6. Company Constitution

Question 1

Possible requirements of CA 06 (re: articles)

Answer 1

1. CA silent - company can do what it wants
2. CA gives complete freedom in statute - company can do what it wants
3. CA prohibits variation - must follow section
4. CA is not silent and in the provision, no qualifications permitted - must follow
5. CA allows for qualifications (max and min) - follow but make sure compling

Question 2

removing objects clauses

Answer 2

s. 28 - provisions of memorandum transfers to articles (incl. objects clause)
s. 21 - company can amend its articles at any time

SO ARTICLES CAN REMOVE OBJECTS CLAUSE (also compatible with s.31)

Question 3

notice period to call BM

Answer 3

CA silent so no issues with compatibility (alter MA 9)

Question 4

Removing casting vote of the chairperson

Answer 4

CA silent so no issues with compatibility (alter MA 13)

Question 5

Requiring SH approval where the board collectively spends a certain amount of money (e.g. £100,000)

Answer 5

CA silent so no issues with compatibility (alter MA 3)

Question 6

Requiring BR to approve of a director spending a certain amount of money (e.g. £10,000)

Answer 6

CA silent so no issues with compatibility (alter MA 5(1))

Question 7

Allow BR for name change

Answer 7

S.77(1)(b) - SH approval OR by any means provided for in articles

SO CAN PUT THIS IN ARTICLES - BUT MOST FOLLOW S.79

Question 8

Allow directors to amend articles

Answer 8

NOT ALLOWED - s.21 requires SR and does not include provision to change this in articles

Question 9

Unanimity from SH to remove a director

Answer 9

s.168(1) - must be by OR (no qualification)

CANNOT PUT THIS IN ARTICLES (even though more onerous)

• could put this in shareholders’ agreement

Question 10

Quorum for GM fixed to number of SH that the company has

Answer 10

YES - if company has more than 1 member (s.318(2))

NO - if company has 1 member (s.318(1))

Question 11

Prevent the use of WR by SH (by saying all resolutions must be passed at GM)

Answer 11

NOT ALLOWED - S.300

Question 12

preventing casting vote - commercially viable?

POSITIVES

Answer 12

if even amount of directors:

Directors more motivated to DEBATE + find CREATIVE ways of resolving differences in opinion

Question 13

preventing casting vote - commercially viable?

DRAWBACKS

Answer 13

• Deadlock (if even amount, or risk if odd amount if one abstains)
• Means 1 director can always decide everything (if 2 directors) - means decision making not debate, other director just a sounding board

Question 14

preventing casting vote - commercially viable?

RESOLVING DRAWBACKS

Answer 14

• Deadlock can be resolved by referring to SH level for resolution

(not useful if SH and director = same people, so deadlock at director level = no solution!)

Question 15

Provision preventing the board collectively spending X amount without SH approval - commercially viable?

• POSITIVES

Answer 15

If SH is the parent company

parent company will want to be consulted on and approve of large expenditure

Question 16

Provision preventing the board collectively spending X amount without SH approval - commercially viable?

• DRAWBACKS

Answer 16

• EXTRA procedure (esp. if directors and SH same people)
• FREEZES SPENDING LIMIT (amount set could be too low due to growth of company, in future, transactions at that value might be more frequent - repeat of same procedure)

Question 17

Provision preventing the board collectively spending X amount without SH approval - commercially viable?

• SOLUTION TO DRAWBACK

Answer 17

Include it in SH agreement instead

= private

(BUT CUMBERSOME TO REVISE - req. unanimous approval)

Question 18

Provision preventing individual directors spending more than X amount without BR - commercially viable?

• POSITIVES

Answer 18

Prevents directors going off on spending sprees

Helps collectively control spending by each director individually

Question 19

Provision preventing individual directors spending more than X amount without BR - commercially viable?

• DRAWBACKS

Answer 19

If the company is a subsidiary, then parent company would want SH approval rather than just BR

Delegation to different directors for them to do jobs in each of their expertise is defeated

Freezes spending limit

Question 20

Provision preventing individual directors spending more than X amount without BR - commercially viable?

• RESOLIVING DRAWBACKS

Answer 20

BR TO THIS EFFECT INSTEAD

• informal
• can be amended upwards easily (resolves freezing spending limit) in a more procedurally straight forward way

Question 21

MA 14

Answer 21

where a director is interested in the transaction, the director cannot vote or count in the quorum for the BM (personal interest = conflict)

= problem if 2 directors only (won’t be quorate BM)

Question 22

SOLUTION TO MA 14

Answer 22

MA 14(3) - 3 options

1. OR to disapply provision (one-off, so must be repeated every time conflict, but unambiguous)
2. not likely to be conflict of interest
3. permitted cause

OR

SR TO REMOVE MA 14(1) APPLICABILITY

• permanent solution
• compatible with CA 06 (s.175 doesn’t apply when MA 14 applies, s.175(3), AND s.177 doesn’t prevent director voting or counting in quorum)

Question 23

WRITTEN RESOLUTION

BM1 - BRs to pass

Answer 23

1. propose WR to do X (s.288(3)a)
2. approve form of WR including:
   - must be accompanied by instructions to SH as to how to vote (s.291(4)a, s.296)
   - must identify lapse date (s.291(4)b, s.297)
   - must be designated as SR if SR (s.283(3)a)
3. Direct CS to send/submit resolution to each member (s.291(2)) and a copy to auditor (s.502(1))

Question 24

WRITTEN RESOLUTION

whilst meeting is adjourned

Answer 24

do X using WR procedure

Corp rep can sign on behalf of SH

signing resolution indicates agreement

WR passed when required majority of members signify their agreement to it (s.283(2)) - specify the majority required

Question 25

WRITTEN RESOLUTION

BM1 (reconvened) - generic

Answer 25

notice/who calls: notice requirement already satisifed, this is just reconvening BM1 so this is the same board meeting

quorum: must still be quorate

Question 26

WRITTEN RESOLUTION

BM1 (reconvened) - BRs

Answer 26

Chairman reports SR has been passed to do X

BR:
- direct CS to deal with PMM