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meh > 4 - Legally binding the company > Flashcards

4 - Legally binding the company Flashcards

1
Q

3 ways by which company can enter contract

A
  • Affixing its common seal to a document
  • By a person who has authority to contract on company’s behalf
  • By complying with rules in S.44(2)
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2
Q

What decides who may use a common seal, and how it is used?

A

The company’s articles

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3
Q

What do model article say on use of common seal?

A

Can only be used with directors’ authority, and the document to which it is affixed should also be signed by an authorised person

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4
Q

Though it is not still a legal requirement, which companies may retain common seal?

A

Those that trade internationally, due to requirements in other countries

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5
Q

When is a document validly executed by a company? (2)

A
  • Signed by two authorised signatories
    or
  • Singed by a director in the presence of a witness
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6
Q

Who are automatically authorised signatories?

A

Directors and CoSec

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7
Q

What makes up company’s constitution?

A
  • Articles
  • Resolutions and agreements affecting constitution
  • Memorandum (technically not but it used to)
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8
Q

What does post-CA2006 memorandum state?

A

Subscribers wish to form company, agree to become members, and agree to take at least one share each

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9
Q

Example of statutory rule which can be excluded or modified by articles

A

Pre-emption rights

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10
Q

3 areas which articles establish rules and procedures on

A
  • Directors (powers, responsibilities, appointment, removal)
  • Meetings (board and members)
  • Capital (allotments, dividends, borrowing powers)
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11
Q

3 sets of model articles

A
  • Private limited by shares
  • Private limited by guarantee
  • Public companies
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12
Q

4 choices for promoter of private limited by shares co - articles

A
  • Model articles in full
  • Own articles, adopting all terms of model articles
  • Own articles, adopting some of model articles and modifying or excluding others
  • Own articles, completely excluding model articles
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13
Q

To what degree can and cannot courts interpret articles?

A

They can imply terms into the articles, but they cannot add words to make them fairer or more reasonable

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14
Q

What is the confusion regarding implying terms into the articles?

A

Disagreement between courts on whether terms can be implied on reasonableness, or only on necessity

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15
Q

How are articles amended?

A

By special resolution (or in limited cases, if ordered to do so by the courts)

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16
Q

2 notable limitations on amending articles

A
  • Restricted by statute
  • Restrictions imposed by court
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17
Q

Example on restriction to amend articles by statute

A

Requirement of higher majority or even unanimity

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18
Q

4 limitations/consequences imposed by court on alteration of articles

A
  • Amendment is invalid if it deprives member of right that already occurred
  • Invalid if not for the benefit of the company as a whole
  • Company cannot contract out of ability to alter its articles
  • Liable for breach of contract if amendment to articles breach separate contract
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19
Q

The constitution of a company is a contract between who?

A
  • The company and its members
    and
  • The members themselves
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20
Q

What is the S.33 contract?

A

The constitution

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21
Q

3 consequences of S.33 contract forming contract between company and its members, and members themselves (breaches of contract)

A
  • Company can sue a member if member breaches
  • Member can sue the company if company breaches
  • Member can sue another member for breach
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22
Q

2 limits on ability of company and its members to enforce constitution

A
  • Outsiders and outsider rights
  • Internal irregularities
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23
Q

Outsiders and outsider rights - limits re. articles

A

Outsiders cannot enforce constitution (by making claim), nor can a member do so on behalf of an outsider
There is an exception

24
Q

When can constitution be enforced by outsider?

A

If separate agreement outside of constitution allows for such enforcement

25
Q

Internal irregularities - limits re. litigation

A

Result of ‘principle majority’ rule - prevents one individual from frustrating wishes of company as litigation cannot be brought on internal matters where a majority of shareholders could have prevented occurence

26
Q

Relationship between shareholders’ agreements and articles

A

Shareholders’ agreements do not form part of constitution but do supplement it

27
Q

What is a shareholders’ agreement?

A

An agreement entered into by two or more members, setting out certain rules regarding relationship of those members

28
Q

Shareholders agreements are typically only used by which companies

A

Those with a small amount of members

29
Q

3 advantages to placing certain rights in shareholders’ agreement, as opposed to articles

A
  • Confidential
  • All the terms of agreement bind all the parties to it - therefore avoiding inability to enforce outsider rights as in articles
  • All parties must agree to amendment rather than majority
30
Q

What is meant by a company’s contractual capacity?

