Chapter 5 - The Constitution Of The Company Flashcards
(33 cards)
What is meant by a company’s ‘objects’?
The purpose for which the company was formed (e.g. to operate a railway).
What is meant by “ultra vires the capacity of the company”?
A company acting outside its capacities. This is now only applicable to charities.
What is the capacity of a non-charitable registered company?
S 39 CA: “The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution.”
Are all companies required to have objects?
Companies registered since the 2006 need not have objects, unless specifically restricted within the Articles. (s 31)
What is the impact of the CA2006 on the objects clause of a pre-2006 company?
A pre-2006 objects clause is now deemed to be a provision of the Articles.
What are the consequences of a company acting outside its objects clause today?
A member can apply for an injunction to prevent a company from acting outside its constitution.
What is the content of a new-style Memorandum of Association?
A statement that:
- the subscribers wish to forma company under the Act
- they agree to become a member and take at least one share each (s 8 CA).
What role is played by the articles of association of a registered company?
The Articles state the internal rules of the company, including allocating powers to and between the directors and members.
How many sets of model articles exist?
3:
- private limited by shares
- private limited by guarantee
- public
Outline the key matters addressed by the model articles for public companies.
3 main sections:
- directors (powers, duties, appointments, insurance)
- members (decision making, rights)
- shares and distributions (issue of shares, transfer, dividends)
Identify two statutory rights that cannot be overridden by provision to the contrary in the Articles of Association of a registered company.
1) Excluding a statutory right (e.g. the right to petition for a winding up)
2) The power to amend the articles
What were the facts in Re Peveril Gold Mines Ltd?
A provision of the articles limited the statutory right of members to petition the court for a winding up. Held: The article was void.
What were the facts in Bushell v Faith?
An articles provided that a director being removed gained three votes per share. The other directors petitioned that this prevented that director from ever being removed. Held: the article was fair.
Between which parties does a s 33 statutory contract operate?
The company’s constitution forma a contract between the company and its members, and between the members themselves.
Identify 6 characteristics of a s33 statutory contract that distinguish it from a typical contract.
1 amendment of a contract usually requires agreement by all parties, but articles can be amended by special resolution
2 a contract usually binds only those who agree to it, but the articles bind new members who were not involved in the drafting
3 the Articles cannot be challenged on the grounds of mistake, misrepresentation or undue influence
4 the court may not rectify the Articles, even if they do not reflect the intention of the members on incorporation.
5 the articles are exempt from the Contract Act 1999, so a third pay cannot enforce a provision under the Articles
6 The articles are not subject to s2-3 of the Unfair Contract Terms Act 1977
What is an outsider right, for the purposes of enforcing a provision of a company’s Articles?
An outsider right is one attached to a person other than a member (e.g. the right to be company solicitor).
Can a member sue to enforce outsider rights set out in the Articles? What are the relevant cases?
The position from case law is currently unclear. Salmon v Quinn & Axtens Ltd appears to support outsider rights, while Beattie v E & F Beattie Ltd does not.
What were the facts in Beattie v E & F Beattie Ltd.
Beattie v E & F Beattie Ltd. Beattie was a member and director, and tried to use an arbitration clause in the articles to prevent court proceedings against him for breach of directors’ duties, stating that the matter needed to be resolved by arbitration. Held: he could not enforce rights to arbitration, even though he was a member, because this was not a dispute with him as a member, but as a director (outsider).
What were the facts in Beattie v E & F Beattie Ltd.
Beattie v E & F Beattie Ltd. Beattie was a member and director, and tried to use an arbitration clause in the articles to prevent court proceedings against him for breach of directors’ duties, stating that the matter needed to be resolved by arbitration. Held: he could not enforce rights to arbitration, even though he was a member, because this was not a dispute with him as a member, but as a director (outsider).
What were the facts in Salmon v Quinn & Axtens Ltd?
Salmon was a major shareholder and general manager of a company. The articles stated that Salmon had a veto on decisions. The company ignored his veto and secured an ordinary resolution to carry out the vetoed action. Held: Salmon was able to secure an injunction despite acting as an outsider (manager).
How may a company amend its articles?
S.21 CA: by special resolution, which must be delivered to the registrar along with the new articles.
Is a member bound by an amendment to the articles requiring them to take more shares or increases his or her liability?
A member is not bound by an amendment requiring him to take more shares or increase his liability (s25 CA).
How may a registered company intrench provisions of its articles?
S 22 CA: a company’s articles may contain a provision for entrenchment, but this entrenchment may only be made on incorporation, or by unanimous consent by the members.
An entrenchment provision must be drawn to the attention of the registrar.
What restrictions on the power of amendment of the articles were laid down in Allen v Gold reefs of West Africa?
The only member with fully-paid shares in the company died owing £6,000 to the company, but the articles prevented debt collection by those with fully-paid shares. The company amended the articles to allow this debt to be collected. The member’s beneficiary argued that this was unfair to the member.
Held: The amendment to the articles must be bona fide for the benefit of the company as a whole (and was).
