4 - Legally Binding The Company Flashcards
What are the three ways in which a company can enter into a contract?
In accordance with ss. 43 and 44 CA2006, there are three ways in which a company can enter into a contract:
- By affixing its common seal to a document;
- By a person who has authority (express or implied) to contract on behalf of the company; and
- By complying with the rules in ss. 44(2)-(8).
What is a ‘common seal’ and is a company required to have one?
It is a stamp that can be used to ‘sign’ or execute a document by embossing the company’s name onto the document in question. Companies are not required to have a common seal, and most do not.
Who is an authorised signatory for the purpose of executing a document on behalf of the company?
Every director of the company is an authorised signatory, as is the company secretary (if the company has one).
What forms part of a company’s constitution?
S. 17 of CA2006 provides that a company’s constitution will include:
- the company’s articles; and
- resolutions and agreements affecting the company’s constitution, which are listed in s. 29(1).
Is a company required to register a set of articles when it is incorporated?
A company is not required to register its own set of articles when it submits its application for incorporation.
How can the articles be amended?
A company may amend its articles either by
(i) passing a special resolution (CA2006, s. 21(1)); or
(ii) if all of the members so agree (Cane v Jones [1980]).
What does s. 33(1) of CA2006 state?
‘The provisions of a company’s constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe these provisions.’
The constitution of a company forms a contract (often known as a ‘statutory contract’) that imposes obligations on:
- the company when dealing with its members;
- the members when dealing with the company; and
- the members when dealing with each other.
Can all the terms of the constitution be enforced by the company or a member?
No, members cannot sue to enforce outsider rights (rights granted to them in their capacity other than as a member).
What is the objects clause and are companies required to have such a clause in their constitution?
An objects clause is a clause in the company’s articles which states the objects or purposes for which the company was set up. Companies incorporated under CA2006 are not required to have an objects clause in their articles but may do so if they wish.
What does s. 39(1) of CA2006 state?
‘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’.
Accordingly, a contract entered into by a company cannot be invalidated on the ground that the contract is outside the scope of the scope of the company’s contractual capacity.
What is a relationship of agency?
A relationship of agency arises where one person (the principal) appoints another (the agent) to engage in or act on behalf of the principal. This act is usually to bring about a contract between the principal and a third party.
What is actual authority?
In ‘FREEMAN + LOCKYER v BUCKHURST PARK PROPERTIES (MANGAL) LTD [1964]’, Diplock LJ defined actual authority as:
‘A legal relationship between the principal and agent created by a consensual agreement to which they alone are parties. Its scope is to be ascertained by applying ordinary principles of construction of contracts, including any proper implications from the express words used, the usages of the trade, or the course of business between the parties.’
How does express actual authority differ from implied actual authority?
Express actual authority refers to authority that has been expressly conferred upon the agent (for example, by the articles). Implied actual authority is authority that has been conferred upon the agent as a result of the conduct of the parties (such as by appointing the agent to a particular position) or the relationship between them.
When will an agent have apparent authority?
In order to establish that an agent has apparent authority, three requirements will need to be satisfied, namely:
- there must be a representation;
- this representation must be relied on; and
- the person relying on the representation must alter their position in reliance on that representation.
What does s. 40(1) of CA2006 state?
Section 40(1) provides that ‘in favour of a person dealing with a company in good faith, the power of the directors to bind the company, or authorise others to do so, is deemed to be free of any limitation under the company’s constitution’.
