Guide to using the template constitution for companies limited by guarantee

Public trust and confidence in charities depends on good governance, clear purpose and accountability.

The ACNC's work in encouraging healthy, trusted charities now includes our template constitution for charitable companies limited by guarantee.

With 10% of registered charities across Australia being companies limited by guarantee, this straightforward, modern set of rules assists these charities to be well-governed and transparent. It can be adapted by charities to suit their circumstances.

By using the constitution template, small charities with minimal resources can be confident that their rules meet legal requirements and form a strong foundation for their important charitable work. This guide to the template constitution will assist charitable companies to ensure that they have the rules that are right for them.

The ACNC is grateful to our Advisory Board, professional and sector user groups and focus group participants for their valuable contributions to the template constitution and this guide.

This resource is part of the ACNC's ongoing work in supporting a robust, vibrant and trusted charities sector in Australia.

ACNC Commissioner

This guide explains the Australian Charities and Not-for-profits Commission’s constitution template for charitable companies limited by guarantee (the template constitution).

The template provides a basic set of rules for a companies limited by guarantee with charitable purposes that have a small, straightforward membership.

The template is not appropriate for charities that need complex rules (for example for membership or for election procedures).

The template constitution is a basic set of rules for a charitable company. It can be used as a governing document with some small additions, or it can be changed to suit your charity.

The template constitution includes clauses to deal with the most common governance requirements for charitable companies.

Existing companies

If you want to replace your existing company’s constitution with the template constitution, you may need to keep some parts of your existing constitution (for example, the amount of the guarantee that members agree to pay, which is in clause 4 of the template constitution). You may also need to get professional advice.

New companies

If you want to set up a new charitable company and use the template constitution, you can find more information including:

• our guidance on starting a charity
• Justice Connect Not-for-profit Law’s guidance on choosing a legal structure.

If you change parts of the template constitution to suit your charity:

• keep a version with tracked or recorded changes so that it is clear where your company’s constitution is different to the template constitution, and
• check the effect on other clauses, as some clauses are related (for example, clauses on voting).

You may also need to get professional advice (for example, to make sure that your constitution complies with requirements under the Corporations Act and the ACNC Act).

Using this guide

This guide explains every clause in the template constitution in plain language. You can use it while you review the template constitution to decide whether it is suitable for your company and, if so, what may need to be changed to fit your company’s needs.

This guide provides alternative options for some clauses. These may suit your company’s situation better.

This guide also shows you which clauses are mandatory to have in a constitution for a charitable company.

What is a company constitution?

A constitution is a document that sets out a company’s rules and purposes. It is broken down into numbered clauses, with sub-clauses.

All companies that want to register as charities with the ACNC must have a constitution, which the ACNC refers to as the charity’s ‘governing document’.

The Corporations Act explains that a constitution operates as a contract (legal agreement) between:

• the company and each member
• the company and each director and secretary, and
• the company’s members.

Legal requirements for company constitutions

There are certain legal requirements for the governing documents of charitable companies.

In addition, the template constitution provides rules for good governance by setting out operational rules that apply to members (such as how they become and stop being members and how to hold meetings) and operational or governance matters (such as election of directors, directors’ meetings and indemnities). Some clauses in the template constitution reproduce requirements in the Corporations Act. The guidance tells you where this is this case.

Mandatory clauses

Some clauses are listed as mandatory in the template constitution (they should not be changed or removed). This is because they provide important information about the company (such as the guarantee amount in clause 4) or are necessary to make sure the company is charitable (such as the not-for-profit requirement in clause 8).

Replaceable rules

The replaceable rules are sections in the Corporations Act which are a default set of rules for the internal management of companies. Replaceable rules can be wholly or partly replaced by clauses in a company’s constitution.

Clause 71 of the template constitution provides that the replaceable rules do not apply to the company. However, many clauses in the template constitution are based on a replaceable rule, as they cover useful operational matters for the governance of companies. Clauses may be worded slightly differently, leave out parts that are not applicable to a small company limited by guarantee or provide more detail than in the replaceable rule.

Changes to legal requirements

The template constitution complies with and reflects the requirements under the Corporations Act and ACNC Act as at 10 November 2014.

The ACNC legislation has ‘switched off’ some requirements of the Corporations Act for companies that are registered as charities with the ACNC (such as requirements for holding meetings).

If the ACNC Act is amended or repealed (revoked), the requirements under the Corporations Act are likely to apply again to charitable companies (that is, the Corporations Act requirements will ‘switch’ back on).

If this happens, there may be clauses in your constitution that appear to be inconsistent with the Corporations Act (particularly if you have amended the template constitution).

In such a case, the Corporations Act provisions will apply, even though your constitution may say something different (see the guidance on clause 71). This ensures that you do not breach your constitution if you have to follow an inconsistent Corporations Act requirement.

Clause 71 of the template constitution specifies that the Corporations Act overrides the constitution if they are inconsistent.

External resources

For more information, see the following:

• ASIC’s guidance on constitutions and replaceable rules
• Justice Connect Not-for-profit Law’s guidance on rules or constitution.

Cover page

The cover page of the template constitution requires you to include the company name (see clause 1), the company’s Australian Business Number (ABN) and Australian Company Number (ACN).

New company

You will not have an ABN or ACN before you register as a company with ASIC, but can add that information when you are given it.

Existing company

If the company is already incorporated and you are replacing your existing constitution with the template constitution, you should be able to add all of these details.

You can find your existing company’s ABN and ACN by searching the Australian Business Register’s ABN Lookup website.

Preliminary

The preliminary clauses (1 to 4) set out your company’s name and type, and the guarantee that members must agree to pay towards certain debts or liabilities if the company winds up (closes). Clause 5 provides a ‘signpost’ to the definition sections at the end of the template constitution.

Clause 1 – Name of the company (mandatory)

The company’s legal name is the name specified in the certificate of registration issued by ASIC and will be published on the ACNC Register. You can check on the ASIC website to see if the name you want for your company is available.

There are restrictions in the Corporations Act on the name your company can have. For example, your name cannot be offensive or misleading, and may require certain approvals if it includes certain words such as ‘trust’ or ‘bank’.

As a company limited by guarantee, the Corporations Act requires your company to have the word ‘Limited’ or ‘Ltd’ at the end of its name. However, after you register with the ACNC as a charity, you do not have to use the word ‘Limited’ or ‘Ltd’ at the end of the company’s name as long as your constitution (as the template constitution does in clause 45):

• prohibits the company from paying fees to directors, and
• requires the directors to approve all other payments that the company makes to directors.

Clause 2 – Type of company

This clause explains that the company is a company limited by guarantee and was established to be (and continue as) a charity.

Clause 3 – Limited liability of members (mandatory)

Members of a company need to know what they may possibly be liable (responsible) for if the company is wound up (closed down) and cannot pay its debts or liabilities.

Under the Corporations Act, members of a company limited by guarantee do not have to pay more than the amount that each member agrees to contribute to the company if this happens. Clause 3 sets this out.

Clause 4 – The guarantee (mandatory)

The guarantee is a key feature of this type of company. The company can decide what the amount of the guarantee will be. It is often as little as $10. Clause 4 also sets out the time and circumstances during which a member may be liable (under the Corporations Act).

Clause 12 requires a person to agree to pay the guarantee if it is needed when that person applies to be a member.

Clause 5 – Definitions

Some words in the template constitution have special meanings. These words are defined in clauses 70 and 72, and the very end of the constitution.

Clause 6 - Purposes (mandatory)

Clause 6 sets out your charity’s purpose. Your purpose is very important, as it is the reason that the company exists and is what its activities work towards achieving.

Governance Standard 1 requires all charities that are registered with the ACNC to show that they have a charitable purpose. Including your charitable purpose in your constitution helps it to meet this requirement.

New company

If you are setting up a new company, the purpose should be carefully decided before you include it in clause 6. Your purpose can be general or specific. It will depend on why you are setting up your company and what you plan to do in the future.

If your charitable purpose expands or becomes more focussed in the future, you should reflect this by updating your constitution (see clause 9).

Existing company

If you are using the template constitution to replace an existing constitution, you should closely reflect the company’s current purpose in clause 6.

You must notify the ACNC within 28 days if your charity is significantly not meeting its ongoing obligations under the ACNC Act. This includes if your charity changes its:

• activities, so that it is no longer working towards its charitable purpose, or
• purpose, so that it is no longer charitable.

Clause 7 – Powers (Mandatory)

Under the Corporations Act, companies have all of the powers of an individual and some additional powers relevant to companies. Clause 7 ensures that these powers can only be used to achieve its charitable purpose(s).

