The Ins and Outs of Shareholders Agreements and Company Constitutions (2025 Updated)

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So you’ve just set up a company in 2025 and might be asking yourself: what’s next?

You might have heard others tell you that you need a Shareholders Agreement and Company Constitution. If you’re debating your business structure, our guide on Sole Trader vs Company can offer some helpful insights.

They are the key foundational documents you’ll need when setting up a company – so you’re on the right track!

But, like many founders and business owners, you might be confused about what they are and how they’re different.

There are many types of companies but, put simply, there are the shareholders who own the company, and the directors who manage the day-to-day affairs.

Since there are various people and roles that make up a company, it’s important to put the right legal documents in place to address:

Rights and responsibilities of shareholders and directors
Rules on running the company (meetings, special decisions)
Holding and transferring shares
Processes for resolving disputes

What “the right legal documents” are depends on how your company is set up, the shareholding structure, board composition, and the specific risks of your business.

This article will discuss Company Constitutions and Shareholders Agreements – their purpose, key differences, and whether you need either or both for your company in today’s evolving legal landscape.

What Are They And How Are They Different?

A Company Constitution is a set of ground rules about how the company will be run, including the directors’ powers and duties, the holding of meetings, and voting procedures. It provides a broad framework for internal governance.

Meanwhile, a Shareholders Agreement usually sets out more specific, detailed rules around the relationship between shareholders and directors, as well as the rules for issuing, holding, and transferring shares.

That’s the basic difference. Legal industry practice is that Constitutions tend to be general, while Shareholders Agreements are tailored to the nuances of the specific shareholders’ relationship.

There can be some crossover between the two, which is why it’s crucial to draft them carefully to minimise conflicts and ensure consistency.

For instance, a Constitution may include rules around issuing and transferring shares, while a Shareholders Agreement could incorporate more specific clauses such as share valuation, “drag-along” and “tag-along” rights, events of default, and share vesting provisions.

If you have both a Constitution and a Shareholders Agreement, they must be meticulously coordinated. It’s advisable to have a lawyer review these documents to ensure they complement each other effectively.

So that’s how a Constitution and a Shareholders Agreement differ. But, just how important is it to have each document?

Company Constitutions

Why Should I Have A Constitution?

A Constitution is the formal foundation that governs how a company is managed. While the Corporations Act 2001 provides basic rules, a well-drafted Constitution addresses scenarios unique to your company’s structure and needs – including provisions for digital and remote meetings, which have become increasingly relevant in 2025.

Having these procedures in writing not only streamlines decision-making but also helps prevent disputes, ensuring your company operates smoothly as it grows.

How Do I Get A Company Constitution?

If you don’t yet have a Constitution – don’t stress!

When you register your company, most incorporation providers include a standard Constitution. In many cases, this document aligns with the replaceable rules outlined by ASIC.

These rules are “replaceable” – if they don’t suit your company’s specific needs, you can substitute them with a bespoke Constitution. For personalised advice on setting up your legal framework, consider consulting with a lawyer from our expert team at Sprintlaw.

What’s Usually Included In A Constitution?

A typical Constitution in 2025 covers the following aspects:

Powers and duties of directors
Rules for issuing and transferring shares
Procedures for holding annual and special meetings
Voting mechanisms and decision-making processes
Guidelines for entering into contracts and handling disputes

If you’re curious about the details, the replaceable rules provide a useful benchmark for what to expect.

This overview is similar – yet distinct – from what you would include in a Shareholders Agreement.

Shareholders Agreements

Why Should I Have A Shareholders Agreement?

Whenever you have two or more shareholders, a Shareholders Agreement is crucial to protect everyone’s rights and clearly outline how control of the company is shared. In today’s investment landscape, establishing clear guidelines early on can save you from costly disputes later.

This document details how decision-making powers are divided among shareholders and directors. Even if the current relationship seems straightforward, circumstances such as new investments or changes in ownership can complicate matters down the line.

Having a Shareholders Agreement in place sets out pre-agreed rules and processes, reassuring potential investors and ensuring that all parties understand what they’re signing up for.

What’s Usually Included In A Shareholders Agreement?

A Shareholders Agreement specifically defines the relationships and obligations among shareholders, the company, and its directors. Key components typically include:

Rules for selling and issuing shares
Procedures for appointing and removing directors
Requirements for approving major business decisions
First rights of refusal and pre-emptive rights

These details need to be tailored to the specific requirements of your company. For further guidance on setting up your legal documents for 2025, check out our article on Legal Requirements for Starting a Business.

A well-drafted Shareholders Agreement can also enhance your company’s attractiveness to potential investors by providing clarity and reducing future uncertainties.

Could I Change A Constitution or Shareholders Agreement Later On? How?

In short, yes.

As your business evolves and the legal landscape updates in 2025, you may need to amend your Constitution or Shareholders Agreement. For example, adapting to a new company structure or complying with recent changes to the Corporations Act might necessitate updating your documents. Changing a Constitution generally requires a special resolution – at least 75% of shareholders must agree to the change. Similarly, if a new shareholder comes on board, you might update the Shareholders Agreement via a Deed of Amendment or a Deed of Accession. For further guidance on updating your company documents to meet current requirements, consult our How to Change Your Business Structure article.

Moreover, many companies in 2025 are integrating digital processes for convening board meetings and recording resolutions. Updating your Constitution to reflect these modern practices can enhance clarity and operational flexibility, ensuring your company remains compliant with current legal standards.

What To Take Away…

In summary, while Company Constitutions and Shareholders Agreements are similar in purpose – both designed to guide company governance – they serve distinct roles. A Constitution provides the general framework for running your company, whereas a Shareholders Agreement addresses the specific relationships and rights of the shareholders.

Depending on your company’s size, structure, and unique needs, you might use the replaceable rules or a template Constitution as a starting point, customising only those matters that require tailored rules in a Shareholders Agreement.

Ultimately, the decision on how to structure these documents depends on your business’s particulars, and consulting a knowledgeable lawyer can help you determine the best approach for ongoing success.

Talk to a Lawyer

If you’d like to discuss whether you need a Company Constitution, a Shareholders Agreement, or both, our friendly team of expert lawyers is here to help. We draft these legal documents every day and stay up-to-date with the latest changes in Australian law for 2025.

You can reach us on 1800 730 617 or team@sprintlaw.com.au.

There may be other documents you need – such as Terms and Conditions for your business and Employment Contracts. For more detailed advice, visit our Business Legals 101 Guide or simply get in touch with us directly!

Regie Anne Gardoce

Regie is the Legal Transformation Lead at Sprintlaw, with a law degree from UNSW. Regie has previous experience working across law firms and tech startups, and has brought these passions together in her work at Sprintlaw.

Tomoyuki Hachigo

Tomo is the co-founder of Sprintlaw and a commercial lawyer with a broad range of legal experience. Before starting Sprintlaw, he was an M&A lawyer at a top-tier law firm advising businesses of all sizes from large corporates to startups.