Companies play a massive role in Australian business life. As of March 2025, there were over 3.5 million companies registered with ASIC. Most of these—more than 2.5 million—are proprietary companies, usually set up by small to medium businesses or as trustees for family trusts.
Setting up a company with ASIC is straightforward. For a standard fee ($611 from July 2025, indexed each year), you can register your company and start trading. But every company also needs a set of rules—a framework for how directors and shareholders make decisions and keep the business running smoothly.
So, where do those rules come from?
Replaceable Rules vs Constitution
Since 1998, the Government has provided companies with a default set of rules called the Replaceable Rules. These apply automatically unless shareholders decide to adopt their own Constitution.
At first glance, it might seem unnecessary to spend money on a Constitution when the Government already gives you one for free. But in practice, most companies are better off having their own customised Constitution. Here’s why.
Why a Constitution Is Better
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Tailored to Your Business
The Replaceable Rules are broad and generic. A Constitution allows you to customise how your company operates so it suits your exact circumstances. -
Clear Decision-Making Rules
You can spell out how meetings will run, how directors and members vote, and what level of approval is needed for decisions—whether it’s a simple majority (50%+), a special resolution (75%+), or unanimous consent (100%). -
Defined Roles and Payments
A Constitution lets you specify who is responsible for what, and set clear rules on director remuneration, reimbursements, and other entitlements. -
Managing Shareholder Issues
If a shareholder acts against the company’s interests, your Constitution can include mechanisms to suspend, cancel, or buy back their shares. -
Share Transfer Rights
You can include important protections like pre-emption rights, tag-along rights, and drag-along rights—essential tools for when shareholders want to sell. -
Loan Arrangements
Constitutions can set the terms for loans between shareholders and the company, helping you avoid insolvency risks and stay compliant with Division 7A requirements. -
Convenience
The Replaceable Rules are scattered across the Corporations Act 2001 (Cth) (from section 194 to 1072G). That means trawling through thousands of pages of legislation. A Constitution, on the other hand, is a one-stop shop that’s easy for everyone to access. -
Certainty and Stability
Because the Replaceable Rules are part of legislation, Parliament can change them at any time. A Constitution locks in your company’s rules, and they only change if you decide to update them. -
Reduced Legal Uncertainty
There’s an unresolved legal question about whether Replaceable Rules can be challenged in court under the Administrative Decisions (Judicial Review) Act 1977 (Cth), since they stem from legislation. A Constitution avoids this uncertainty because it operates under contract law. -
Your Right to Choose
It’s rare in business to have the freedom to make your own rules instead of accepting what government or large institutions dictate. A Constitution lets you exercise that right.
Updating Your Constitution
Already have a Constitution? If it doesn’t cover some of the protections above, it may be worth reviewing and updating it. Changes can be made at any time, provided at least 75% of shareholders vote in favour.
While the Replaceable Rules offer a basic framework, they don’t provide the flexibility, certainty, or protections most businesses need. A tailored Constitution gives you control over how your company is run, safeguards against future disputes, and provides clarity for directors and shareholders alike.
If you’re setting up a company—or reviewing your current structure—consider investing in a Constitution. It’s one of the simplest ways to future-proof your business