Your constitution must have a clause like this to limit the powers of the company to what it needs to carry out its purpose(s).

Governance Standard 1 requires all charities that are registered with the ACNC to show that they:

• work towards their charitable purposes (see clause 6), and
• operate on a not-for-profit basis (see clause 8).

Including clause 7 in your constitution helps to meet this requirement of governance standard 1.

Clause 8 – Not-for-profit (Mandatory)

A company this is a registered charity must operate on a not-for-profit basis. See our guidance on the meaning of not-for-profit.

Governance Standard 1 requires registered charities to show that they are established to operate on a not-for-profit basis. Including clause 8 in your constitution helps to meet this requirement.

Operating on a not-for-profit basis does not mean that a charity cannot make a profit. It means that:

• any profits must be directed back into achieving the purpose of the charity, and
• the company cannot operate for the profit, personal gain or other benefit of certain people, such as its members, directors, employees or their friends or relatives.

Clause 8 means that your company cannot give members money or assets, except in the very limited circumstances stated.

The Corporations Act does not allow a company limited by guarantee to pay dividends to its members, however some payments to members may be allowed.

For example, your company can buy goods from a member, as long as the company does not pay more than a reasonable amount for the goods.

Your company could also make a grant to a member specifically to further its charitable purposes. For example, a peak body with member companies that are all registered charities and have the same charitable purpose may provide a grant to a member in order to assist that member to carry out a particular project (which is in line with their shared charitable purpose).

Clause 9 – Amending the constitution

Clause 9 requires members to pass a ‘special resolution’ if they want to amend the constitution. This is required by the Corporations Act and applies whether this clause is included in the constitution or not.

A resolution of members is a decision of the company’s members. The members vote on the resolution at a meeting (or agree to a ‘circular resolution’ in writing under clause 31). At a meeting, a resolution is generally approved if the majority of votes cast are in favour of the resolution. There are extra requirements for ‘special resolutions’.

Special resolutions

A ‘special resolution’ is defined in clause 70 and has the same meaning as in the Corporations Act.

Before a special resolution can be passed:

• a general meeting of members must be called (see clause 18),
• members must be given notice about the proposed resolution (see clause 21), including the exact wording of the special resolution, and
• 75% of the members who vote at the meeting (in person, by proxy or representative) must vote to pass that resolution.

As a charity, you cannot amend your constitution in a way that means that the company can no longer be a charity. For example, the members cannot pass a special resolution that would:

• add a non-charitable purpose (charitable purposes are in clause 6)
• remove the restriction on the company operating on a not-for-profit basis (clause 8), or
• remove the requirement that if the company winds up (closes) it gives its surplus assets to another charity with similar charitable purposes, and not to its members (clauses 68 and 69).

This applies whether this clause is included or not - we recommend it is included as a reminder for the directors and members into the future.

If your company changes its constitution, you must notify the ACNC through the Charity Portal at charity.acnc.gov.au. If your company’s legal name does not have ‘Limited’, you must also notify ASIC if you amend clause 45 (payments to directors). Read our guidance on when you need to contact the ACNC and ASIC about changes.

Members of a company are an important part of how the company operates and makes decisions. Clauses 10 to 15 govern who can be a member, how they can become a member and when they stop being a member.

Rights and obligations of members

Most of the rights and obligations of members are set out throughout the template constitution, but there are other rights in the Corporations Act which still apply. Some of the rights set out in the template constitution come from the Corporations Act, while others help a charity to demonstrate that it is complying with the ACNC governance standards.

The members' rights in the template constitution include the right to:

• inspect some company documents, including the minutes of general meetings (clause 57) and the register of members (clause 10),
• be given information about the charity’s annual finances and other activities at or before each annual general meeting (clause 20),
• ask questions about the company at a general meeting (clauses 20 and 27),
• provided a certain number of members agree, request the directors call a meeting (clause 18(2)), call meetings themselves (clause 19), propose resolutions or make statements (clause 29),
• receive notice of general meetings (clause 21) and attend general meetings,
• vote on resolutions (clause 32), or appoint a proxy to vote on their behalf at general meetings (clause 36), and
• vote on a resolution to appoint or remove a director (clauses 39 and 42.1).

Under the template constitution, members have an obligation to pay the guarantee (if required) if the company winds up while they are a member, or less than 1 year after they stopped being a member.

Clause 10 – Membership and register of members

A company must have at least one member (under the Corporations Act). The template constitution is designed for small, non-complex memberships with at least two members.

Clause 10.1 sets out who the members are. The ‘initial members’ referred to in clause 10.1 are defined in clause 70 as the people who agreed to be named as proposed members and are named in the application for registration as a company with ASIC (consistent with the Corporations Act).

Clause 10.2 sets out the requirements for the company’s register of members (under the Corporations Act). The template constitution makes the company’s secretary responsible for maintaining the register (but it is still up to the directors to ensure that the register is kept up-to-date).

Clause 10.3 states that members have a right to access the register of members. This right is provided under the Corporations Act, and requires a company to:

• allow anyone to inspect the members’ register electronically, if an electronic register exists, or otherwise on paper
• allow members to inspect the register for free, however the company may charge other people a fee for inspecting it (the maximum fee for inspecting the register is set out in Schedule 4 of the Corporations Regulations 2001 (Cth) (the Corporations Regulations)), and
• provide a copy of the register within seven days of a proper request to do so. The maximum fee for providing a copy of the register is also set out in Schedule 4 of the Corporations Regulations.

Under the Corporations Act, the register for members must be available for inspection at all times when the registered office is required to be open to the public.

Clause 10.4 restricts the use of any information from the register of members to matters relevant to rights and interests of members (consistent with the Corporations Act).

Clause 11 – Who can be a member

Under clause 11, any individual or incorporated body that supports the purpose(s) of the company is eligible to be a member. This is very broad and easy to administer. The directors may decide to set out a membership policy explaining the process for membership.

You may want more specific requirements for membership in clause 11. For example, you may want a requirement that a member be at least 18 years of age on the date they apply to be a member.

Clause 12 – How to apply to become a member

Clause 12 provides a simple way to apply for membership of the company. It requires an applicant to:

• apply to be a member in writing, and
• agree to support the company’s purposes and comply with the constitution, including the guarantee.

The Corporations Act does not require a membership application to be in writing, however it is good practice to have a record that the person applying to be a member agreed to the purposes and constitution of the company (including the payment of the guarantee amount if necessary).

Clause 13 – Directors decide whether to approve membership

Clause 13 sets out when directors must decide whether to admit a person as a member and requires the secretary to notify the applicant in writing of the decision, and update the members' register. As with any decision made by directors, a decision about membership must be recorded (for example, in the minutes of the meeting).

Clause 14 – When a person becomes a member

Under the Corporations Act, a person is a member of the company if they agree to become a member of the company and their name is entered on the register of members. Clause 14 therefore states that, other than initial members, a person only becomes a member once their details are entered on the register of members. Under clause 12, the application for membership must state that the applicant agrees to become a member.

Clause 15 – When a person stops being a member

Clause 15 sets out five situations where a person immediately stops being a member.
Clause 15(b) applies to corporations and other incorporated bodies, such as incorporated associations.

You may wish to include other ways that a person stops being a member of your charity, for example, if your charity has an annual membership fee, you may want to include a clause that stops a person from being a member if they have not paid the membership fee after a particular time – see the guidance on clause 12.

Example additional subclauses: 15 - When a person stops being a member

Additional subclauses:
f) do not pay their membership fee within [specified time period].
f) were appointed for a period of [specified time period] and that period has ended without the person's membership being renewed.

It is important to have a clear, agreed way to deal with disputes (disagreements or grievances) within the company and to be able to deal with members who are causing problems for the company.

It may also be necessary for fundraising authorities in certain states (for example, NSW) to have a procedure for dealing with disputes between members relating to fundraising activities.

The dispute resolution procedure gives a way for members to solve their disagreements in a constructive way. The disciplinary procedure allows the directors to make a decision about a member’s rights for the benefit of the company as a whole, if the member has acted inappropriately.

Clause 16 – Dispute resolution

Disputes that members have with other members, directors or the company itself should be dealt with under the dispute resolution procedure in clause 16.

A dispute resolution procedure cannot be started in relation to something that is already the subject of a disciplinary procedure in clause 17 until the disciplinary procedure is completed.

