It has been a little while since I made a post, having struck a busy patch at work (I am setting up my research lab at the University of Sydney) I have been flat out for the last couple of weeks. To fix that I decided to make a quick post today to try to keep a little bit current.

I have noticed from the key words that people use to find my web site that there is a lot of interest in the replaceable rules for companies. I found too when I was starting my company that it was actually quite hard to find any information on this, particularly if you don’t know much about it yourself yet, which I imagine is what all the hits I have got on this topic are about. So I decided to write this post to provide more information on the Replaceable Rules.

Firstly anyone interested in finding out information about forming a company should refer to the ASIC web site (http://www.asic.gov.au/) which is an excellent source of information and the final authority on corporate regulations. It is the function of the ASIC to govern all matters relating to companies thus for a definitive answer on something it is good to check there, in the same way that it is good to refer to the web site of the Australian Tax office on matters relating to taxation. All other web sites on topics of corporate governance or taxation in this case, are simply reiterating information which is generated at these two sites.

The particular page relating to the replaceable rules can be found at:

http://www.asic.gov.au/asic/asic.nsf/byheadline/Constitution+and+Replaceable+Rules?opendocument

This page is a very good summary of what the replaceable rules are and what they are for. Briefly, any company that is formed needs to be governed by a set of rules. These rules are an adaptation of the Corporations Act 2001. The Corporations Act 2001 is the set of legislation that sets out absolutely everything in relation to how a company may be run. This Act however is absolutely massive and a company would be paralysed by legal complexity if they attempted to run their day to day operations according to the legislation itself. All companies must conform to the legislation but there is much that is only applicable in certain circumstances. The day to day running of a company may instead be performed by referring to a relatively few sections of the act, these more specific and useful sections are referred to as the replaceable rules.

The replaceable rules themselves are listed at:

http://www.asic.gov.au/asic/asic.nsf/byheadline/Replaceable+rules+outlined?opendocument

This page has a very large table listing the rules, saying what each rule is meant to govern, and gives a reference to the section of the legislation that it is drawn from.

As described at the top of this page, the replaceable rules are just an outline of the legislation in the Corporations Act 2001 and Corporations Regulations 2001, and thus on matters of law it is the actual legislation that must be consulted, not the replaceable rules.

Also a number of the replaceable rules relate to actions that may be taken by the directors of the company and also the powers of the directors or members and the resolutions that may be passed at general meetings. As these do not apply to sole owner proprietary companies, where the director and sole member of the company are the same person, there is special dispensation in the legislation that the replaceable rules do not apply to “sole member/director companies if the member/director is the same person”, in relation to these particular rules. All other rules still apply.

As an example, rule number 10 describes how “A director of a company may resign as a director of the company by giving a written notice of resignation to the company at its registered office”. If the company is a sole member/director company however the director can not resign as there would then be no director and a company must have a director at all times. Thus there must be special provision for companies in this position.

The general running of a company, provided it is within keeping of the Corporations Act 2001 and Corporations Regulations 2001 is generally up to the directors of a company. If the replaceable rules put requirements on the company that conflict with the rules that the directors deem to be in the best interest of the company, the directors may alter the replaceable rules, and instead adopt a modified set of rules referred to as a constitution.

According to this page of the ASIC web site (http://www.asic.gov.au/asic/asic.nsf/byheadline/Constitution+and+Replaceable+Rules?opendocument), the following companies MUST be governed by a constitution:

• public companies ‘Limited by Guarantee’ who are applying to omit the word Limited from their name under section 150;
• No Liability’ public companies under section 112; or
• ‘special purpose companies’ that want to obtain the reduced annual review fee under item 103 of the Corporations (Review Fees) Regulations 2003.

All other companies may either operate under the replaceable rules, adopt a constitution, or operate under a mixture of both.

For anyone who may be interested, the Corporations Act 2001 itself may be referred to at the very excellent, and very well cross referenced web site of the Australasian Legal Information Institute (http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/) which is operated by the Faculty of Law at both the University of NSW and the University of Technology, Sydney (UTS).

I hope this goes some way to providing a little extra information about the replaceable rules. If there is anything in particular you are wondering about, write a comment below as there is very likely many people wondering the same thing.