A company constitution is a legally binding agreement between your company and its internal members that defines rules related to corporate governance, business activities, and rights and obligations of its internal members.
It is submitted as part of a company’s incorporation process and is a valuable piece of the broader GRC puzzle.
A company constitution has the following components:
Moreover, having a defined constitution in your company documentation may empower your company to perform certain actions that are not defined with the relevant company legislation in your jurisdiction.
For instance, it enables your company to acquire shares from existing shareholders and restrict transfer of shares.
Is a company constitution the same as articles of association?
Prior to 1988, companies required an article of association as well as a memorandum of association. Now, a single document – the company constitution – replaces these two separate articles.
Company constitution vs shareholders agreement
A company shareholders agreement is different to a constitution. While the former regulates the rights, powers, and responsibilities specifically of shareholders, a company constitution contains general rules for the governance of the overall company.
A company constitution enables your company to:
Pre-define rights and obligations of stakeholders, along with company’s policies and processes
A company constitution is important for an event tomorrow, as it helps:
Benchmark the existing processes and regulations of your company against your competitors