The people who are having a dispute must try to resolve it between themselves first. If that does not work, they must tell the directors in writing about it, then start a mediation process to try to resolve their dispute in good faith (fairly and honestly). If a mediator cannot be agreed on, the ACNC Commissioner or your state or territory law society can help you find a professional mediator to help. The ACNC will not charge a fee for this service.

Many disputes can be resolved through mediation. Mediation is an informal and flexible way of helping people to come up with their own answers to problems.

More information

For more information on resolving disputes, see our guidance on dispute resolution.

External resources

• Justice Connect Not-for-profit Law: Disputes and conflict.

Clause 17 – Disciplining members

Clause 17 provides a way to deal with situations where a member acts in a way that the directors believe is causing problems for the company. It allows the directors to warn, suspend or expel a member in certain circumstances. It also gives the directors the flexibility to refer the decision-making to a general meeting of members or an unbiased, independent person.

Under clause 17.4(e), if the decision is referred to an unbiased, independent person, that person cannot make a decision that could not have been made by the directors. For example, since the directors are not able to fine the member, neither can that person.

A general meeting is a meeting that all members of the company are invited to attend and can vote at.

If a charity complies with the Corporations Act requirements for how meetings of members should be conducted (even though these sections no longer apply to charitable companies), the ACNC will generally accept that the charity is complying with governance standard 2.

Meetings and your charity’s needs

The governance standards are intended to provide charities with flexibility, so you should consider whether your charity would require different meeting arrangements to better suit your circumstances. Because the general meeting requirements in the Corporations Act have been ‘switched off’, you can alter the clauses dealing with meetings of members in the constitution. However, if you do so, you need to ensure that your charity is still complying with the governance standards. You should also be aware that if the provisions in the Corporations Act are ‘switched on’ again as the government has indicated it may do, the clauses you have altered may need to be amended.

More information

For more information on general meetings, see our guidance on holding meetings and governance standard 2.

Clause 18 – General meetings called by directors

Under clause 18, directors can call a general meeting if the majority of directors agree to call the meeting. You may choose to amend the template constitution to allow one director to call a general meeting.

Clause 18 requires directors to call a general meeting if this is requested by at least 5% of members who can vote. The ability of members to call a general meeting is an important way to help meet ACNC governance standard 2 (which requires charities to be accountable to members).

When a request is made to the directors, they must do the following things:

• decide the date that the general meeting will be held on, which must be no more than two months from the date of the members’ request, and
• within 21 days, call a general meeting and give all members notice of the meeting.

Clause 19 – General meetings called by members

Clause 19 gives members a way to call general meetings if the directors do not do so.

Members must, as far as possible, follow the procedures for general meetings. This includes providing a notice for a general meeting as set out in clause 21.

Clause 20 – Annual general meeting

Clause 20 requires a company to have an annual general meeting (AGM) at least once each year. However, a new company can hold its first AGM anytime within the first 18 months of being registered with ASIC.

Charitable companies do not need to hold an AGM each year, however holding an AGM will help your charity to comply with governance standard 2, which requires charities to take reasonable steps to be accountable to their members, and allow their members adequate opportunities to raise concerns about how the charity is run.

Clause 20 requires:

• information from the directors about the company’s activities and finances in the period since the last AGM to be provided to members before or at the AGM, and
• there to be a reasonable opportunity for members to ask questions or make comments about the management of the company at the AGM.

Clause 20 allows other business of the AGM to include the following matters, even if they are not set out in the notice of meeting:

• a review of the company’s activities and finances
• an auditor’s report (if one has been prepared)
• the election of directors, and
• the appointment and payment of auditors (if any).

If the members are more likely to appoint proxies than attend in person, you can consider deleting clause 20.2(d) relating to election of directors, as not all members will have an equal opportunity to participate in the vote, if there is a nomination and election that was not included in the notice of meeting.

Under the Corporations Act, a public company is generally required to hold an AGM within 5 months of the end of its financial year. This requirement has been ‘switched off’ for registered charities. Under clause 20 you can choose when to hold the AGM, as long as the company remains accountable to members under governance standard 2

More information

For more information, see our guidance on holding your annual general meeting.

Clause 21 – Notice of general meetings

Clause 21 sets out:

• who must be given notice of general meetings (clause 21.1)
• when and how they must be notified (clauses 21.2, 21.3 and 21.4)
• what a notice of a general meeting must have in it (clause 21.5), and
• what must be done if a meeting is adjourned for one month or more (clause 21.6).

Clause 62 is flexible and allows electronic notification. For example, a member may agree to be notified by SMS that a notice of meeting is available on the company’s website, or may agree to be given the notice at a mailbox in a clubhouse for members.

For a general meeting, resolutions (other than special resolutions) do not need to be set out in the meeting agenda. However any resolutions that are proposed at the meeting must relate to a subject or topic listed in the notice (clause 21.5(c)) or a matter listed in clause 20.2 (see the guidance on clause 20).

Clause 22 – Quorum at general meetings

For a meeting to be held, there must be a minimum number of people present, either in person (including through the use of technology), by proxy or by representative. This minimum number is called a quorum.

It is important to consider what an appropriate quorum would be for your company, especially considering the number of members. The quorum should not be so high that there is a risk that members being absent may make it difficult to hold a valid meeting.

However, it is also good governance not to set the quorum too low, as it is important that members participate in meetings.

It is also important to remember that the quorum:

• can be a percentage (for example, 10% of members) instead of a number
• includes members who are present in person (including through the use of technology), by representative (in the case of corporation members) or by proxy
• must be present for the whole meeting, and
• should be reviewed from time to time to make sure it is still right for your company, especially if the number of members changes a lot.

Clause 22.1 only allows a person to be counted once for the quorum. This means that if a person (including a member) attends a general meeting as a proxy for more than one member, that person will only be counted once when the numbers are counted for the quorum. That person can still vote as a proxy for multiple members (see clause 37).

A meeting will be adjourned (put off) if there is no quorum in the way set out in clause 22.

If no quorum is present within 30 minutes of the starting time of the resumed meeting (on the date it was adjourned to), then the meeting is cancelled. If a new meeting is to be held, a new notice of meeting must be provided again.

Clause 23 – Auditor’s right to attend meetings

An auditor (if your company has one) must be given notice of all general meetings (under clause 21). Under clause 23, an auditor must also be:

• given any related communications (for example, proposed members’ resolutions), and
• allowed to speak on anything on the meeting agenda that relates to the auditor in their capacity as an auditor.

More information

Our guidance on the requirement to have reviewed or audited financial reports.

External resources

See ASIC’s guidance on appointing an auditor.

Clause 24 – Representatives of members

Clause 24 sets out how any members that are incorporated (for example, they are companies or incorporated associations) can appoint individuals to attend general meetings and sign circular resolutions on their behalf.

As the template constitution requires directors to be members, clause 24 allows corporate members to appoint a representative to act as a company director.

Clause 25 – Using technology to hold meetings

Clause 25 gives your company the flexibility to allow members to participate in meetings through the use of technology.

Technology such as web conferencing is becoming a common and useful way to ensure that members can participate in meetings even if they live in remote areas or are otherwise unable to attend a physical venue for a meeting. In deciding how your meetings will be held, you must ensure that members are given reasonable access to meetings and the opportunity to participate.

Clause 26 – Chairperson for general meetings

Clause 26 sets out that the elected chairperson (who is a director and is elected by the directors under clause 40) is the chairperson for general meetings. It also sets out when another person can be chosen as a chairperson for a meeting.
Companies can change:

• who elects a chairperson (for example, the members instead of the directors)
• who the chairperson must be (for example, a member instead of a director), and
• if there is a term of office for the chairperson (for example, one year).

Under clause 51, the ‘elected chairperson’ can also chair directors’ meetings. If you change the template constitution to allow a member to be the elected chairperson, you may need professional advice to make sure that the elected chairperson for general meetings and directors' meetings are not the same. This is because it will not be appropriate for a member who is not also a director to chair directors' meetings.

Clause 27 – Role of the chairperson

Clause 27 states that the chairperson is responsible for the conduct of the general meeting but in doing so must give the members a reasonable opportunity to ask questions and make comments, as required under the ACNC Governance Standard 2.

The chairperson has powers to meet their responsibilities under clause 27. For example, they can require a member to leave a meeting if they are disrupting the meeting so much that it cannot continue.

The template constitution does not give the chairperson a casting (deciding) vote where a vote is evenly split. This can be changed to provide the chairperson with a casting vote. However, we consider that it is good governance not to give the chairperson a casting vote in order to ensure that a contentious decision (ie, one where the vote is evenly split), is not passed until a majority of members agree to it.

