What is a company constitution, and does my startup need one?
A company constitution is a set of rules that governs how a company is run and how decisions are made. It is not legally required as there are default rules in the Companies Act 1993, which apply without a constitution. However, company constitutions become increasingly relevant as ownership and governance grow more complex.
Why this matters for startups
When you incorporate a company, the Companies Act already provides a basic framework for directors’ powers, shareholder rights, and decision‑making.
A constitution lets you tailor that framework to reflect how you actually want the company to operate, which is particularly helpful as change ownership, bring in investment, and governance becomes more complex.
What does a company constitution do?
A constitution sets out the internal rules of the company. Common areas covered include:
- Director powers and decision‑making: How directors are appointed or removed and what authority they have.
- Shareholder rights: Voting rights, dividend entitlements, and information rights.
- Share issues and transfers: When new shares can be issued, pre‑emptive rights, and restrictions on selling shares.
- Procedural rules: How meetings are called, how resolutions are passed, and what approvals are required.
Without a constitution, these matters are governed by the default rules in the Companies Act.
Is a constitution legally required?
No. Many early‑stage companies start without one and rely on the Companies Act’s default settings. A constitution becomes more relevant when a company has co‑founders, employees with equity, or external investors, or where founders want clearer control over share transfers and governance.
How does a constitution interact with the Companies Act?
The Companies Act allows a constitution to override many of its default rules, but not all of them. Certain core obligations (such as directors’ duties) cannot be contracted out of. Where a constitution and the Act conflict, the Act prevails to the extent the law does not allow modification.
How does a constitution interact with a shareholders’ agreement?
If you have a shareholders’ agreement and a constitution, the two documents are intended to operate alongside each other, with each serving different purposes.
- The constitution is a public document that binds the company, its shareholders, and its directors under the Companies Act, setting the baseline rules for governance, share rights, and decision‑
- A shareholders’ agreement is a private contract between some or all shareholders, typically used to record more detailed or commercially sensitive arrangements (such as funding obligations, exit rights, or reserved matters).
Because a shareholders’ agreement only binds its parties, while the constitution binds the company itself, key rights and protections are often reflected in the constitution to ensure they apply consistently and continue to operate as ownership changes.
FAQs
Is it mandatory to have a constitution?
- Under New Zealand law, a company is not required to have a constitution. If no constitution is adopted, the default rules in the Companies Act apply.
Can I adopt a constitution later?
- A company can adopt a constitution at incorporation or at any later stage, usually with shareholder approval.
Does a constitution override the Companies Act?
- Only to a limited extent. A constitution can replace or modify many of the Companies Act’s default rules, but certain core obligations (such as directors’ duties) cannot be contracted out of.
Is a constitution the same as a shareholders’ agreement?
- A constitution is a public document that binds the company, shareholders, and directors, while a shareholders’ agreement is a private contract that only binds its parties.
Do early‑stage startups need a constitution?
- Not always. For simple ownership structures, the default rules may be sufficient, but a constitution often becomes more relevant as a company brings in new shareholders, issues different classes of shares, or raises external capital.
Need to know more? These may help:
- What is a shareholders’ agreement, and do my startup’s founders need one?
- What are directors’ duties under the Companies Act 1993 in New Zealand?
- How do you manage conflicts of interest on a board in New Zealand?
Or message us here and one of our experts will contact you within 48 hours.
Special thanks to Partner Peter Fernando and Associate Tom Mohammed for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
