Section 250D of the Corporations Act: What It Means for Startups and SMEs

If you’re running a company in Australia, there are a few “corporate housekeeping” rules that can feel a bit distant - until you hit a bump in the road with shareholders, cash flow, or a major business decision.

One of those rules people often ask about is section 250D of the Corporations Act 2001 (Cth). You might see searches like “250D Corporations Act” when someone is trying to understand shareholder meeting rights, what members can ask at an AGM, and what directors (and the chair) need to allow in that forum.

Even if you’re a fast-moving startup, section 250D matters because it affects what shareholders can do at an annual general meeting (AGM) - and those meetings can become a major governance moment (or a governance risk) if you’re not prepared.

This article is general information only and not legal advice. If you need advice on your specific circumstances, get in touch with a lawyer.

Below, we’ll break down what section 250D is, when it applies, what it means for founders and SMEs, and how to reduce the chance of it becoming a flashpoint in a dispute.

What Is Section 250D of the Corporations Act?

Section 250D is the rule that requires the chair of an AGM to give members a reasonable opportunity to ask questions about, or make comments on, the management of the company.

In plain English: if your company is holding an AGM, shareholders are entitled to a reasonable chance to ask management questions and make comments. The meeting can still be run properly (with orderly procedures), but the chair can’t simply shut down member participation without good reason.

This sits within a broader theme in Australian corporate law: while directors manage the company day-to-day, shareholders have key rights to hold management accountable through formal forums like general meetings (especially AGMs).

Why Do Startups And SMEs Need To Care?

In early-stage companies, governance is often informal. Founders talk daily, decisions happen fast, and paperwork can lag behind growth.

But section 250D becomes highly relevant when:

• you’ve raised money and have external investors;
• you’re a public company (or otherwise hold AGMs);
• there’s a disagreement about strategy, spending, dilution, or leadership;
• members want information and a formal forum to ask questions; or
• you’re heading into a major transaction and expect scrutiny.

If you’re building a company that’s meant to scale, having clear governance rules (and the right documents in place) can make a huge difference when tensions rise.

Who Can Use 250D? (The “Members With At Least 5%” Rule)

This is a common point of confusion: the “5% of votes / 100 members” threshold is generally associated with the member requisition power to require directors to call a general meeting (found in a different section of the Corporations Act, not section 250D).

Section 250D, instead, is about what must be allowed at an AGM. If you are holding an AGM, the right to ask questions and make comments is a member right exercised in that meeting (subject to the chair maintaining an orderly process).

What Counts As 5% Of The Votes?

If you’re actually dealing with a request to force the company to call a general meeting, voting power can matter a lot - and it can be affected by different share classes and voting rights.

If your cap table has become complex, it’s worth getting advice on (1) whether a shareholder (or group) meets any relevant threshold under the Corporations Act for a meeting request, and (2) what rights members have at the meeting once it’s held. Missteps here can escalate disputes quickly.

Does This Apply To Proprietary (Pty Ltd) Companies?

Section 250D applies in the context of an AGM. Proprietary companies generally aren’t required to hold AGMs, but if a proprietary company does hold an AGM (for example, because of its constitution, shareholder arrangements, or business practice), the way the meeting is run still matters.

Many founders assume “AGM rules” are mostly for listed or public companies. In reality, private companies can still face sharp governance issues because relationships are closer, shareholders are fewer, and disagreements can become personal - and meeting processes can still become the battleground.

What Does A 250D Request Need To Include?

Section 250D isn’t a “request to call a meeting” mechanism. It’s about how members can participate at an AGM once it is being held.

If you’ve received a letter or email from members demanding that a meeting be called, it may be relying on a different Corporations Act process (and it’s important to identify the correct section, because different rules and timeframes can apply).

That said, it’s common for shareholder communications around an AGM to raise proposed resolutions or agenda items, including:

• removing a director;
• appointing a new director;
• requiring the company to consider or reverse a major decision;
• calling for disclosure or explanations from management.

Even if the underlying dispute is commercial (e.g. “why are we spending so much?”), meetings force issues into a formal governance channel - with notice requirements, voting rules, minutes, and a paper trail.

Why The Company’s Constitution Matters

Your company’s constitution can shape meeting mechanics (like notice periods, quorum requirements, proxy voting rules, and chairing). If you don’t have clear rules, you can end up relying heavily on replaceable rules and default processes - which may not suit the reality of your business.

For many growing companies, a tailored Company Constitution is a practical way to reduce uncertainty and ensure your governance aligns with how you actually operate.

Timeframes Under Section 250D: When Must Directors Call The Meeting?

Section 250D doesn’t set the deadlines for directors to call a meeting. Those timeframes (often quoted as “call within 21 days” and “hold within 2 months”) generally relate to a different Corporations Act process where eligible members requisition a general meeting.

What section 250D does is affect what happens during the AGM: members must be given a reasonable opportunity to ask questions and make comments on management. Practically, that means you should plan for Q&A, keep records tight, and ensure the chair is ready to manage questions fairly and consistently.

If you’re receiving formal demands from members around meeting timing, agenda, or board changes, it’s usually a sign the issue is no longer “informal” - and it’s time to treat the governance process carefully and strategically.