External resources

For more information on the role and powers of the chairperson in general meetings, see Institute of Community Directors Australia: Tips for the chair.

Clause 28 – Adjournment of meetings

Clause 28 allows a majority of members present at a general meeting (where there is a quorum) to direct the chairperson to adjourn the meeting. When the meeting is resumed, it can only cover the same business that the adjourned meeting was to cover.

Clauses 29 and 30 are important because they allow members to propose a resolution (a decision of the members) or make a joint statement in advance of a general meeting.

Clause 31 is useful as it allows members to pass a ‘circular’ resolution without a general meeting.

Clauses 29 and 30 will help your charity comply with governance standard 2, which requires the company to be open and accountable to members.

These clauses do not prevent members from proposing a members’ resolution at a general meeting (‘from the floor’), provided that the resolution relates to a topic that can be discussed at that meeting (either something under clause 20.2 or about a topic in the notice of meeting). Members also have the right to speak at a general meeting on any resolution or other matter on the meeting agenda.

Clause 29 – Members’ resolutions and statements

Clause 29 sets out how members can:

• notify the company that they want to propose a members’ resolution at a general meeting, or
• ask the company to give to all members a members’ statement on a resolution or any business of a general meeting.

A ‘members’ resolution’ is a decision that certain members want to be put to all members at a general meeting for discussion and voting.

A ‘members’ statement’ is a document that explains or supports a proposed resolution (including a proposed members’ resolution) or covers any ‘other matter that may properly be considered at a general meeting’. This means that a members’ statement cannot be about a matter that would be a matter for directors, and not members.

Clause 29 requires that:

• at least 5% of voting members sign the notice of the members’ resolution or the request to distribute a statement, and
• the wording of the notice of resolution or the statement to be distributed to members must be given to the company.

You may wish to make the number of members required in your constitution to make a members’ resolution or statement larger, depending on your charity’s circumstances.

However, you should not change the requirement in a way which would mean that members do not have a reasonable opportunity to propose resolutions and vote on those resolutions.

External resources

For more information, see ASIC’s guidance on company resolutions.

Clause 30 – Company must give notice of a proposed resolution or distribute a statement

Clause 30 requires the company to send a proposed members’ resolution or a members’ statement to all members of the company.

Under clause 30.1, the company must pay the cost of distributing the notice or request to all members if it is given in time to send it with a notice of general meeting. Otherwise, the members giving the notice or request must pay, although the members may resolve that the company pay the costs at a general meeting.

Clause 30.2 sets out when a resolution or statement does not need to be distributed to members. This includes if:

• it is more than 1,000 words
• the directors consider that it may be defamatory
• it is given too late to be sent with a notice of meeting and the members making it have not paid the cost of sending it to members, or
• in the case of a members’ resolution, it does not relate to a matter that can properly be considered at a general meeting or is otherwise not a valid resolution able to be put to members. You may need to get professional advice if this happens.

Clause 31 – Circular resolutions of members

Clause 31 allows members to pass a ‘circular resolution’. This is a resolution circulated and agreed to by members without holding a general meeting. A circular resolution can be put to the members by the directors if a majority of directors agree to put it to the members.

A circular resolution of members cannot be used where the Corporations Act expressly or impliedly requires a general meeting to be held in order to pass the resolution. The template constitution specifies that a circular resolution cannot be used:

• to remove an auditor (there is a specific process for removing an auditor in the Corporations Act, which requires a general meeting to be held),
• to remove a director (there is a specific process for removing a director of a public company in the Corporations Act, which requires a general meeting to be held), or
• to pass a special resolution (the definition of ‘special resolution’ in the Corporations Act indicates that a special resolution is passed at a general meeting).

These are only some of the common circumstances where the Corporations Act requires a general meeting to be held. The template constitution also includes a general restriction on passing a circular resolution where the Corporations Act requires a general meeting to be held. For example, section 201P of the Corporations Act requires a resolution by members at a general meeting if the directors would like to set a limit on the number of directors.

The template constitution also does not allow a circular resolution to be used to elect a director. It is good governance for directors to be elected by members at a general meeting, as the election of directors is an important decision for the company (see the guidance on clause 39).

How circular resolutions are passed

A circular resolution is not voted on at a general meeting. Instead, all members sign a document stating that they are in favour of a resolution, and that resolution is passed when the last member signs. The signed document is the record of the vote. Members may sign separate copies of the resolution as long as the wording of the resolution is the same in all copies.

If a circular resolution is sent to members by email, members can agree to the resolution by reply email, but their reply must include the text of the resolution that they are agreeing to.

Circular resolutions are only suitable for companies with a small number of members, as they require all members to agree (not just a percentage of members, as for other resolutions). If any member does not agree, or is not available to vote, a circular resolution cannot pass.

A minute must be recorded and signed (see clause 57) setting out the words of the resolution and that it was passed by a circular resolution.

Clause 32 – How many votes a member has

Clause 32 confirms that each member of the company has one vote at general meetings.

Clause 33 – Challenge to a member’s right to vote

Clause 33 allows the chairperson of a meeting or a member to challenge a person’s right to vote at a general meeting, for example if the person has a conflict of interest. The chairperson has the final say on whether a person can vote.

Clause 34 – How voting is carried out

Clause 34 sets out how voting is to be conducted. This is by a show of hands, a vote in writing or another fair and reasonable method chosen by the chairperson.

Before taking a vote, the chairperson must state how many proxy votes they have received, and how those votes will be cast. For example, the chairperson may state that 10 proxy votes have been received, and that 8 will be cast in favour of the resolution and 2 against the resolution.

If the vote is by show of hands, the chairperson and meeting minutes do not need to state how many votes were in favour or against a resolution, and the chairperson’s decision is binding. The members may request a written vote in the way set out in clause 35.1. The chairperson may also decide to hold a written vote if, for example, the chairperson is not completely sure about the result on a show of hands or if the chairperson considers that the proxy votes may change the result.

A vote by a show of hands does not have to be taken before a written vote is called for.

Where a written vote is taken, the chairperson and meeting minutes should state the number and proportion of votes recorded in favour or against a resolution.

Clause 35 – When and how a vote in writing must be held

Because some decisions may be controversial or sensitive, there is a process that allows members to demand a vote in writing.

Under clause 35, a vote in writing can be demanded by either a specific number or percentage of members or the chairperson.

This may help the company to comply with ACNC governance standard 2 (accountability to members).

Clause 36 – Appointment of proxy

Clause 36 allows a member to appoint a proxy to attend and vote at a general meeting (or multiple general meetings) on their behalf.

A proxy can speak, vote in writing (to the extent allowed by the appointment) and join in to demand a vote in writing at a meeting unless the member is at the meeting (clause 36.3).

Although clause 36.2 states that a proxy need not be a member, you may choose to change this clause. For example, you may want proxies to have an understanding of the company and its purposes, and therefore require proxies to be members. However, you may instead want to allow members to choose any person they trust to represent them at a meeting.

Previously, charitable companies limited by guarantee were required to allow a member to appoint anyone as a proxy. However, this requirement no longer applies to registered charities. If you decide to require proxies to be members, see ‘Changes to legal requirements’ at the beginning of this guide and the guidance for clause 71 to understand what this may mean.

How proxies are appointed

Clauses 36.4 and 36.6 set out how a proxy must be appointed, that is, what the ‘proxy form’ (appointment) must include and when it must be given to the company. A member must make sure that a proxy form is delivered to the company at least 48 hours before the relevant general meeting. The written notice requirements in clauses 61 and 63 do not apply to proxy forms. This means that the documents must actually be received by the company at least 48 hours before the meeting.

If the member is present

Under clause 36.7 a proxy cannot speak or vote at a general meeting on behalf of a member if the member is present. Clause 36.7 ensures that, for example, if a member is able to attend a meeting unexpectedly after they have appointed a proxy, they can exercise all of their rights as a member at that meeting, despite having appointed a proxy.

Proxy unless written notice given

Under clause 36.8, unless the company receives written notice prior to a meeting, a proxy can still vote at the meeting, even if the member who appointed the proxy:

• dies,
• is mentally incapacitated,
• revokes (takes away) the proxy’s appointment, or
• revokes the authority of someone else who appointed the proxy (for example, if a person who is appointed to represent a member that is a company appoints a proxy, and then the corporate member revokes the authority of the representative).

This clause ensures that a resolution that is passed at a general meeting cannot be challenged after the meeting if a proxy did not have proper authority to vote because of one of the things in clause 36.8. It gives more certainty in relation to resolutions passed at a meeting.

