Company Constitution

Company constitution

This precedent has been authored for LexisNexis by Dennis Murray, CEO, MyLawGuide.

This precedent is current to 17 May 2016.

Introductory note
This constitution has been designed for companies that may be contemplating separation between the rights, duties and powers of shareholders, directors and the executive team.
Where this Constitution is silent the default provisions of the Companies Act 1993 (the Act) apply.
This Constitution deals with these matters:
· share issues;
· dividends;
· meetings;
· voting;
· appointment of directors, committee members and CEO;
· remuneration;
· indemnity and insurance;
· delegation of powers; and
· access to company records
The way in which these matters are dealt with in this precedent are designed to provide a basis for discussion and are not intended to be applied verbatim. Shareholders and their representatives are encouraged to seek professional advice prior to approving a constitution to ensure that is appropriate for their particular set of circumstances.
This constitution provides for two standing committees:
· an audit committee; and
· a nomination and remuneration committee.
This combines the responsibilities of nomination and remuneration in a single committee in the interests of efficiency and is most appropriate for a smaller company. In a larger company it may be appropriate to separate the responsibilities of nomination and remuneration.

Constitution of [company name]

[company number]

Dated: [date – month – year]

1 Interpretation

In this Constitution, unless the context otherwise requires:

· “Act” means the Companies Act 1993.

· “Board” means: Directors who number not less than the required quorum acting together as a Board of directors.

· "Company" means [company name].

· "Constitution" means this constitution.

· "Director" means a person appointed as a director of the Company under this Constitution.

· "Ordinary resolution" means a resolution approved by a simple majority of the votes of those shareholders entitled to vote and voting on the question.

· "Shareholder" means a shareholder in the Company.

· "Share" means a share in the Company.

· "Special resolution" means a resolution approved by a majority of 75 percent of the votes of those shareholders entitled to vote and voting on the question.

2 Issue of shares

2.1 Board’s powers to issue shares

(a) Subject to the Act and this Constitution, the Board may issue additional shares, and rights or options to acquire shares, of any class at any time, to any person and in the numbers the Board thinks fit, provided that:

(i) The Board shall first offer the shares/rights and/or options to existing shareholders in a manner that would maintain the existing shareholders’ rights in relation to voting and distributions at the same level those shareholders enjoyed before any new shares were issued.

(ii) Where one or more shareholders decline the Board’s offer, then the remaining balance of the shares/rights and/or options shall be offered to any remaining shareholders in proportion to their existing shareholder rights.

(b) For clarity, any shares/rights and/or options not acquired by any existing shareholder may be offered to any person the Board thinks fit.

3 Distributions to shareholders

3.1 Board may recommend distributions

(a) The Board may recommend a distribution by the Company at a time and of any amount and to any shareholders it thinks fit.

(b) The recommendation of the distribution made by the Board must be approved at a subsequent shareholders meeting.

(i) paying a dividend;

(ii) issuing shares in lieu of a proposed dividend;

(iii) reducing shareholder liability in terms of s 57 of the Act;

(iv) the Company purchasing or acquiring its own shares; and

(v) giving financial assistance to a person for, or in connection with, the purchase of shares in the Company or its holding company.

3.2 Solvency test

Before making any distribution to shareholders:

(a) The Board must be satisfied on reasonable grounds that the Company will, immediately after the distribution, satisfy the solvency test prescribed in the Act.

(b) Those directors voting in favour of the distribution must sign a certificate stating that in their opinion the Company will, immediately after the distribution, satisfy the solvency test prescribed by the Act; and the grounds for that opinion.

3.3 Dividends

No dividend may be authorised:

(a) in respect of some but not all shares in a class; or

(b) that is of a greater value per share in respect of some shares of a class than it is in respect of other shares of that class,

unless the dividend in respect of a share of that class is in proportion to the amount paid to the Company in satisfaction of the entitled shareholder.

4 Proceedings at meetings of shareholders

4.1 Chair

If the directors have elected a Chair of the Board, and the Chair is present at a meeting of shareholders, he or she must chair the meeting.

4.2 Notice of meetings

(a) Written notice of the time and place of a meeting of shareholders must be sent to every shareholder entitled to receive notice of the meeting and to every director and any auditor of the company, not less than [number of days] working days before the meeting.

(b) The notice must state the:

(i) nature of the business to be transacted at the meeting in enough detail to enable a shareholder to form a reasoned judgment in relation to it; and

(ii) text of any special resolution to be submitted to the meeting.

(c) Omitting to give notice of a meeting to a shareholder does not invalidate the proceedings provided that the omission will not lead to an alternative outcome on any vote.

4.3 Quorum

(a) For the shareholder meeting to be valid, shareholders representing at least 50 per cent of the voting rights must be present at the meeting.

(b) No business may be transacted at a meeting of shareholders if a quorum is not present.

4.4 Methods of holding meetings

(a) A meeting of shareholders may be held either:

(i) By a number of shareholders, who constitute a quorum, being assembled together at the place, date, and time appointed for the meeting.

(ii) By means of audio, or audio and visual, communication by which all shareholders participating and constituting a quorum, can simultaneously hear each other throughout the meeting.

(iii) By some shareholders being present in person, and some shareholders attending by way of audio, or audio and visual, communication. In these cases the Chair must be able to hear (and preferably also see) the shareholder(s) attending by way audio, or audio and visual, communication.

(b) To avoid doubt, shareholders attending by way of audio, or audio and visual, communication are present at the meeting and are part of the quorum.

