The constitution of a company is a key governance document (i.e. contract) that governs the internal management of the company.
A constitution will typically include rules about:
- shareholder rights and share classes
- shareholder and director meetings
- appointment, removal and power of directors
- process for amending the constitution
You might currently have an "off the shelf" Constitution, use the replaceable rules or even have a shareholders' agreement.
Do you need to adopt a new constitution or revisit your shareholders' agreement?
Probably. After a CSF offer, your company constitution will need to be appropriate for a widely-held company (i.e. a company with hundreds or thousands of shareholders). It is important to review your corporate governance arrangements now, before any investment, to ensure you can continue to effectively manage your company and business after investment.
Some key provisions companies consider including and/or amending in the constitution are:
- drag & tag rights
- pre-emptive rights on issue & transfer — some companies remove them altogether & some companies have them apply to certain shareholders only (e.g. holding above a certain percentage in the company)
- other transfer restrictions / ROFRs etc
- exit provisions
- rights to appoint directors
- founder's rights
- restrictions for competitors
- removing non-competes for minority shareholders
- electronic share certificates/uncertified shares
- electronic shareholder meetings
- board decisions vs shareholder decisions
Constitution examples
You can access a sample of company constitutions from other companies that have undertaken a CSF offer below.
- Ashurst — Download
- Bluerock — Download
- Coghlan Duffy & Co — Download
- HWL Ebsworth — Download
- Jackson McDonald — Download (for a public company)
- Kain Lawyers — Download
- Legal Vision — Download
- LUNA — Download
A company's constitution is specific to its objectives, strategy, founder and shareholder structure. As such, there is no standard "CSF company constitution". The examples provided are to be used as a guide only. It is important to remember each of these company's had a specific history, which may have included terminating a shareholders' agreement and negotiating with existing shareholders before adopting a new constitution. Those circumstances may not be relevant to you or different decisions may have been made if a company was starting with a "blank page".
We strongly recommend you seek legal advice to settle the terms of your constitution so it appropriately reflects your specific circumstances, wishes and requirements. The constitution will be your key governance document - it's important you get the right advice now, so you're set up for success once you have 100s or 1,000s of new shareholders.
Please note, copyright in these example Constitutions is retained by the owner and they are presented in no particular order. Every company's requirements and circumstances are different so we caution copying another company's constitution without seeking appropriate advice.
Shareholders agreement / deed
If you currently have a shareholders' agreement or deed in place, industry practice has evolved such that companies looking to raise capital under the CSF regime will terminate that document and incorporate any relevant provisions into their constitution, which will then become the key governance document for the company.After a CSF offer, a company may have 100s/1000s of shareholders, and so managing a shareholders' agreement or deed can become unwieldy. The constitution then becomes a neat solution to appropriately manage the company. Also, raising funds via a platform, like Birchal, is a completely online process, so arranging for a separate deed of accession (which is sometimes proposed) to be signed by 100s/1000s of shareholders prior to settlement is impractical and likely to be unenforceable in many jurisdictions.Of the more than 200 companies who have raised funds on the Birchal platform, all have updated their constitution (and terminated the shareholders' agreement or deed).For more information, check out this article by Jeremy Goldman, Director at My Legal Advisor: 7 top tips for setting up your startup for successful follow-on funding rounds.
Timing
You'll need to adopt the new constitution before your CSF offer goes live, so it's worth thinking about this now.If you have existing shareholders, now is also the time to engage them in the process and notify your intention to raise capital under the CSF regime.
Legal health check
We also recommend a "legal health check" to check you are investment ready. For example, take a look at your company structure — do you need to do any restructuring before you launch a CSF offer? Do you have pre-emptive rights with existing shareholders? Do you need to put any key agreements in place?
To do
Have a chat to your legal advisor about your current constitution and whether it will work for you after a CSF Offer. You can share this article with your legal advisor if they need further context. We are also always happy to have a chat with them.Don't have a legal advisor? No worries. Check out our Partner Hub or have a chat with your campaign manager.