Clause 37 – Voting by proxy

Under clause 37, a proxy can only vote in a written vote. A company can change this clause to allow proxies to vote by show of hands, but then would have to also set out that a proxy cannot vote on a show of hands if it holds 2 or more appointments that specify different ways of voting.

If a vote is controversial, or the result of a vote on a show of hands may change if proxy votes were counted, proxies can demand a vote in writing under clause 35.

Clause 37.2 sets out what a proxy must do when a vote in writing is held. If a proxy form specifies a way to vote, then the proxy must vote on a vote in writing and must vote in the way that is specified in the proxy form.

The directors of a charitable company are the group of people responsible for overseeing the company’s activities and making sure it works towards achieving its charitable purpose. They must also make sure the company meets its ethical, legal and financial obligations.

The ACNC calls directors ‘responsible persons’ or ‘responsible entities’.

Clause 38 requires a company to have at least three and no more than nine directors.

Public companies (including companies limited by guarantee) must have a minimum of three directors (under the Corporations Act) and at least two of those directors must ordinarily live in Australia. However, there is no legal maximum number of directors.

What is the right number of directors for your company?

When adopting the template constitution, consider how many directors is a good number for your charity. For example, nine directors may be too many for a small company to make decisions and operate efficiently. However, a board of three directors may not be able to manage all of the responsibilities of a larger company. If your company increases its members, revenue or activities, you may wish to amend the template constitution to have more than a minimum of three directors.

The maximum number of directors specified in the template constitution includes any additional directors who the directors may appoint.

Clause 39 – Election and appointment of directors

Clause 39 sets out a number of requirements for the election and appointment of directors. The requirements set out in this clause will help a company make sure that good practices are followed when directors are chosen, and that certain requirements in the Corporations Act are met.

Under clause 39, a person who wants to be a director must:

• be a member or a representative of a member of the company. This is not a legal requirement and can be deleted in clause 39.4(a) so that any person can be appointed or elected. However, if you include it in your constitution, directors will also be bound by the constitution as members. You may wish to change this if, for example, your group is a support group for people with a particular illness and you would like people without that illness to be eligible to be directors. If you do change this clause, you will have to remove clauses 42.1(d), 42.1(e) and 42.1(f) (see the guidance on clause 42)
• be nominated by two members or two representatives of a member, although this is not required for a current director who was nominated at a previous general meeting, and who has been a director since that meeting. The template constitution does not detail the process for nomination and it is up to the company to agree on the procedure. For example, the directors may make by-laws (under clause 59) which set out the procedure for nominations. This procedure may, for example, state that nominations must be in writing, signed by the two members (or representatives of members) and the candidate, and received by the company at its registered office no later than 5.00 pm on the day which is 30 days before the annual general meeting. This would then allow a list of the candidates to be sent to members with the notice of meeting. On the other hand, companies may decide to adopt a less formal procedure. It may be appropriate for companies with a small and active membership to simply verbally nominate the candidates (and second the nomination) at the annual general meeting, and
• give their signed consent to be a director before being appointed (as required under the Corporations Act).

A person who wants to be a director must not be ineligible under the Corporations Act or the ACNC Act (clause 39.4(d)). They must also meet the legal requirements for directors of charitable companies, which are that they:

• are at least 18 years old, and
• are not disqualified from being a director of a company or a responsible person of a charity under the Corporations Act or ACNC Act, unless they have been given permission to be a responsible person. Permission may be required from ASIC or the Federal Court (depending on the reason for disqualification) and/or the ACNC (under ACNC governance standard 4). For more information, see the guidance on clause 42(h) (when a director stops being a director).

Clause 39.3 sets out a requirement in the Corporations Act that members must appoint each director by passing a separate resolution at a general meeting. However, one resolution can be used to appoint all of the directors if the members first pass a resolution which says that the appointments can be voted on together, and no member votes against that resolution. The reason for this procedure is that a member may want to vote in favour of the appointment of one director, but against the appointment of another director. In that case, the member should be able to vote on separate resolutions for the directors.

Because general meetings may be held using technology (under clause 25), directors can be elected in various ways, for example, by using an online poll during an annual general meeting that is held by web conference.

Clause 39.5 allows the directors to appoint a director to fill a casual vacancy (if, for example, a director resigns during their term of office) or appoint an additional director (if, for example, the directors consider that another director is needed before a general meeting can be held to appoint that director). These directors must resign at the next annual general meeting, but they can then nominate and be appointed by the members at that meeting.

The Corporations Act does not require a general meeting to be held to elect a director, but it is good governance to have something as important as the election of a director decided by members at a general meeting.

You may want to add extra requirements for directors of your charity in the constitution, or have a policy which sets out the ideal mix of skills and experience you will seek to have on the board for good governance. You can then appoint or seek nominations for people with these skills and experience.

Clause 40 – Election of chairperson

Clause 40 requires the directors to vote for one director to be the company’s ‘elected chairperson’.

Alternatively this could be a decision of the members at the annual general meeting. See the guidance on clause 26.

Clause 41 – Term of office

Clause 41 deals with the term of office for directors, that is, the length of time they are elected or appointed for, and how and when they are elected or re-elected. It provides for a system of ‘retirement by rotation’, where each year at least a third of the directors resign and can be re-elected. This reduces the risk of a complete replacement of all the directors in one year and prevents the company losing knowledge and experience.

It is good practice (but not a legal requirement) for directors to be re-elected periodically and to only serve for a maximum length of time. This allows the company to benefit from having a range of people with different skills, experiences and methods on the board.

Length of term of office

Clause 41 sets out when directors must retire and how directors can be re-elected.

Generally, a director’s term of office will be three years. This length of time (rather than, for example, one year) is likely to allow the company’s board of directors to be more stable and experienced and make long-term plans for the charity.

Some directors must retire annually

Casual directors and additional directors appointed by the directors (clause 41.1(a)) must retire at each annual general meeting of the company (see clause 20). They can be re-elected as a director at that meeting.

Retirement by rotation

At each annual general meeting, at least one third of the other directors who have been directors for the longest time must retire (clause 41.1(b)).

For example, if there are six directors, the two directors who have been directors for the longest time must retire. If there are three directors who were all appointed at the same time and therefore have all served for the longest, only two directors must retire. In this case, the director who must retire must be decided ‘by lot’ (under clause 41.2). ‘By lot’ means by random selection. For example, you may write the relevant directors’ names on pieces of paper, put the pieces of paper in a hat and pull a name out of the hat to decide who must retire.

Maximum term of office

Under clause 41.6, a person can be a director for a continuous period of nine years. If they want to be a director for longer, the members must pass a special resolution (see clause 70).

Clause 42 – When a director stops being a director

Clause 42 sets out when a director stops being a director, other than when their term of office finishes under clause 41.

Clause 42.1(a) covers written resignation.

Clause 42.1(c) allows a director to be removed by a members’ resolution. It is important to follow the procedure in section 203E of the Corporations Act if this occurs.

Under the Corporations Act, directors of a public company cannot remove a director or to require a director to resign.

Attention - Important information!Clause 42.1(d), (e) and (f) should be deleted if you do not include clauses 39.4(a) and 39.5(a) on election and appointment of directors, which require the director to be a member or a representative of a member.

Clause 42.1(g) sets out that a person stops being a director if:

• they do not attend three directors’ meetings in a row, and
• they do not have approval from the other directors.

If directors participate in directors’ meetings, it may help to meet ACNC governance standard 5, which requires charities to take reasonable steps to ensure that responsible persons meet their duties. A director can still be absent from directors’ meetings and continue to be a director if:

• they tell the other directors before the directors’ meetings that they will absent from the meetings, and
• the directors resolve to accept the absent director’s apology.

However, it is important for directors to be actively involved in the management of the company and they should not miss meetings without a valid reason.

Disqualified directors

Under clause 42.1(h), a person is usually ineligible to be a director of a charitable company if they:

• are disqualified from being a director under the Corporations Act (under Part 2D.6)
• have been suspended (and the suspension is still in place) or removed as the responsible person for that company under Division 100 of the ACNC Act, or
• are disqualified from being eligible to be a responsible person under ACNC governance standard 4.

In some cases a person who is ‘disqualified’ may still be eligible to be a director if they are given permission by the ASIC Commissioner or the ACNC Commissioner, or both, if required.

More information

For more information, see our guidance on disqualification from being a responsible person.

External resources

See ASIC’s guidance on:

• the responsibilities of company officeholders, and
• bankruptcy and personal insolvency agreements.

Clause 43 – Powers of directors

Clause 43 states that the directors are responsible for managing and directing the company’s activities in order to achieve the company’s charitable purpose(s).

