The decision, in one sentence
When you set up or review a proprietary company in Australia, you are choosing between two different internal rulebooks: the replaceable rules in the Corporations Act, which ASIC says generally apply by default, or a constitution the company adopts for itself. That choice affects how directors and shareholders make decisions, how disputes are resolved, and what paperwork you keep.
This guide explains what each option does, the exception ASIC flags for one-person companies, and where the choice has to be recorded. It does not tell you which one to pick — that depends on your company's owners, structure and plans.
What replaceable rules actually are
Replaceable rules are a set of default rules contained in the Corporations Act. ASIC states they are generally the default for proprietary companies: if your company does not adopt a constitution, the replaceable rules fill the gap and govern internal matters such as how directors and shareholders make and record decisions.
Two characteristics matter in practice:
They are "replaceable", not fixed. ASIC states that a company wanting to change or remove a replaceable rule needs a constitution. In other words, you cannot simply cross out a rule you dislike. If the default rule does not suit you — say, you want a different approach to how directors are appointed or how shares are transferred — the mechanism for changing it is to adopt a constitution that says something different.
They can be borrowed. ASIC states that a constitution may incorporate some or all of the replaceable rules. This is a useful middle path: a company can adopt a constitution that keeps most of the default rules intact and modifies only the parts it needs to change. Many founders assume adopting a constitution means starting from a blank page; it usually does not.
Practical interpretation: the default position is not "no rules". A company with no constitution still has a governing rulebook — it is just one written by Parliament rather than by the company.
Verify before you act: the specific content and section numbers of the replaceable rules sit in the Corporations Act, and ASIC's company rules and constitutions page is the starting point. Read the actual rules that apply to your situation rather than relying on summaries.
The sole director and sole shareholder exception
This is the point most often missed, and it is the exception ASIC sets out clearly.
ASIC states that replaceable rules do not apply to a proprietary company where the same person is its sole director and sole shareholder. Special statutory rules apply instead.
What this means:
- If you registered a proprietary company as the only director and the only shareholder, you should not assume the replaceable rules are your default rulebook. ASIC's guidance indicates they are not.
- Different statutory rules govern that structure, and the company's obligations and internal processes may not match what a general guide about replaceable rules describes.
- The exception is about the combination: the same person holding both roles. Do not read it as applying to every one-person company, and do not read it as irrelevant to companies that later gain a second director or shareholder — the test is applied to the company's circumstances, so re-check it whenever the roles change.
Practical interpretation: many solo founders are told "you don't need a constitution, the replaceable rules cover you". For a sole-director, sole-shareholder proprietary company, ASIC's guidance indicates that statement is wrong. If that is your structure, get advice on which rules actually apply and whether a constitution would give you clearer, more deliberate governance.
Verify before you act: confirm on ASIC's company rules and constitutions page how the exception is framed for your company type, and ask your lawyer or accountant to identify the statutory rules that apply in place of the replaceable rules.
What a constitution does
A constitution is a document the company adopts to set out its own internal rules. Where a constitution exists, it operates alongside the Corporations Act and — if the constitution says so — alongside some or all of the replaceable rules.
Founders typically look at a constitution when the default rules do not fit how the business will actually be run. Questions that push companies toward one include: multiple shareholders with unequal involvement, plans to bring in outside investors, a family structure where control and ownership will diverge, or a wish to set out decision-making, share transfers or dispute handling in a way the default rules do not.
According to ASIC, a constitution can be adopted:
- Before registration, with the written agreement of each member; or
- After registration, by special resolution.
A constitution can also be changed after it is adopted — ASIC's adopt-or-change-a-company-constitution page covers that process.
Constitution versus shareholders agreement
These two documents are frequently confused, and the confusion creates real problems. ASIC states that shareholder rights may be set out in:
| Source of shareholder rights | What ASIC says |
|---|---|
| The Corporations Act | May set out shareholder rights |
| Applicable replaceable rules | May set out shareholder rights |
| A company constitution, if one exists | May set out shareholder rights |
| A shareholders agreement, if one exists | May set out shareholder rights |
Three corrections follow from that:
A constitution is not the only place shareholder rights can live. Do not assume that without a constitution your shareholders have no documented rights.
A shareholders agreement does not require a constitution to exist. Do not assume the two documents are a package deal, and do not assume one replaces the other.
They can overlap and conflict. A constitution and a shareholders agreement can both address the same subject matter. ASIC's guidance is that a lawyer should check how the documents interact in the particular company. That is the right framing: the interaction question is company-specific, and the answer is not "whichever document was signed last".
Practical interpretation: if you already have or are drafting a shareholders agreement, ask your lawyer to read it against the company's constitution or the applicable replaceable rules before you sign anything. Conflicting documents are expensive to untangle later.
Where the choice is recorded
The choice is not just a line on the registration form. It has to be documented, and where that document lives depends on the company.
Adoption. Written agreement of each member (before registration) or a special resolution (after registration), per ASIC.
Notification and records. ASIC states that some company types must notify ASIC, while proprietary companies generally keep the operative copy with the company records.
Verify before you act: ASIC's guidance makes the lodgement step dependent on the company's exact type. Confirm your company's type before following any instruction about notifying ASIC, and keep the operative copy — including any later amendments — with the company's records so it is available to directors, shareholders and advisers.
Questions to work through
- Is the company a proprietary company where the same person is sole director and sole shareholder? If yes, treat the replaceable-rules default as not applying and check what does.
- Does the business have, or expect to have, more than one shareholder? Multiple owners usually means more to work out than the default rules settle.
- Is there any replaceable rule you actively want to change or remove? If yes, ASIC states you need a constitution to do it.
- Do you want to keep most default rules and change only a few? A constitution that incorporates some or all replaceable rules is available.
- Is there a shareholders agreement in place or planned? If so, who is checking how it interacts with the constitution or the replaceable rules?
- When was the company registered, and was a constitution adopted then or since? If after registration, was it by special resolution?
- Where is the operative copy kept, and does your company type need to notify ASIC?
Next step
Pull up your company's current records and establish one fact: does the company have a constitution, or is it relying on the replaceable rules? If there is no constitution, check whether the sole-director, sole-shareholder exception applies. Then take your structure, your shareholder list and any draft shareholders agreement to a lawyer or accountant who can tell you which rules actually govern your company and what changing them would involve.
For authoritative detail, read ASIC's pages on company rules and constitutions, company shares and shareholders and adopting or changing a company constitution.
General information only
This article is general information about Australian company rules and is not legal, tax or financial advice, and it does not account for your company's circumstances. It is not personalised advice and should not be relied on as a substitute for it. Rules, procedures and ASIC requirements can change — confirm current requirements with ASIC or a qualified adviser before acting. Australian Ltd is not a regulator, government body, lender or broker, and nothing here is a recommendation of any provider or product.