A

A company’s ability to enter into contracts

31
Q

What is meant if a company is acting ‘ultra vires’?

A

It is exceeding its contractual capacity

32
Q

How can a company’s contractual capacity be limited or restricted?

A

By its constitution

33
Q

Which directors duty is breached if directors are acting ultra vires?

A

171(a)

34
Q

Historically, how was a company’s contractual capacity (and capacity more generally) restricted?

A

Through an objects clause in the memorandum

35
Q

2 key issues arising from ultra vires doctrine/objects clause

A
  • Restricted objects
  • Effects on innocent third parties (as contracts became void)
36
Q

How was ‘restricted objects’ issue with corporate capacity overcome?

A

CA 2006 - removing the need for an objects clause in the memorandum, meaning that a company’s objects become unrestricted

37
Q

How was ‘effects on innocent third parties’ issue with corporate capacity overcome?

A

CA 2006 - provided that a contract cannot be invalidated on grounds that is outside the scope of a company’s contractual capacity

38
Q

Has the ultra vires doctrine now been abolished? S.39(1)

A

From the view of third parties, yes

From the view of directors and members, no, as they can still be found to be in breach of duty and sued via a derivative claim

39
Q

Two principal types of authority

A
  • Actual authority
  • Apparent authority
40
Q

Define actual authority

A

A legal relationship between the principal and agent ascertained through applying ordinary principles in construction of contracts

41
Q

Two types of actual authority

A
  • Express actual authority
  • Implied actual authority
42
Q

Example of express actual authority

A

Model arts conferring authority upon an agent to engage in specified acts

43
Q

2 instances where agent may be found to have implied actual authority

A
  • Agent has implied actual authority to engage in activities incidental to another activity for which he has express actual authority
  • Being effectively appointed into role without formal appointment
44
Q

Define apparent authority

A

The authority of an agent as it appears to others

45
Q

3 requirements that need to be satisfied to establish an agent’s apparent authority & brief explanation of each

A
  • There must be a representation (ie. agent is presented as being in a certain position, eg. MD)
  • That representation must be relied upon (third party are aware of representation, and are not aware of lack of authority)
  • The person relying on the representation must alter their position (eg. entering into contract)
46
Q

Which S of CA2006 is re. enforcement of ultra vires contracts?

A

S.40

47
Q

Who/what is and isn’t protected by S.40?

A

The contract is (and therefore third parties are) protected

The directors are not

48
Q

2 considerations re. S.40

A
  • Third party must have acted in good faith
  • Third party not bound to enquire as to any limitation on powers of directors to bind company
49
Q

When is a third party considered to have acted in good faith re. S.40?

A

They are presumed to unless the contrary is proved

50
Q

When does S.40 rule become more complex?

A

When a director enters into a contract, on behalf of the company, with himself

51
Q

Transactions with whom will be voidable at the company’s instance, in spite of S.40?

A
  • A director of the company
  • Any person connected with a director

Director that authorised transaction is liable to account for any gain and to indemnify company

52
Q

Can S.40 rule apply to actions of one director, or must it be directors?

A

Probably directors but clarification needed

53
Q

What can third parties use if S.40 does not apply?

A

‘Indoor management’ rule

54
Q

What is the ‘indoor management’ rule?

A

Third parties that deal with company can assume company’s internal rules have been complied with

55
Q

2 key case laws to reference for share expropriation provisions

A

Dafen Tinplate Co Ltd v Llanelly Steel Co - where such a provision is overly wide, it is likely to be deemed to be invalid

Sidebottom v Kershaw Leese & Co Ltd - where a provision is more limited in scope, it may be deemed valid - provision empowered Board to purchase shares of any shareholder who competed with the company

56
Q

What is the most significant of the limitations imposed by the court on a company’s ability to amend its articles? Which case?

A

Allen v Gold Reefs of West Africa

The power to alter articles must be exercised not only lawfully, but also ‘bona fide for the benefit of the company as a whole’

Company means corporate entity.

57
Q

What is meant by bona fide?

‘bona fide for the benefit of the company as a whole’

A

If members honestly believed the amendment is for the benefit of the company as a whole

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