WHAT IS A COMPANY CONSTITUTION?

1.         Definition and purpose

A company constitution is a legally binding document that sets out the guidelines and regulations that control how a company is managed and operates internally. These are considered articles within the constitution.

It usually includes provisions regarding the company’s objectives, structure, decision making procedures, rights and obligations of shareholders, directors and officers as other significant aspects of the company’s governance.

The constitution plays a role, in establishing the framework for the company’s operations. Offers direction, for resolving conflicts and making important business choices.

2.         Key elements and components

The key elements of a company constitution include but are not limited to;

2.1.     The name of the company

2.2.     The type of company

2.3.     The issue, purchase and transfer of shares

2.4.     Procedures for how stakeholder meetings will be carried out

2.5.     Director’s powers and duties

3.         Legal requirements and implications^[1]

The Companies Act was amended to take effect on February 25, 2022, making it a requirement that every company have a constitution. This constitution must be filed with CIPA within a year of the revised date, or by February 24, 2023. The amendment to the Companies Act stated, “a company, including a close company, shall have a constitution within one year of the date this section commences.”

The Companies Act^[2] states that “If a company other than a close company has a constitution, the company, the Board, each director, and each shareholder of the company shall have the rights, powers, duties, and obligations set out in this Act except to the extent that they are negated or modified, in accordance with this Act, by the constitution of the company.”

This means that whatever provisions are found in the company’s constitution will be enforceable in the company. As a result, a company constitution provides something to refer to in order to regulate and control the company. Additionally, it sets out the roles and powers within the company.

4.         Why Do You Need a Company Constitution?

There are various reasons as to why it is beneficial for a company to have a company constitution;

4.1.     If a company does not have its own company constitution by default it’s day to day proceedings and company hierarchy will be determined by the Botswana Companies Act. However, with its own constitution, a company set out its own hierarchies, proceedings and how the company is regulated.

4.2.     Ensures proper governance and decision-making within the company. With rules determined in the constitution, directors will have clarity on their various obligations to the company.

4.3.     Establishes the rights of shareholders and how shares will be sold, transferred and issue.

4.4.     Providing clarity and guidance for the company’s operations. This would include how general meetings; shareholder meetings and various proceedings are caried out within the company.

4.5.     Enhances transparency and accountability of management to the company and how they deal with various areas the company.

4.6.     Facilitates dispute resolution and conflict management that may arise within the company.

^[1] New mandatory company constitutions law: The tax implications, Mmegi (2022)

^[2] Companies Act (Cap 42:01)

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