Sections 30 and 31 of the Companies Act 1997 answer two questions: what document is the constitution, and what may be written in it.
Section 30 — the form of the constitution
(a) for a company registered under Part II — the certified copy submitted to the Registrar under section 13 or section 442; or
(b) a document adopted by the company as its constitution under section 33; or
(c) a document described in section 34 — a consolidated single document; or
(d) any of the above as altered under section 33 or varied by the Court under section 35.
A company may at any time submit a single document incorporating the constitution and all amendments. And the Registrar may require it, by written notice, where the number of amendments makes a single document desirable — the board then has one month to comply.
Either way the document must be accompanied by a certificate signed by a director that it complies. Failure by the board to comply with the requirement or the certificate is an offence by every director, under section 34(6), carrying the penalty in section 414(2).
Section 31 — the contents
Subject to section 17(2), the constitution of a company may contain —
(a) matters contemplated by this Act for inclusion in the constitution of a company; and
(b) such other matters as the company wishes to include.
The constitution may contain a provision relating to the capacity, rights, powers or privileges of the company only where the provision restricts them. Section 17(1) has already given the company full capacity; a constitution can narrow that, never widen it.
Matters the Act contemplates
| Subject | Section |
|---|---|
| Restricting the company’s capacity | s 17(2) |
| Rights and powers attaching to shares, and classes of shares | ss 37, 38 |
| Transferability and restrictions on transfer | ss 40, 65 |
| Varying or negating pre-emptive rights on a new issue | s 45 |
| Distributions and dividend rules | ss 50–53 |
| Number of directors, quorum, and board proceedings (in place of Schedule 4) | ss 128, 138 |
| Appointment and removal of directors, and alternate directors | ss 131–134 |
| Delegation by the board | s 111 |
| Meetings of shareholders (in place of Schedule 2) | s 105 |
| A higher majority for a special resolution | s 88 |
| An official seal for use outside the country | s 155(3) |
| Indemnity and insurance for directors and employees | s 140 |
| Additional liabilities of shareholders | s 79 |
“Such other matters as the company wishes”
Paragraph (b) is deliberately open. Commonly included, and enforceable because section 32 makes the constitution binding as a contract:
- Pre-emption on transfer — existing shareholders offered the shares first;
- Compulsory transfer on death, bankruptcy, or ceasing employment;
- Board composition — the right of a class or a named shareholder to appoint a director;
- Reserved matters requiring unanimous or supermajority approval;
- Valuation machinery for compulsory transfers;
- Dispute resolution, including arbitration;
- Restrictions on borrowing or on giving security.
What cannot be included — or rather, what has no effect
The constitution has no effect to the extent that it contravenes, or is inconsistent with, this Act or any other Act.
- Enlarging the company’s capacity — section 17(2) permits only restriction.
- Excluding directors’ duties — the duties in sections 112 to 116 are statutory. Section 140 limits how far a company may indemnify a director, and an indemnity outside those limits is ineffective.
- Dispensing with the solvency test for distributions, buy-backs, redemptions, financial assistance or amalgamations.
- Removing the shareholder remedies — section 143, section 152, sections 91 to 96 and the section 142 injunction.
- Lowering a statutory majority below what the Act requires — section 88 allows a higher majority, not a lower one.
- Forcing a shareholder to take more shares. Section 83 provides that a shareholder is not required to acquire shares by an alteration to the constitution made after they became a shareholder, unless they agree.
- Overriding another Act — section 32(2) refers to “this Act or any other Act”, so a constitution cannot displace, for example, the Banks and Financial Institutions Act 2000 or the Investment Promotion Act 1992.
Drafting notes
- Do not restate the Act. Sections 28 and 29 apply the Act automatically. Copying it in adds length and creates the risk of a clause that is inconsistent and therefore ineffective.
- Say what you are modifying. Where the Act permits a variation, identify the section — it makes the modification traceable and helps avoid section 32(2) problems.
- Keep confidential commercial terms out. The constitution is filed and public; put them in a shareholders’ agreement.
- Watch class rights. Altering rights attached to a class engages section 98 and the buy-out rights in section 99.
- Consolidate periodically under section 34, before the Registrar requires it.
Sources
- Companies Act 1997 — ss 13, 17, 27–35, 37, 38, 40, 45, 50–53, 65, 79, 83, 88, 91–99, 105, 111, 112–116, 128, 131–134, 138, 140, 142, 143, 152, 155, 414, 442
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.