The directors may use all the powers of the company except for powers that may only be used by members (see clause 43.2).

For example, under the Corporations Act a director or auditor of a public company cannot be removed by the directors. This is set out in clause 43.4.

Financial management

Under clause 43.3, the directors must decide how the company’s finances will be managed. Directors have an important responsibility to reduce the risk of mistakes or fraud and improve the accountability of the company’s finances.

ACNC governance standard 5 requires the responsible persons of a charity to ensure that the charity’s financial affairs are managed in a responsible way. This includes putting in place appropriate and tailored financial systems and procedures. These systems and procedures must be appropriate to the size and circumstances of the charity, and how complex its financial affairs are. The ACNC Act also requires charities to keep financial records that record and explain its financial transactions, position and performance and that would enable true and fair financial statements to be prepared and to be audited.

Clause 43 specifies that directors must decide how money is managed. For example, directors may decide that any two directors are required to sign cheques, or that the directors must approve expenditure over a certain amount.

If your charity has basic financial management systems and procedures in place, this will help it meet ACNC governance standard 5. These include:

• procedures for spending the charity’s funds (for example, for approval of spending, signing cheques and transferring money electronically), and
• insurance that is appropriate for the charity (see, for example, clause 66).

Clause 44 – Delegation of directors’ powers

Clause 44 allows the directors to delegate (sign or hand over) their powers and functions to any person, including to a director or a company employee such as a chief executive officer, or a committee, as they consider appropriate.

Clause 44 does not allow the directors to delegate:

• their power to delegate, or
• certain other duties under the Corporations Act.

The directors remain responsible for how the powers they delegate are used, so it is important for them to make sure that they delegate their powers in an appropriate way.

It is good practice not to delegate the board’s decision-making powers (for example, the power to adopt company by-laws or to appoint the company’s chief executive officer). The board of directors must agree on which powers they will delegate and which powers they will keep for themselves.

Clause 45 – Payments to directors (Mandatory)

Attention - Important information!This clause is only mandatory for companies that do not want to use ‘Limited’ in their name (under the Corporations Act).

The Corporations Act does not require a company to have the word ‘Limited’ at the end of its name if it is registered with the ACNC and the company’s constitution:

• prohibits the company from paying fees to its directors, and
• requires the directors to approve all other payments the company makes to directors.

If this is the case, a company can resolve to remove ‘Limited’ from its name and apply to ASIC to do so (a fee applies).

Alternatively, a company does not have to formally change its name, but can remove the word ‘Limited’ when using its name (for example, on the company’s letterhead).

When directors can be paid fees

Clause 45 does not allow the company to pay fees to its directors for acting as directors, but it specifies what payments may be made to a director with the approval of the other directors.

Under clause 45, a company can:

• pay a director for work they do for the company other than as a director, provided they are paid no more than a reasonable fee (for example, a director who is a web designer could be paid a reasonable fee to update the charity's website)
• reimburse (repay) a director for expenses they have properly incurred in relation to the company (for example, the cost of travelling to directors’ meetings), and
• pay some insurance or indemnities for directors (see clauses 65 and 66).

If your company wants to pay a director to provide professional or technical services, make sure the service being provided and the amount payable are first approved by the directors. The amount paid must be no more than a commercially reasonable amount for that service. It is also important that the relevant director discloses that they have a conflict of interest on the matter and not be present and vote when the directors decide to pay for that director’s services.

Deciding whether to allow directors’ fees

Other issues may be relevant when deciding whether to pay fees to directors. For example, if a company pays its directors fees and wants to fundraise in New South Wales, it may need consent from the minister (under the Charitable Fundraising Act 1991 (NSW)).

Clause 46 – Execution of documents

Clause 46 reflects the Corporations Act, which allows documents to be ‘executed’ (formally signed) on behalf of the company by:

• two directors, or
• a director and the secretary.

In addition to clause 46, the Corporations Act allows a company to authorise a person to make, amend or discharge (complete) contracts on behalf of the company. This can be done by making a directors’ resolution.

Clause 46 does not require a company to have a common seal. Under the Corporations Act, a ‘common seal’ (also called ‘company seal’) is a stamp that has certain information, for example the company’s name, Australian Company Number (ACN) and the words ‘common seal’ on it. If a company uses a common seal to execute a document, it must still be witnessed by two directors, or a director and the secretary. It used to be a legal requirement for every company to have a common seal, but now companies do not legally need one.

Clause 47 – Duties of directors

Clause 47 sets out the duties of the company’s directors. These include complying with legislation and common law (judge-made law) and complying with the charity’s obligations under governance standard 5.

Governance standard 5 requires a charity to take reasonable steps to make sure that its responsible people, such as directors, meet certain duties. Clause 47 sets out these duties, which are to:

• act with reasonable care and diligence
• act in good faith (honestly and fairly) in the best interests of the charity and for its charitable purposes
• not misuse their position as a responsible person
• not misuse information they gain in their role as a responsible person
• disclose perceived or actual material conflicts of interest
• ensure that the financial affairs of the charity are managed responsibly, and
• not allow the charity to operate while it is insolvent (there is a similar requirement in the Corporations Act).

Clause 48 – Conflicts of interest

Under clause 48, any director who has or may appear to have a ‘material conflict of interest’ in a decision being made by the directors should tell the other directors or, if all of the directors have the same conflict, tell the members (clause 48.1).

Once the other directors are told about the interest, the company can manage any risks.

Except in the circumstances listed in clause 48.4, a director who has a material personal interest must not:

• be present while the issue is being discussed at a meeting, and
• vote on the decision (clause 48.3).

This requirement comes from the Corporations Act. 'Material personal interest' is not defined in the Corporations Act, however the word 'material' means that the interest must be of some substance or value. If a director has a very small interest in a matter, it is unlikely to be considered 'material'.

Under clause 48.4, a director who has disclosed a conflict of interest can still be involved in decision making if:

• their interest only arises because they are a member of the company and all other members have the same interest
• their interest relates to an insurance contract for directors (see clause 66), or
• their interest relates to a payment to a director under the indemnity clause (see clause 65).

In addition, under clause 48.4(e), if the other directors are satisfied that the interest should not disqualify the director from voting or being present, they can pass a resolution that says this and allows the director to be involved in making the decision (this process is also set out in the Corporations Act). The directors should be very careful if making this decision. It is generally good practice that a director does not discuss or vote on something that they have a 'material personal interest' in.

More information

For more information, see our guidance on conflicts of interest.

Directors’ meetings allow the company’s directors to confidentially discuss important issues, raise any concerns about the company, remain updated on the company's performance and issues affecting the company and make decisions together.

Clause 49 – When the directors meet

Under clause 49, the directors can decide where, when and how often to meet.

You can amend this clause, for example, to set a minimum number of meetings to be held in each year. However, it may be preferable to make a by-law (under clause 59) that sets out how many meetings your company must have each year and when and where the meetings will be. This can be changed if circumstances change during the year.

Clause 50 – Calling directors’ meetings

Clause 50 sets out how meetings must be called. It allows notice of the meeting to be given to directors by any method that has been agreed on by all of the directors (for example, SMS or email).

Clause 51 – Chairperson for directors’ meetings

Under clause 51, the directors may appoint another person to be the chairperson for a directors’ meeting if the elected chairperson (see clause 40) is not present or does not want to act as chairperson for that meeting.

Clause 52 – Quorum at directors’ meetings

Under clause 52, the quorum for directors’ meetings is a majority of directors.

The quorum is the minimum number of people who must be present for the whole meeting for it to go ahead. A majority is more than 50% (for example, if your charity has six directors, the quorum for a directors’ meeting is four directors).

You can change the quorum to at least two directors. However, this may be too small, depending on how many directors your company has and your circumstances.

In some cases, your charity may be required to have a certain minimum quorum amount (for example, as a requirement under a fundraising licence). If your charity is required to have a minimum of three directors for a quorum under a fundraising licence, you could use the alternative clause below.

Alternative clause 52:
Quorum at directors’ meeting
52.1 Subject to clause 52.2, unless the directors determine otherwise, the quorum for a directors’ meeting is a majority (more than 50%) of directors.
52.2 Despite clause 52.1, the quorum cannot be less than three directors.
52.3 A quorum must be present for the whole directors’ meeting.

More information

For more information on meeting quorums, see clause 22 in this guide.

Clause 53 – Using technology to hold directors’ meetings

Under the Corporations Act, directors’ meetings can be held using technology (such as web conferencing) if all of the directors agree.

