What is a company constitution?
What is a company constitution? And how does it relate to other documents with similar names? Your answers are here:
A company constitution is the most important source of information you have about running your business.
Not necessarily one document, a constitution is a collection of rules that establish your business purpose, define the relationship between internal stakeholders, and set out basic rules of conduct.
How it’s composed will differ between businesses and countries.
The most confusing thing can be how a ‘constitution’ relates to other important documents – chiefly the ‘articles of association’ and ‘memorandum of association’.
What does your business need to be legally registered and function correctly?
Is the constitution the same as articles of association or memorandum of association?
Mostly no, but it’s a tricky question for several reasons:
- Terms differ by jurisdiction
- ‘Articles of association’ and ‘constitution’ are often used together in the same explainer articles.
- Some countries require a ‘memorandum of association’, and some don’t.
Beyond the general trends laid out below, you will need to do some research in your own country or state to find out exactly how the three relate to each other.
- The constitution is the complete set of rules around a company’s governance. It can be made up of more than one document.
- The articles of association and the memorandum of association are two documents which can make up a constitution.
- Articles of association (also called articles of incorporation) are nearly always required; memoranda are usually only needed in Europe and Commonwealth countries.
- If the articles of association are the only document governing business structure, they can be referred to as a constitution.
Are there exceptions?
For example, in Ireland, both the articles and memorandum were traditionally required for private limited companies. But in the 2010s, the government brought in a new law consolidating them into a single document referred to as a constitution.
These technicalities are why you should research your jurisdiction thoroughly and be clear on terms and requirements.
What do the articles and memorandum do?
Again, in general:
The articles of association define a company’s internal structure. They will lay out the requirements for the board and management and explain the rules for how shareholders interact with them. You can read more about them here.
Memoranda, where they exist, are more about the business’s external side. They explain what the business can do and what falls outside its remit. In this way, the shareholders are clear about the activities they invest in.
The terminology around this topic is tricky, but the information laid out in the documents is not.
Whatever the documents are called, they will usually need to lay out a company’s structure, purpose, remit, and how shareholders feed into all this.
You just need to be clear about which authorities need which documents.