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Replaceable rules are rules for the internal management of your company. These rules are found in the Corporations Act 2001 (Cth).
Also, the rules will apply to a company that’s registered after 1 July 1998 and any company registered before 1 July 1998 that has since repealed its constitution.
Now, a company can be internally managed by replaceable rules; or constitution; or a combination of both.
Importantly, replaceable rules are not mandatory for a company with a sole director and shareholder.
You can add extra rules in the constitution that are either in addition to or override the replaceable rules.
Now, a breach of the replaceable rules is not a breach of the Corporations Act. Rather, the rules have the same effect as a contract and avenues for redress are the same as those for a breach of contract.
So what exactly does this mean?
Both the replaceable rules (and constitution - if there is one), have the same effect as a contract between:
Now, what this means is that each person agrees to observe and perform the replaceable rules/constitution.
Next, let's look at when the rules won't apply.
Unless they agree in writing, a shareholder won’t be bound by a change that:
So which should you choose - replaceable rules or a constitution?
Now, while you have the choice of replaceable rules, a constitution or a combination of these, keeping things simple as a startup can be helpful to reduce costs.
This means replaceable rules can suit you just fine in the early stages.
And you can pay for a bespoke constitution when you have more resources.
Below is an example of what the replaceable rules cover.
As at the time of writing, the list includes all replaceable rules in the Corporations Act 2001 (Cth).
Replaceable rules are rules for how your startup is managed internally. You can use replaceable rules, a constitution or a combination of these for your startup. If you are a sole director and shareholder, the replaceable rules and a constitution are not mandatory. The replaceable rules can be overridden by a constitution. You can use replaceable rules early on to bootstrap your startup and when you have resources, pay for a customised constitution.
Finally, the rules generally cover voting, director decisions, share transfers, directors pay and meetings.
Do you have questions about using replaceable rules at your startup?
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