… Under the 2014 Act, Directors have an express duty to ensure that the company secretary has the requisite skills to competently discharge his or her duties or has the necessary resources to do so.
• DIRECTORS: Maximum number of directors. Process for appointing and removing directors as well as the role of alternate directors
Did You Know… Under the 2014 Act, a Limited Company can now be a single director. Please note the director can’t also be the company secretary.
• THE POWERS AND DUTIES OF DIRECTORS: Including the ability to bind the company and execute documents
Did You Know… The Companies Act 2014, codify for the first time eight principal fiduciary duties of directors previously set out by judgments of the courts.
• CONFLICTS OF INTEREST: How will to company respond if there is a conflict between a director’s personal interests and the interests of the company
• COMPANY SEAL: How, where and when can it be used?
• ARBITRATION CLAUSE: The clause will be trigger when internal disputes arise and will be settled through arbitration.
Can my Company’s Constitution be Changed?
Yes, a company’s constitution can be altered, but must first be approved by the members (shareholders) of the company in a AGM/EGM by passing a resolution. If the members of a company wish to amend, modify or revoke the standing constitution they must notify the Registrar of the Companies Registration Office within 10 working days of making any changes. An application must be filed by either a director or a shareholder; the court may consent to alter a company’s Constitution if it believes they’re justified in doing so. Following the judgement, a court-imposed alteration to the Constitution must be submitted to the CRO within 10 working days.
It is recommended that you use a licenced, experienced company formation agent and/or corporate service provider or Solicitor when attempting to amend a company Constitution. For more information, please refer to Alteration of Memorandum Articles of Association.
For more information on any of the information covered in this article, please do not hesitate to contact a member of our Company Secretarial Team on +353 1 6461625 or email us at email@example.com