There can be a standing agreement to use technology for all directors’ meetings. If a director no longer agrees to a particular use of technology, they must tell the other directors a reasonable time before the next meeting.

Clause 54 – Passing directors’ resolutions

Under clause 54, a directors’ resolution can only be passed if the majority of votes cast by directors who are present at the meeting and entitled to vote are in favour of the resolution.

This means that if there are nine directors, but only eight are at the meeting, and one of those eight has a material personal interest that is relevant to the matter, there are only seven directors who are present and entitled to vote on that resolution. If all seven of the directors vote, the resolution can only pass if at least four of those seven directors vote to pass it.

Clause 55 – Circular resolutions of directors

Clause 55 sets out how directors can pass a ‘circular resolution’. A circular resolution is a resolution that is circulated (passed around) and agreed to by all directors entitled to vote on the resolution without holding a directors’ meeting. This is a similar process to that used for circular resolutions of members (under clause 31).

A circular resolution can only be passed if all of the directors entitled to vote on the resolution sign or otherwise agree to it.

How circular resolutions are passed

All directors entitled to vote on the resolution must sign a document stating that they are in favour of the resolution. The resolution is passed when the last director signs it.

Directors may sign separate copies of the resolution, as long as the wording of the resolution is the same in each copy.

If a circular resolution is sent to directors by email, directors can agree to the resolution by reply email, but their reply must include the words of the resolution that they are agreeing to.

The directors must record and sign a minute (see clause 57 below) setting out the words of the resolution and that it was passed by a circular resolution.

Under the Corporations Act, a public company must have at least one company secretary who ordinarily lives in Australia.

Clause 56 sets out how the company secretary must be appointed and what responsibilities their role includes.

Before the company appoints a person to be company secretary, it must have signed consent from that person stating that they agree to act as the company secretary (clause 56.2).

Clause 56.4 sets out two of the secretary’s important responsibilities, which are:

• keeping the company’s register of members up-to-date (see, for example, the secretary’s responsibilities in relation to the register under clauses 10 and 13), and
• maintaining the records of general meetings and directors’ meetings (including the minutes, notices of meeting and resolutions) and circular resolutions.

Under the template constitution, the role of secretary also includes:

• giving some notices on behalf of the company (for example giving a member notice in relation to a disciplinary procedure under clause 17)
• receiving notice of behalf of the company (under clause 61), and
• along with a director, executing documents on behalf of the company (under clause 46).

The secretary does not have responsibility for these things under the Corporations Act and they may be changed in the template constitution. However, because in practice the secretary usually does these things, they are specified in the template constitution. The secretary must also ensure that the company complies with certain requirements under section 188 of the Corporations Act which are not specified in the template constitution.

Under clause 56.3, the directors must decide the conditions that the secretary is appointed under. For example, the directors may decide:

• that the secretary must attend every general meeting and directors’ meeting, unless they have a reasonable reason not to, and
• the secretary’s remuneration (salary and/or other benefits).

Under the Corporations Act, companies must keep minute books which record certain matters relating to director and member meetings, resolutions passed in those meetings, and circular resolutions.

The ACNC Act requires charities to keep written financial records and records which correctly record and explain its operations.

Keeping records of your company’s meetings, decisions, operations and finances and, where appropriate, making these records available to people who want to access them, is an important way to help make sure that your company is:

• open and accountable to members and other people
• in good financial health
• making good decisions, and
• able to meet its obligations to the ACNC and other regulators.

More information

For more information about keeping records, see:

• keeping records

External resources

• Justice Connect Not-for-profit Law: Record keeping
• Our Community: Record-keeping for treasurers.

Clause 57 – Minutes and records

Clause 57 sets out the records that the company must keep and who can access these records.

This clause sets out the requirements under the Corporations Act to take and record minutes of meetings (written notes of what was decided) and have them signed by the chairperson within a reasonable time after the meeting.

These requirements, as they relate to meetings of members no longer apply to registered charities. However, as a matter of good governance, and to comply with obligations under the ACNC Act, is it important to record the decisions of members. As a result, we have included this requirement in the template constitution.

Minutes of meetings should clearly and accurately record any decisions made at meetings and may provide brief reasons for those decisions.

How to make and keep directors’ meeting minutes

A good way to comply with the record-keeping requirements for directors' meetings is:

Step 1 - As soon as possible after the directors' meeting, the company secretary sends draft minutes to the chairperson,
Step 2 - The chairperson reviews and, if necessary, amends the draft,
Step 3 - The chairperson sends the draft minutes to the directors (for example, by email). Any director who wants to amend the draft should reply quickly and any disagreement on the draft should be resolved between the directors, and
Step 4 - Once the directors agree, the chairperson should sign the minutes and record the minutes in the minute book.

These four steps should happen within one month of the meeting.

Clause 58 – Financial and other records

Clause 58 sets out the company’s obligations in relation to financial and operational records, as required by section 55-5 of the ACNC Act.

Clause 58.1 requires your company’s financial records to be kept in a way that allows them to be audited. Even if your company does not need to audit its financial reports (as the ACNC Act only requires large charities to have audited financial reports), you must still keep your financial records in a way that would allow them to be audited.

Keeping good financial and operational records is important to make sure:

• you know your company’s financial health
• you can produce accurate and useful financial reports, and
• the operations of the company are properly and accurately recorded.

More information

For more information, see:

• review and audit of financial reports

External resources

See ASIC: Directors and financial reporting.

For information on financial reports, audits and auditors, see ASIC’s overview of financial reporting and audit.

Clause 59 – By-laws

Clause 59 allows the directors to make by-laws (also called policies or regulations) to give effect to the constitution.

By-laws are formal rules for the company in the same way that the constitution is. They are useful for setting out how the company must manage its day-to-day activities. For example, your company may wish to make by-laws about planning the budget, using social media or managing volunteers.

By-laws can also set out how your company must manage certain things in the constitution. For example, clause 39 of the template constitution requires a director to be nominated by two members, but does not provide the process and requirements for doing so. By-laws could be made which require a member to complete a nomination form and send it to the company at least 30 days before a general meeting.

External resources

For more information on making by-laws for your company, see the Institute of Community Directors Australia’s guidance on making by-laws and its ‘Policy Bank’ of template by-laws.

The notice requirements in clauses 60 to 63 apply to any written notices given to or from the company.

Clause 60 – What is notice

Clause 60 provides that ‘notice’ is anything written to or from the company, except a notice of proxy under clause 36.

Notice under the template constitution includes many things, for example:

• an application to become a member (clause 12)
• a notice of a general meeting (clause 21), and
• the resignation of a director (clause 42).

Clause 61 – Notice to the company

Clause 61 sets out how notice may be given to the company, including in person (meaning directly to the company) or by post, email or fax.

Clause 62 – Notice to members

Clause 62 sets out how the company may give notice to members, including in person or by post, email or fax. Clause 62 is flexible. For example, a member may agree to be notified by SMS that a notice of meeting is available on the company’s website, or may agree to be given the notice at a mailbox in a clubhouse for members.
Under clause 62.2, if a company has not been given an address for the member, it does not have to find the member to give them notice in person.

Clause 63 – When notice is taken to be given

Clause 63 sets out the time when notice is taken to be given, depending on whether the notice is delivered in person or by post, email or fax (or another electronic method). It is important to know and comply with the times in clause 63 when giving notice, to ensure that you comply with the constitution and give members or the company adequate time to consider and act on the notice they have been given.

Clause 64 gives the company a financial year (also called a reporting period) of 1 July to 30 June. Your company may have a different financial year, for example, from 1 January to 31 December.

The financial year is the period that the company uses for calculating its annual financial operations and performance. It is also the period you must report on when you submit your Annual Information Statement to the ACNC.

Indemnity, insurance and access

It is common for a company to provide an ‘indemnity’ to its officers (directors and secretaries). An indemnity ensures that the people who manage the company are protected from any losses or liability (legal responsibility) that they incur in performing their role. In other words, where an officer suffers a relevant loss in their role as an officer of the company, the company may need to pay for that loss, rather than the officer.

In order to properly manage risk, your company may need to insure an officer for any liability or legal costs that they incur in performing their role. By taking out insurance, the company may avoid having to pay an officer under the indemnity clause, because it will be covered by the insurance company.

The Corporations Act limits the things that a company can indemnify or insure an officer for.

External resources

For more information about indemnities and insurance see:

• Justice Connect Not-for-profit Law: Insurance and risk.

Clause 65 – Indemnity

Under clause 65, the company indemnifies an officer of the company (a director or secretary, or former director or secretary) against losses and liabilities that they incur in their roles as officers.

