Do Company Constitutions Need Signatures? What You Should Know.

Navigating the intricacies of Corporate Law can feel daunting, especially when it comes to understanding the nuances of a company constitution.  At Dexterity Law, we regularly advise clients on managing their compliance with Australian corporate law and their relationships between directors and shareholders.

One question that often arises is: do company constitutions need signatures to be legally binding? We set out the position under Australian law below. Whether you're starting a new venture or revisiting your existing policies, understanding these legal requirements is helpful to avoid errors in your corporate actions.

Understanding Company Constitutions

A company constitution is a cornerstone document that outlines the rules and principles governing a company's operations. Historically, constitutions contained all the key rules as to how companies operated.

Today, for pty ltd companies, most constitutions rarely see the light of day.  Many clients will prefer to adopt the ‘replaceable rules’ under the Corporations Act 2001 (which are basically the same set of rules we otherwise see set out in a constitution).  Further, generally the shareholders deed or shareholders agreement is the real document of substance that is heavily negotiated and signed up to by the company and all its shareholders. Note the position is reversed for public companies where the constitution is the critical document.

The contents of a company constitution typically include the company’s objectives, the distribution of powers among its officers, and the procedures for appointing directors and making important decisions.

Do Company Constitutions Require Signatures?

In Australia, if a constitution is adopted before registration, each member must agree (in writing) to the terms of the constitution. If a constitution is adopted after registration, the company must pass a special resolution to adopt the constitution.

Once in place any new member of the Company will become bound by the Constitution once they become a member of the Company whether or not they expressly sign it.  However, in order to avoid disputes, it is highly advisable to:

1.     Keep a record of the constitution being provided to the Member;

2.     Obtain a written acknowledgement that the Member agrees to be bound by the Constitution (which may be in either a shareholder agreement, subscription agreement, share purchase agreement or other document).

Importance of Signatures in Legal Documents Generally

Signatures play a critical role in the world of legal documents because they serve as a tangible evidence of consent, agreement, and acknowledgment, providing a level of authenticity and accountability.

In many legal contexts, a signature is required to validate a document, making it enforceable in a court of law. This is particularly important in contracts, agreements, and various corporate documents where the stakes are high.

Best Practices for Drafting Company Constitutions

You should ensure that the constitution is clear, comprehensive, and tailored to the specific needs and objectives of the company. This involves outlining the roles and responsibilities of directors and officers, setting out procedures for decision-making, and establishing mechanisms for resolving disputes. These are technical documents and you should not use this as a creative exercise.

How to Ensure Compliance with Corporate Law in Australia

Ensuring compliance with legal standards when drafting and adopting a company constitution is paramount. The first step is to thoroughly understand the legal requirements and guidelines that apply to company constitutions in the relevant jurisdiction.  

At Dexterity Law, we will recommend that clients who are new to running a business undertake our legal framework workshop designed to flag to them the key legal issues they need to know when running a business.  Beyond this, as your business grows, we highly recommend directors undertake formal training to better understand their obligations (such as the AICD’s new director course).

This article was written by Pippin Barry, Lawyer (BA, JD Unimelb).  Dexterity Law is a small commercial law firm based in Melbourne, which advises clients across Australia.