What If Directors Don’t Call The Meeting?

If the issue is actually that members are trying to force the company to call a general meeting, the consequences and next steps depend on which Corporations Act mechanism is being used (and whether the request is valid).

Even aside from legal consequences, not responding correctly can damage trust with investors and make future fundraising harder (because governance risk is a major red flag in due diligence).

Common Startup Scenarios Where Section 250D Comes Up

Section 250D is often associated with tense AGMs, but it’s not always “hostile”. Sometimes it’s simply a structured way for investors to ask questions when communication has broken down.

1) Founder Fallout Or Deadlock

Two or more founders can hit a deadlock over strategy, hiring, pricing, or whether to raise another round. If this plays out in a general meeting setting (including an AGM), members may use the meeting to push for:

• board changes;
• a formal vote on a key decision; or
• clarity over who has authority to act.

This is also where a tailored Shareholders Agreement can be invaluable, because it can include deadlock mechanisms and decision-making rules that reduce the need for governance “showdowns”.

2) Investor Concerns About Financial Management

When runway shortens, questions about spending and financial controls become more intense. At an AGM, section 250D helps ensure members have a reasonable opportunity to ask management about:

• financial performance and burn;
• reporting and forecasting practices; or
• major transactions and priorities.

If you’ve taken on funding, it’s worth ensuring your board and shareholder communications are regular and consistent. Strong governance habits reduce the likelihood that members feel they need to escalate in formal meetings.

3) Disputes About Related Party Deals Or Conflicts

Startups sometimes move quickly and do deals with related parties (for example, paying a company owned by a director for services, or leasing an asset from a founder). These arrangements can be legitimate, but they can also spark concerns about conflicts and transparency - and those concerns often surface in formal meetings.

A robust Conflict of Interest Policy can help show you’re taking governance seriously and managing decisions fairly.

4) Preparing For A Capital Raise Or Exit

Even without a dispute, members sometimes use general meetings (including AGMs) to raise questions, test assumptions, and seek clarity ahead of a major fundraising, restructure, or sale process.

If you’re doing anything complex (like issuing a new share class, changing key rights, or approving significant documents), it’s worth checking whether you need member approval and what meeting pathway is best.

Practical Steps To Reduce Risk (And Make 250D Less Stressful)

You can’t “contract out” of the Corporations Act, and if you’re holding an AGM you need to run it in a way that complies with member participation rights like section 250D.

But you can reduce the risk that an AGM turns into chaos by getting your fundamentals right.

1) Keep Your Company Records And Governance House In Order

When disputes arise, they tend to focus on process: who approved what, when, and under what authority.

Some practical habits that help:

• keeping board minutes and written resolutions up to date;
• maintaining a clean cap table and share register;
• making sure key decisions are properly documented;
• ensuring directors understand how decisions must be made under the constitution and law.

2) Use Clear Founder And Investor Documentation

Many early-stage issues come from expectations that were never written down. If you have co-founders and/or investors, consider whether your legal framework matches your reality, including:

• decision-making and reserved matters;
• director appointment/removal rules;
• information rights and reporting expectations;
• deadlock pathways;
• exit rights.

These issues are often addressed in a Shareholders Agreement and constitution working together, rather than relying on informal understandings.

3) Treat Meetings As A Process You Can Plan For (Not A Fire Drill)

General meetings don’t have to be scary, but they do need to be run correctly. That usually means thinking about:

• notice requirements and delivery methods;
• agenda and proposed resolutions;
• quorum;
• proxy forms and voting procedure;
• chair’s role, Q&A handling, and minutes.

If you’re unsure, it’s often cheaper to get advice at the start than to clean up a defective meeting process later.

4) Don’t Ignore Communication And Privacy Obligations

In many companies, disputes escalate because members feel they’re not getting information. While shareholder information rights are not unlimited, you should still be mindful of how you handle personal information (including shareholder contact details).

If your business collects and stores personal information as part of operations (which most businesses do), a clear Privacy Policy and data-handling practices can help avoid accidental breaches while you’re dealing with sensitive governance moments.

5) Make Sure Employment And Contractor Arrangements Aren’t Creating Extra Risk

When shareholder disputes happen, they can quickly spill into operational issues - like a founder who is also an employee, or a key executive on a contract that doesn’t align with the company’s plan.

Having well-drafted Employment Contract terms (and clear contractor agreements where relevant) can help you avoid compounding a governance problem with an employment law problem.

Key Takeaways

• Section 250D of the Corporations Act is about member participation at an AGM, requiring a reasonable opportunity for members to ask questions about, or make comments on, the management of the company.
• If you’re looking for the rule that lets eligible shareholders require directors to call a general meeting, that is generally found in a different section of the Corporations Act (and it’s important not to mix up the thresholds and timeframes).
• For startups and SMEs, section 250D issues commonly arise when investor expectations and communication break down and members use formal meetings to seek answers and accountability.
• Good governance systems (minutes, cap table hygiene, clear meeting rules) and tailored documents like a Company Constitution and Shareholders Agreement make it far easier to manage shareholder questions and meeting processes calmly and correctly.

If you’d like help understanding how section 250D applies to your company, or you need support preparing for (or responding to issues arising at) a general meeting, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.