The amendment procedure of a company constitution is dependent on the company’s objects. There are 2 key distinctions:
- Amendments that do not alter the company objects – e.g. changing the language of the objects in the constitution, fixing errors, renumbering of clauses, etc.
- Amendments that alter the company objects
For amendments that do not alter the company objects, you will need to pass a special resolution in an Extraordinary General Meeting (EGM). Once that is approved by the board and completed, the amended constitution will be effective from the date of the special resolution, unless otherwise stated.
Companies need to submit the copy of the special resolution and amended constitution within 14 days from the passing of resolution through BizFile+.
1. Avoiding incorrectly classed shares
Having a company constitution can avoid company to be set up with any absurd rules and incorrectly classed shares. This saves the cost of having any expensive legal fees if any conflict arises.
2. Maintaining the balance of power between stakeholders
A constitution may also work well to amend the balance of power between owners/shareholders and directors/management when there is a perceived or evident gap in control. Example, a shareholder can be empowered to give directions to overturn decisions of the company’s directors.
If you are unhappy, or you have a new director or shareholder coming into the company and requires a change of the company constitution, then it can only be altered by means of a special resolution.
This is usually not recommended, but if it needs to be done it has to be done. The alteration will be a part of the original constitution from the date of passing of the special resolution. The company has to submit a notice of the resolution or any court order that affects the constitution within a period of 14 days of such resolution of order to the ARCA. ACRA will then issue a notice and certificate of incorporation which stands as a confirmation of the alteration to the constitution.
3. In setting the tone of what a company does
A constitution defines the scope of the activities that a company carries out. It is the foundation for the company to start its business. Since it is one of the most important documents, the company must take great care while drafting it.
4. During applications of bank accounts, bank loans, grants, licensed etc.
The opposite party would investigate the company’s constitution to understand the relationship between stakeholders, the scope of activities and how these fit into their risk assessment. Having unusual circumstances might be flagged out and questioned during your applications.