Part V of the Companies Act 1997 begins with a single-sentence section that changed the whole architecture of Papua New Guinea company law.
Section 27 — the constitution is optional
A company may, but does not have to have a constitution.
Under the repealed Act every company needed a memorandum and articles of association. The 1997 Act abolished that requirement. The default rules now live in the statute itself, and a company adopts a constitution only if it wants something different.
Sections 28 and 29 — the two positions
Where a company does not have a constitution, the company, the board, each director and each shareholder have the rights, powers, duties, and obligations set out in this Act.
Where a company has a constitution, they have the rights, powers, duties and obligations set out in this Act except to the extent that they are negated or modified, in accordance with this Act, by the constitution.
Those four words are the limit. A constitution can only negate or modify the Act where the Act permits it. Section 32(2) says the same from the other end: the constitution has no effect to the extent that it contravenes, or is inconsistent with, this Act or any other Act.
So a constitution cannot relieve directors of the duty of good faith in section 112, dispense with the solvency test, cut down the section 152 remedy, or remove the requirement for a special resolution where the Act requires one. Drafting such a clause simply produces a clause with no effect.
What the Act supplies if you have no constitution
| Subject | Default position |
|---|---|
| Capacity | Full capacity to do anything, anywhere — s 17(1) |
| Management | The business is managed by or under the direction or supervision of the board — s 109 |
| Board meetings | The proceedings in Schedule 4 apply — s 138 |
| Shareholders’ meetings | The proceedings in Schedule 2 apply — s 105 |
| Issuing shares | The board may issue shares under ss 43 and 47, subject to pre-emptive rights in s 45 and shareholder approval under s 44A where it applies |
| Transfer of shares | Shares are transferable — ss 40, 65 — with no directors’ discretion to refuse unless the constitution creates one |
| Distributions | The board may authorise a distribution if satisfied of the solvency test — s 50 |
| Appointing directors | By ordinary resolution, voted on individually — ss 131, 133 |
| Removing directors | By ordinary resolution — s 134 |
| Directors’ remuneration | Authorised by the board on the s 139 conditions, with a signed certificate |
When a constitution is worth having
- To restrict the company’s capacity — the only capacity provision a constitution may contain, under section 17(2). Useful for single-purpose and joint venture vehicles.
- To control who may become a shareholder — directors’ discretion to refuse a transfer, pre-emption on transfer, compulsory transfer on death or departure.
- To create classes of shares with different rights — see section 37 and section 97.
- To modify meeting and voting rules where the Act allows — quorum, chair, notice, casting votes.
- To vary or exclude pre-emptive rights on a new issue, where section 45 permits.
- To require a higher majority than 75% for a special resolution, which the section 2 definition contemplates.
- To authorise an official seal for use overseas — section 155(3) operates only if the constitution so authorises.
- To set the framework for a shareholders’ agreement in a company with more than one owner.
A constitution is a public document: it is lodged with the Registrar under section 13(1)(f) or section 33(3) and is open to inspection. It must be kept current, and every alteration requires a special resolution plus notice to the Registrar within one month, on pain of an offence by every director under section 33(4).
For a single-shareholder, single-director company, the Act’s default rules are usually adequate and cost nothing to maintain. Confidential arrangements between shareholders are better placed in a shareholders’ agreement, which is not filed — though note that a private agreement cannot displace the Act, and cannot bind the company in the way section 32 makes a constitution binding.
The section 89 alternative
Where every shareholder agrees, section 89 allows things to be done by unanimous assent that would otherwise require a different process — and expressly validates certain acts that would otherwise be beyond the company’s power or contrary to the Act, within the limits that section sets. In a closely held company that machinery often does the work a constitution would otherwise do, without a public document.
Deciding, in practice
- One owner, one director? Usually no constitution. The Act is enough.
- Family or partnership company? Consider a constitution for transfer restrictions and pre-emption, backed by a shareholders’ agreement.
- Joint venture? A constitution restricting capacity to the project, plus class rights and board composition rules, plus a detailed agreement.
- Subsidiary in a group? Often a constitution aligning the subsidiary’s governance with the parent’s requirements.
- Company raising outside investment? Almost always a constitution, dealing with classes, pre-emption, drag and tag provisions and board seats.
Whatever the choice, it is not permanent: a company without a constitution may adopt one by special resolution under section 33(1), and a company with one may alter or revoke it under section 33(2).
Sources
- Companies Act 1997 — ss 13, 17, 27–35, 37, 40, 43–45, 47, 50, 65, 88, 89, 97, 105, 109, 112, 131–134, 138, 139, 152, 155, 414; Schedules 2 and 3
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.