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M3: Learner Manual

2. The Constitution of an Organisation

2.1. Legal Requirements for a Constitution

The following examples of organisations that may have a Constitution, may have different requirements according to the type of incorporation.

Company

A company’s internal management may be governed by:

·       Provisions of the Corporations Act 2001 that apply to the company - known as replaceable rules.

·       A constitution, or

·       A combination of both.

The constitution is a contract between:

·       The company and each member.

·       The company and each director.

·       The company and the company secretary, and

·       A member and each other member.

A company can adopt a constitution before or after registration. If it is adopted before registration, each member must agree (in writing) to the terms of the Constitution If a constitution is adopted after registration, the company must pass a special resolution to adopt the Constitution[1]

Changing a Company Constitution

A company can change or repeal its constitution by passing a special resolution. A special resolution needs at least 28 days’ notice for publicly listed companies and 21 days’ notice for other company types. For the resolution to pass, at least 75% of the votes cast must be in favour.[2]

 

Associations in NSW

Every incorporated association must have a Constitution This can be the Model constitution or the association’s own constitution, which is recorded in the public register of incorporated associations, maintained by NSW Fair Trading.

The constitution must address each of the matters referred to in Schedule 1 of the Associations Incorporation Act 2009 (the Act), as follows:

·       Membership qualifications: The requirements, if any, to become a member.

·       Register of members: The register of the association’s members including fees, subscriptions etc. Any entrance fees, subscriptions and other amounts, if any, to be paid by the members.

·       Members liabilities: A member’s liability, if any, towards the debts and liabilities of the association.

·       Disciplining of members: The procedure, if any, for disciplining members, including an appeals process.

·       Internal disputes: The procedure for the resolution of disputes between members and between members and the association.

·       Committee: The composition, functions and processes of the committee, including:

o   The election or appointment of the committee members.

o   The terms of office of the committee members.

o   The maximum number of consecutive terms of office of any office-bearers on the committee.

o   The circumstances in which a committee member has to vacate office.

o   The filling of casual vacancies on the committee, and

o   The quorum (minimum number of members required at a meeting) and procedures to be followed at committee meetings.

·       Calling of general meetings: The procedure for calling and holding a general meeting and the intervals between meetings.

·       Notice of general meetings: The process for notifying members of a general meeting and notices of motion.

·       Procedure at general meetings: The quorum, procedure and requirements for conducting a general meeting, and whether members are entitled to vote by proxy.

·       Postal or electronic ballots: The types of resolutions that may be voted on by a postal or electronic ballot.

·       Sources of funds: The sources of the association’s income.

·       Management of funds: How the association's funds are to be managed and the procedure for drawing and signing cheques on behalf of the association.

·       Custody of books etc: Who is responsible for the association's books, documents and securities.

·       Inspection of books etc: The procedures for the inspection of books and documents by members.

·       Financial year: The association's financial year.

·       Winding up: The winding up of the association.

A representative of the association must certify that the constitution complies with the requirements of the Act, including the above matters, when registering the association and when registering changes to the Constitution[3]

Changing an Association’s Constitution

An association may change its constitution by passing a special resolution. The change must be consistent with the Act and the rest of the Constitution[1]

 

Co-operatives in NSW

A co-operative’s rules must provide for the matters included in Schedule 1 of the Co-operative National Law (CNL). The rules may contain other provisions appropriate for an individual co-operative as long as those provisions are not contrary to the co-operatives legislation.

A co-operative can adopt its own rules or the model rules. A co-operative can include some or all of the relevant model rules in its own rules.

Co-operatives should carefully consider its proposed rules to ensure they suit their operations and meet the requirements of Schedule 1.

Active membership provisions

The co-operative’s rules must include active membership provisions. These set out the co-operative’s primary activity/activities and what a member has to do to be an active member.

A co-operative’s primary activity is:

  • Either by itself or together with another activity, the basic purpose for which the co-operative exists.
  • Makes a significant contribution to the business of the co-operative, i.e. It contributes at least 10% to the turnover, income, expenses, surplus or business of the co-operative.

Members of a co-operative must satisfy the active membership requirements in the co-operative’s rules in order to be entitled to vote and to retain their membership. The active membership requirements must:

  • Be reasonable when considered in relation to the activities of the co-operative as a whole.
  • Be clear, repetitive and measurable, and
  • Clearly define the period in which a member is required to use or support an activity or to maintain a relationship with the co-operative. For example, members must undertake specified obligations each financial or calendar year.

For non-distributing co-operatives an obligation to pay a regular subscription to be applied to a primary activity of the co-operative is sufficient to establish active membership of the co-operative.

For distributing co-operatives, the active membership provisions must require a member to use an activity of the co-operative for carrying on a primary activity together with any other provisions approved by the Registrar.

A co-operative must keep records to enable it to identify which of its members are active.

Changing a Co-operative's Constitution 

In most cases a co-operative can only amend its rules or adopt new rules by passing a special resolution with a two-thirds majority (or a higher majority if required in the co-operative’s rules). 

In very limited circumstances a board of a co-operative may pass a resolution amending the rules. This may only occur where an amendment is giving effect to a requirement, direction, restriction or prohibition imposed or given under the CNL.[2]