4.5 Voting

In the case of a meeting of shareholders, unless a poll is demanded, voting at the meeting shall be by whichever of the following methods is determined appropriate by the Chair of the meeting:

(a) voting by voice; or

(b) voting by show of hands.

4.6 Proxies

(a) A shareholder may exercise the right to vote either by being present in person or by proxy.

(b) A proxy for a shareholder is entitled to attend and be heard at a meeting of shareholders as if the proxy were the shareholder.

4.7 Form of notice of proxy

A notice appointing a proxy is to be in the form set out in Schedule 1, or a form as near to it as circumstances allow, or in such other form as the Board may direct.

4.8 Minutes

(a) The Board must keep minutes of all proceedings at meetings of shareholders.

(b) Minutes signed correct by the Chair of the meeting are prima facie evidence of the proceedings.

4.9 Shareholder proposals

A shareholder may give written notice to the Board of a matter the shareholder proposes to raise for discussion or resolution at the next meeting of shareholders at which the shareholder is entitled to vote.

5 Appointment and Removal of Directors

5.1 Number of directors

The Company shall have at least [number], but no more than [number], directors.

5.2 Professionally qualified directors

(a) The Company shall have at least [number] professionally qualified director(s).

(b) For the purposes of this Constitution, a “professionally qualified director” is defined as someone who:

(i) has a law degree;

(ii) is a chartered accountant; or

(iii) is a fellow of the:

(A) Institute of Directors; or

(B) Governance New Zealand.

5.3 Executive directors

(a) The Company shall have at least [number] executive director(s).

(b) For the purposes of this Constitution an “independent director” is defined as a non-executive director holding less than [number] per cent of shares.

5.4 Appointment of directors

(a) Subject to this Constitution, any person not disqualified under the Act may be appointed as a director by an ordinary resolution of shareholders.

(b) A person named as a director in the application for registration of the Company holds office as a director from the date of registration until he or she ceases to hold office as a director under the Act or this Constitution.

5.5 Remuneration of directors

The remuneration of directors is dealt with in more detail in the corporate governance code.

5.6 Removal of directors

(a) A director may be removed from office by an ordinary resolution passed at a meeting called for the purpose, or for purposes that include, the removal of the director.

(b) The notice of meeting must state that the purpose, or a purpose, of the meeting is the removal of the director.

6 Appointment of the Chair

6.1 Appointment by the board

The Chair of the Board shall be appointed by the Board. Only non-executive [and independent, and professionally qualified] directors are eligible for appointment as chair.

6.2 Responsibilities of the chair

The Chair’s responsibilities are detailed in the corporate governance code.

7 Committees of the Board

7.1 Standing committees:

(a) The Board shall establish two standing committees:

(i) a Nomination and Remuneration Committee, and

(ii) an Audit Committee.

7.2 Membership of committees

(a) The committees shall be selected by the full Board, with the committee comprising no less than [number] directors, including:

(i) an independent director;

(ii) for the Audit Committee, a director who is a chartered accountant;

(iii) for the Nomination and Remuneration Committee, a director who is professionally qualified;

(iv) a shareholder representative who is not a director, appointed by way of ordinary resolution at the annual meeting of shareholders;

(v) a [non-voting/voting] remuneration/audit professional.

(b) Executive directors are not eligible for appointment to committees.

7.3 Proceedings of committees

(a) Directors of the Board are entitled to attend committee meetings, subject to the Chair of a committee requesting that a meeting be held without the presence of a director or directors.

(b) A quorum for a committee meeting is all members.

7.4 Responsibilities of committees

The responsibilities of each committee are detailed in the corporate governance code.

8 The Chief Executive Officer

8.1 Appointment

(a) The Chief Executive Officer (CEO) may only be appointed by [unanimous/majority/other] vote of the Board, subject to the Chair having the right to veto the appointment, following recommendation by the Nomination and Remuneration Committee.

(b) The responsibilities and remuneration of the CEO is dealt with in more detail in the corporate governance code.

9 Indemnity and Insurance

9.1 Indemnifying directors and key executives

(a) The Company may indemnify a director or key executive of the Company or a related company for any liability or costs incurred by him or her in any proceeding for which a director or key executive may be indemnified under the Act.

(b) The Board shall determine the terms of any such indemnity.

(i) Criminal liability; and

(ii) The duty of each director to act in good faith and in the best interests of the Company.

9.2 Insuring directors and key executives

(a) The Company may effect insurance a director or key executive of the Company or a related company for any liability or costs incurred by him or her in any proceeding for which a director or key executive may be indemnified under the Act.

(b) Any insurance effected must be done with the prior approval of the Board.

(d) Note that s 162(5)(a) of the Act prevents indemnification of penalties relating to criminal liability.

10 Delegation of Executive Powers

(a) Subject to any restrictions in this Constitution and the Act, the Board may delegate any one or more of its powers other than the powers listed in the Second Schedule to the Act:

(i) to a committee of directors;

(ii) a director; or

(iii) the CEO.

(b) The CEO is responsible for sub-delegation of any powers delegated to the CEO to executives.

11 Corporate Governance Code

The Board shall adopt a corporate governance code, which shall be subject to approval by ordinary resolution at the next annual meeting of shareholders.

12 Access to Company Records

12.1 Inspection of records by directors

Every director is entitled, on giving reasonable notice, to inspect the records of the Company:

(a) in written form;

(b) without charge; and

12.2 Company records

The following records must be available for inspection on demand by a director:

(a) this Constitution;

(b) the share register;

(d) compliance register;

(e) risks register;

(f) the full name and contact details of the:

(i) CEO;

(ii) CFO;

(iii) Auditor;

(iv) Company lawyer;