Many companies adopt a Constitution when they are incorporated and rarely revisit it thereafter. As the business grows, however, its ownership structure, operations and governance needs often evolve. A Constitution that once suited the company may no longer reflect how the business is managed today.
Regularly reviewing and updating your company's Constitution helps ensure it remains relevant, supports the shareholders' intentions and complements the requirements of the Companies Act 2016.
What Is a Company's Constitution?
A Constitution is the document that governs the internal management of a company. It sets out the rules relating to matters such as shareholders' rights, directors' powers, meetings, share capital and decision-making processes.
Although there is no requirement to review it annually, there are several situations where an update should be considered.
Six Triggers for a Constitution Review
When to revisit the document
- 1There are new shareholdersWhen new investors or family members become shareholders, existing governance arrangements may no longer be appropriate. Updating the Constitution helps ensure voting rights, share transfers and decision-making continue to reflect the shareholders' intentions.
- 2The business has grownA Constitution prepared when the company was newly incorporated may not adequately address the needs of a larger business with multiple directors, business divisions or external investors.
- 3Ownership structure has changedFamily succession, share transfers, employee share ownership or corporate restructuring may require amendments so the Constitution remains consistent with the company's ownership structure.
- 4The existing Constitution is outdatedMany companies still use Constitutions drafted under the repealed Companies Act 1965. Some provisions may remain valid; others may no longer align with the Companies Act 2016 or current corporate practice.
- 5Shareholders want greater certaintyAs businesses mature, shareholders often wish to formalise share transfer restrictions, director appointments, voting thresholds, meeting procedures, share classes and dividend entitlements.
- 6The company is preparing for investment or successionInvestors review governance documents during due diligence, and family businesses planning succession should ensure the Constitution supports the intended transition.
Constitution vs Shareholders' Agreement
A Constitution and a Shareholders' Agreement serve different purposes and should not be viewed as alternatives.
For many privately owned companies, having both documents provides a stronger governance framework.
Don't Wait for a Dispute
Many companies only review their Constitution after a disagreement arises between shareholders or directors. By then, changing the rules may be difficult — or impossible — without the necessary approvals.
Reviewing the Constitution while relationships are positive allows shareholders to agree on governance arrangements before differences of opinion emerge.
Final Thoughts
A company's Constitution should evolve alongside the business. Whether your company has welcomed new shareholders, expanded its operations, undergone restructuring or simply has not reviewed its Constitution for many years, it may be time to consider whether the document still reflects the way your business operates.
Keeping your Constitution up to date provides greater certainty, supports good corporate governance and helps protect both the company and its shareholders as the business continues to grow.
