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What is a Constitution and why might I want one for my Company?
20 Apr 2018 Post by: Steven Moe

If you are in start-up mode then you have plenty to think about – so when it comes to setting up your Company you may be wondering what is essential and what is not?  In this article we talk about a Constitution and explain what it is and the role it can play for your Company.

To set up a Company the key things you need are a Shareholder and Director (needs to be NZ resident or a director in an Australian company).  A Constitution is not legally essential in order to set up a Company but they are very common.   This is because they can alter the ‘default’ position under the Companies Act.  Without a Constitution the Companies Act provisions apply to your new venture.  That may be fine in some simple situations where there is only one shareholder and director but in the usual scenario of multiple people involved it can pay to be specific and customise how you want the rules to apply.

It is worth remembering that because a Constitution is a public document it also allows for transparency in case someone wants to look it up on the Companies Office website (as opposed to a Shareholders’ Agreement which is a private document).  More on the Shareholders’ Agreement and what that is another time.

So turning to what a Constitution would typically cover, they deal with how the Company will run in relation to matters such as:

While it may seem like having a Constitution is not necessary if you will be the sole Director and sole Shareholder it is important to think long term – how about in 2 years when you want to bring in an investor?  It is likely that having a framework to show that covers off the key points about how the Company operates will be helpful.  We would be happy to talk through some of the issues involved as we deal with start-ups most days of the week.  Recently we prepared a guide called “The Start-ups Legal Toolkit” which is a free ebook – contact us if you would like a copy.  We also have resources on our “Innovate” website with templates and articles and guides there.

Contacts:

Steven Moe - stevenmoe@parryfield.com and Kris Morrison - krismorrison@parryfield.com

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