Constitution

What is a Constitution and when should you use it?

Any Private Company Limited by Shares (LTD), otherwise known as a Limited Company, set up in Ireland requires a Constitution to be incorporated at the Companies Registration Office (CRO).

Your Constitution (alternatively known as Articles of Association) is your company’s rule book and it contains almost everything you need to know – about the rights and powers you have to make decisions for your company. 

Your Constitution also sets out the rights of various stakeholders of the company, including its directors and shareholders.

It is a binding agreement between them.

Your Constitution is governed by:

• the mandatory provisions of the Companies Act 2014
• your constitution itself; and
• to the extent that your constitution does not modify or ‘disapply’ optional provisions of the Act, the optional provisions of the Act.

Optional provisions are statutory default provisions set out in the Companies Act which apply and govern your company’s internal administration, unless your constitution provides otherwise.

Therefore, the provisions will apply only if you want them to apply and if they have not been disapplied or modified in your constitution.

As your business changes, so the constitution will need to evolve to reflect those changes.

If for example, you take on investors, directors, expand operations and/or change your company structure, you’ll need to amend your constitution, or even adopt new ones.

Any changes to their content like issuing new shares or changing the rights to take decisions will require shareholder consent.

If you are looking to change your constitution you’ll find our guide to changing your constitution useful, as it sets out the steps involved.

So this is a key document in your business – and it never goes away.

The Constitution must contain provisions dealing with certain matters e.g. the name of the company and, if it is a company with limited liability, that fact must also be stated.

However, you also need to consider a list of the optional provisions of the Act and determine which, if any, you want to disapply to your Company.

One must be provided to the CRO with any new company application.

This template is more than sufficient for any small business looking to register as a private limited company and can be used for an online registration of a private limited company via Core

It must be signed by all the Subscribers (shareholders), their addresses and descriptions must be stated and their signatures witnessed and dated.

Alternatively, you may adopt a tailor-made Constitution that is reflective of the business of the company.

We have outlined the types of clauses that may be inserted or altered to make your Constitution more functional for your specific company.

Regarding Directors:

• The powers and duties of directors
• The number of directors admitted on the board at any given time
• The number of meetings to be held within each calendar year
• The process for resigning or appointing directors
• The amount of time each director may serve on the board
• The role of alternate directors
• The quorum of directors

Regarding Shares:

• Outlining the authorised share capital
• Whether the share capital can be increased or decreased
• The division of the share capital into shares
• The classes of shares that the company possesses
• The number of shares appointed to each investor
• The length of time it will take to register a new shareholder
• How the company might issue share certificates
• Share rights in respect of dividends
• Pre-emptive rights, if any
• Share voting rights

Regarding Company Finances:

• Shareholder Loans – how the company might issue loans to third parties
• Repayment of investment – the terms of repayment of shareholder investments
• Dividends – how dividends are paid out to shareholders
• Conflicts of interest and how to respond accordingly

The Constitution of a company is there to provide security and clarity when common issues arise.

The more detail and thought that is placed into the document, the more structure it provides in times of change.

Your Company Constitution is only one element in setting up your company.

It is sometimes said that constitutions could deal with all matters which would typically be seen in a shareholders’ agreement.

Whilst this is arguably true there are certain important reasons why shareholders more often choose to regulate their relationship between one another as shareholders by means of a shareholders’ agreement rather than by means solely of the constitution.

To find more about other legal protections you can put in place read our guide on basic legal documents for your business

What else might you need?

If you’re planning to set up your own limited company, take a look at our guide to setting up a limited company, which will give you all the introductory background that you need.

And if you’re not sure which business model is the right one for your business, our guide to the different business models should be able to help you to compare your different options and choose the best one for you.

If you’re issuing shares, you’ll need a shareholder agreement and share certificates as well as board resolutions and shareholders resolutions relating to those shares.

You should also check out our guide on Shareholders Agreements