Topic 3: Constituting

Companies
What are the Learning Outcomes (LOs)
of this topic?
After completing this topic, you
should be able to understand:
(a)
How companies are created/registered,
including company names;
(b) What are a companys internal governance
rules? They are a company's constitution or the
replaceable rules or a combination of both.
(c)
What is the legal consequence of noncompliance or breaching a companys internal
governance rules? (You need to compare the
common law and the Australian statutory
position.)
What are the more important
components of Topic 3?
LOs b and c above.

1. Pre-Registration Contracts

a. Pre-Registration Contracts: Common

law position?
b. Pre-Registration Contracts: Position
under s 131, CA 2001?
2. What are internal governance rules?
(IGR is the acronym for internal
governance rules.)
3. With regards to IGR, what must every
company have?
Position today: Every company must
have internal governance rules.
S 134, CA 2001: They are to be found in:
- the companys constitution;
- in the replaceable rules stipulated
in the CA
2001; or
- a mixture of the above.
Relevance of s 134, Corporations Act
2011?

4. What is a company constitution?

Common law concept: MA & AA.
MA: Memorandum of Association.
AA: Articles of Associations.
The Memorandum of Association
defined the nature of the company.
The Articles of Association had rules
to govern the powers of Board of
directors, members and conduct of
meetings.
A constitution is still relevant today in
the context of CA 2001. Section 134, CA
2001.
Constitution enables the various
stakeholders to personalise the
company's structure (Ciro & Symes,
2009:83).
Powers and rights of the various
stakeholders in the company and
their relationship vis--vis each other.

5. What are replaceable rules in the

Australian Company Law context?
5.1 How did they come about?
Company Law Review Act 1998
Section 141, CA 2001
6. For purposes of IGR, why the date
1/7/98 important?
What are the practical implications of
1/7/98?
6.1 Non-application
The replaceable rules do not apply to a
proprietary company that has the same
person as director and sole shareholder
7. LEGAL EFFECT of the INTERNAL
GOVERNANCE RULES: The Statutory
Contract under CA 2001
S140 (1) enforces the internal
governance rules by creating a statutory
contract. However, the CA 2001 does not

prescribe any penal provision for the

breach of any of the rr.
8. STATUTORY CONTRACT BETWEEN
COMPANY and EACH MEMBER
Note: Members have a right to only
enforce membership matters, e.g. rights
of members such as the right to vote.
9. A failure to comply with the
replaceable rules as they apply to a
company is not of itself a contravention
of the Corporations Act: S 135(3), CA
2001. There are no penal provisions with
regard to the breach of rr.
Any failure to comply with statutory
contract does not lead to contravention
of the Corporations Act.
9.1 Remedy for the breach of
replaceable rules (rr) under CA 2001?

The usual remedy for a member who

complains of a breach of the
statutory contract is a declaration or
injunction.
May damages be made part of the
remedy for the breach?
Unlike commercial contracts, purpose
of statutory contract is to seek
compliance, not damages.

10. CORPORATIONS ACT 2001 - SECT 140

Effect of constitution and replaceable rules
(1) A company's constitution (if any) and any
replaceable rules that apply to the company have effect as
a contract:
(a) between the company and each member;
and
(b) between the company and
each director and company secretary;

 Note: constitution can be changed.

If terms in constitution as well as
contract of service, alteration of
constitution does not affect the
contract of service. (Allen v Gold Reef
of W Africa)
11. Objects Clause in the constitution:
Ultra vires trading activities of the
company
Internal Limitations on Companys
powers:
Objects Clause in the constitution of the
company
A Co may include a pre-agreed
objects clause in its constitution
restricting companys activities.
Any activity falling outside the object
clause: What is the consequence for
breaching the objects clause?

a) Common law: Ultra vires the objects clause and

therefore null and void ab initio: Ashbury Rly
Carriage and Iron Co v Riche.
b) S 125(1), CA 2001: An act of the company is
not invalid merely because it is contrary to or
beyond any objects in the company's constitution.
What is the effect of s 125(1) of the CA
2001?
Abolition of the common law ultra vires
doctrine.
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