If a company indemnifies its officers, it protects them against certain personal financial responsibility. For example, the company may be required to take responsibility for any legal claims and pay any legal costs, damages (monetary compensation) and other expenses of legal actions in relation to claims arising out of the officer’s conduct as an officer of the company.

Which officers are indemnified

Under clause 65.2, the ‘officers’ who the company indemnifies are all current and former directors and secretaries of the company.

What the indemnity does not cover

Under clause 65.3, the indemnity provided by the company does not indemnify a company officer if:

• the law (including the Corporations Act) does not allow the company to do so, or
• the officer is indemnified in another way, for example, is covered by an insurance policy. If the officer is only partly indemnified in another way, the company must still indemnify the officer to the extent that they are not otherwise indemnified.

Under the Corporations Act, a company cannot provide an indemnity for an officer in some cases, so the indemnity in the template constitution does not apply to liabilities:

• owed to the company or a related company (for example, where the company has a legal claim against a director)
• for certain penalty or compensation orders under the Corporations Act, or
• which did not come from conduct in good faith (for example, the liability came from the director acting dishonestly).

The indemnity also does not cover certain legal costs (for example, the costs of defending a criminal charge if the director is found guilty).

The indemnity also does not cover other situations where the law does not allow a company to indemnify an officer.

Indemnity when replacing an existing constitution

If your company is replacing an existing constitution with the template constitution, you must make it clear what time period the company will indemnify its officers for. If your existing constitution did not indemnify the company’s officers, you must take care not to indemnify former officers unless you have clearly decided to do so. Clause 65 in the template constitution would provide an indemnity for former officers. The alternative clause 65.2 below would not. You may need to seek legal advice if you are replacing an existing constitution.

Alternative clause 65.2 – ‘Officer’ indemnified by the company
65.2 In this clause, officer means a director or secretary who holds office on or after [the date this constitution takes effect] and includes a director or secretary after they have ceased to hold that office.

Clause 66 – Insurance

Under clause 66, the directors can agree that the company will take out insurance for company officers (current and former directors and secretaries) to cover liability that a person incurs as an officer of the company.

As with indemnities, the Corporations Act restricts what that insurance can cover. For example, the Corporations Act prohibits a company from insuring an officer for a wilful breach of their duty to the company.

Clause 67 – Access

Under the Corporations Act, directors are entitled to access certain company ‘books’ for the purposes of certain legal proceedings, and can do this for up to seven years after they stop being a director.

‘Books’ includes things such as documents, registers or any other records of information.

Under the Corporations Act, directors of companies are generally entitled to access the financial records of the company at all reasonable times. However, this right no longer exists for directors of charitable companies under that Act. As such, this right has been reproduced in the template constitution to make clear that directors are able to access these types of documents in order to properly carry out their duties.

Clause 67 allows the company to agree with the directors to expand what documents the directors are entitled to access. For example, clause 67 may be used to give directors a right to access board papers, meeting minutes and meeting presentations.

Even though directors may have this right under common law (judge-made law), agreeing on it makes it clearer and more certain for directors. It is important for directors to have access to certain company documents and know their access rights, so that they can make sure they fulfil their duties and responsibilities.

Clause 68 – Surplus assets not to be distributed to members (Mandatory)

Clause 68 does not allow any of the company’s surplus assets (money or property remaining after the company pays all of its debts and liabilities) to be distributed to any current or former members of the company if the company is wound up (closes down), unless the member is a not-for-profit entity with purposes that are similar to or inclusive of the purposes of the company (see clause 69).

Including clauses 8 and 68 in your constitution will help to show that your company is a not-for-profit company, which is required for registration as a charity with the ACNC.

Clause 69 – Distribution of surplus assets (Mandatory)

Under clause 69, when the company winds up, its surplus assets must be distributed to one or more other charities which:

• have charitable purposes similar to, or inclusive of, the purposes of the company, and
• are also not-for-profit.

Clause 69 requires surplus assets to be distributed to a charity with purposes similar to, or inclusive of, the purposes of the company. This means that a company can give the surplus assets to another charity with wider purposes than the company, as long as the charity has some purposes which are the same as the company’s purposes.

Under clause 69, the members must pass a special resolution (see clause 70) to agree on how the surplus assets will be distributed

If the members do not agree on where the surplus assets will be distributed, the company can apply to the Supreme Court for a decision. If this happens in your company, you will need to get professional advice.

Some constitutions state that the directors, rather than members, can decide which charity or charities will be given the company's surplus assets when it winds up.

DGR revocation clause

If the company will be seeking DGR endorsement (or is currently a DGR), it will need to have a DGR revocation clause. This clause makes sure that the company will transfer any surplus gifts, deductible contributions and related money to another DGR if it:

• is dissolved or wound up (closed), or
• has its DGR endorsement revoked (cancelled) by the ATO (whichever comes first).

The revocation clause below also includes a similar ‘winding up’ clause to the one set out in the template constitution. The ATO have advised that they will accept the revocation clause below if you have or apply for DGR status.

To be registered as a charity by the ACNC, your constitution must also state that the transfer of surplus assets is to another charitable DGR with a purpose similar to or inclusive of your charity’s purpose.

Alternative clause 69 – Distribution of surplus assets (whole DGR endorsement)

69. Distribution of surplus assets

69.1 Subject to the Corporations Act and any other applicable Act, and any court order, any surplus assets (including ‘gift funds’ defined in clause 69.4) that remain after the company is wound up must be distributed to one or more charities:

(a) with charitable purpose(s) similar to, or inclusive of, the purpose(s) in clause 6
(b) which also prohibit the distribution of any surplus assets to its members to at least the same extent as the company, and
(c) that is or are deductible gift recipients within the meaning of the Income Tax Assessment Act 1997 (Cth).

69.2 The decision as to the charity or charities to be given the surplus assets must be made by a special resolution of members at or before the time of winding up. If the members do not make this decision, the company may apply to the Supreme Court to make this decision.

69.3 If the company’s deductible gift recipient endorsement is revoked (whether or not the company is to be wound up), any surplus gift funds must be transferred to one or more charities that meet the requirements of 69.1(a), (b) and (c), as decided by the directors.

69.4 For the purpose of this clause:

(a)’gift funds’ means:

(i) gifts of money or property for the principal purpose of the company
(ii) contributions made in relation to a fund-raising event held for the principal purpose of the company; and
(iii) money received by the company because of such gifts and contributions.

(b) ‘contributions' and ‘fund-raising event’ have the same meaning as in Division 30 of the Income Tax Assessment Act 1997 (Cth).

Applying for endorsement of a part DGR (fund or institution)

For endorsement for a fund or institution your company owns or operates (‘part DGR endorsement’), you will need to confirm that the gift fund your company maintains has a revocation clause in its constituent document or rules governing its activities, for example, in the rules of the gift fund.

More information

For more information on DGR status see our guidance on deductible gift recipients (DGRs) and the ACNC.

External resources

• ATO GiftPack
• Justice Connect Not-for-profit Law: Deductible Gift Recipient Endorsement.

Clause 70 – Definitions

Clause 70 defines the meaning of some words and phrases in the template constitution.

If a word or phrase is defined in clause 70, it will be in bold wherever it appears in the template constitution.

Clause 71 – reading this constitution with the Corporations Act

Clause 71 makes sure that your constitution is not inconsistent with the ACNC Act or the Corporations Act. It states that the Corporations Act will take precedence over the constitution if the constitution is inconsistent with the Corporations Act.

Because some requirements in the Corporations Act no longer apply to registered charities, you may decide to change some parts of the constitution to better suit your circumstances (provided you still comply with the ACNC governance standards). For example, you may decide that for your charity, it is better to require proxies to be members.

However, between the time that you register with ASIC and then with the ACNC, the provisions in the Corporations Act that have ‘switched off’ for registered charities will still apply to your company (since your company will not yet be a registered charity).

Clause 71 ensures that until you are registered with the ACNC, your constitution is not inconsistent to the Corporations Act, as the Corporations Act will prevail where any inconsistency exists.

Clause 71 will have a similar effect if, in the future, the Corporations Act changes so that the provisions that have ‘switched off’ for registered charities start to apply again.

Clause 71 also says that the replaceable rules under the Corporations Act do not apply to the company (see the introduction to this guide for more information).

More information

For more information on the changes to the Corporations Act for registered companies, see our guidance for companies limited by guarantee.

Clause 72 – Interpretation

This is a common type of clause in many legal documents that clearly explains how words in the template constitution should be read and understood.