Articles of Association Flashcards
what are the articles
- rules and regulations for internal management of affairs that lay out how objects of memorandum will be carried out
- are subordinate in importance to and controlled by the memorandum and must not go beyond powers in memorandum
contents of articles
- share capital- incl transfer and forfeiture of shares
- lien e.g. of shares
- alteration of capital
- general meeting procedures
- board of directors
- winding up
- indemnity - assurance of reimbursing in case of loss
which companies must have their own articles
all private companies, whether limited or unlimited, and unlimited public companies
must be signed by subscribers to memorandum and registered alongside it
regulations for unlimited company in articles
1) number of registering members
2) if has share capital, the amount to be registered
regulations for limited by guarantee
state the number of members with which company is to be registered
regulations for private company limited by shares
1) restrictions on the right to transfer shares
2) limit number of members to 2 excluding employee members
3) prohibit invitation to the public to subcribe for shares/debentures
4)
Table F for a public company
automatically applies unless articles expressly exlcude any or all provisions of it
articles for other companies except those limited by shares
in the form of one of tables G, H, I, J
format and signature of articles
1) printed
2) divided into paragraphs
3) signed by each subscriber of memorandum with particulars
4) will be accepted if computer laser printed as long as legible
alteration of articles
- so important that company cannot deprive itself of thise power
- any clause in articles doing so is invalid
procedure:
- pass special resolution
- copy of every resolution altering articles must be filed with registrar within 15 days of it passing and attached to every copy of articles issues thereafter
- all alterations made are valid as if originally contained
- copy of tribunal approval and copy of altered articles must be filed with registrar within 15 days
rules regarding alteration of memorandum or articles to be noted in every copy
every alteration made shall be noted in every copy.
if any defult, company and every liable officer will be liable to penalty of 1k for every copy of memorandum or articles issued without alteration
limitations to alteration
- should not be inconsistent with companies act
- must not conflict with memorandum
- must not sanction anything illegal
- must benefit the company
- must not increase liability of members
- approval of tribual when public becomes private
- can still alter even if it would breach contract (but still liable to damages)
- must not result in expulsion of members
- tribunal has no power to amend
- may be with retrospective effect and is not void even if some members are disadvantaged
In Ireland Men Take Beer Recklessly
Inconsistent (CA and Mem); Illegal; Members (liability and expulsion); Tribunal (approval if private becomes public; no ammendment power); Breach; Retrospective effect
relation between articles and memorandum
- A subordinate to M - cannot confer powers beyond scope of M
- M to be read in conjunction with A to:
a) explain ambiguity in M
b) supplement M in any matter it is silent about
distinction between articles and memorandum
- definition
- supreme vs subordinate
- must have vs may not have if limited by shares
- alteration restrictions (some may not be altered without company law board sanction) vs no restrictions
- ultra vires - wholly void vs can be ratified if intra vired memorandum
Danny Stole My Amazing Unicorn
Definition+purpose; Supreme vs subordinate; Must have?; Alteration restrictions; Ultra Vires ratification
legal effect of memorandum and articles
when registered, they bind a company and its members to the same extent as if they had been signed by the company and each member:
- members to company - e.g. bound to meet liability in share capital/guarantee –> Borland’s Trustee v Steel Bros
- company to members wrt rights as members, e.g. receipt of dividend. Members can obtain injunction against company for rights exercised against them ultra vires M and A - Wood v Odessa Waterworks
- members inter se - contracts can be enforced through the company
- company to outsiders - is NOT binding between company and outsider. Outsider to contract cannot acquire any rights under it - Eley v Positive Govt Security Life Ass.
For example, if a shareholder believes another member has violated the company’s rules (like share transfer restrictions), the shareholder would raise the issue through the company, such as by calling a general meeting or requesting the board to take action, rather than suing the other member directly.
Borland’s Trustee v Steel Bros
- altered articles of a company provided that the shares of any member who became bankrupt should be sold to certain persons at a fair price.
- B, a shareholder, became bankrupt and his trustee in bankruptcy claimed that he was not bound by the altered Articles.
- Articles were a personal contract between B and the rest of the members, and B and his trustee were bound.
Eley v Positive Govt Security Life Ass.
- Articles provided that E should be the solicitor of the company for life and could be removed only for misconduct.
- E became a shareholder.
- After some time the company dismissed him without alleging misconduct. E sued the company for damages for breach of contract.
- E was a solicitor and not SH at the time of contract, held, the Articles did not constitute any contract between the company and outsider. Contract was void and could not claim damages
Wood v Odessa Waterworks
- Wood’s articles provided
that the directors may declare a dividend for members - A resolution was passed to give the shareholders debenture bonds
instead of dividend in cash. - Held, the words, “ to be paid” meant paid in cash, and a shareholder could restrain the company from acting on the resolution on the ground that it contravened the Articles.
constructive notice of memorandum and articles
outsiders are deemed to have knowledge of the contents of the Memorandum and Articles, as well as other documents like special resolutions registered with the Registrar, regardless of whether they have actually read them.
Once registered they become public documents and anyone can access and inspect them.
protects the company by ensuring that outsiders cannot claim ignorance of the company’s rules when entering into agreements
doctrine of indoor management
- limitation to the doctrine of constructive notice
- outsiders dealing with limited liability companies are expected to have read M and A to check for inconsistencies but not to inquire further into internal proceedings, and will not be affected by irregularities of which they had no notice.
- Memorandum and Articles are public, the details of internal proceedings are not
- protects outsiders against the company, ensuring that they are not held liable for internal irregularities of which they are unaware.
- ensures that companies cannot simply avoid their obligations by citing internal procedural failures unknown to outsiders
CASE: Royal British Bank v. Turquand
Royal British Bank v Turquand
- directors of a company issued a bond to T.
- According to the company’s Articles, they could only issue this bond if the shareholders approved it in a meeting but the necessary approval was never given.
- T could still claim the bond amount from the company because he had the right to assume that the approval had been granted.
exceptions to doctrine of indoor management
outsiders cannot claim protection under this doctrine when:
- Knowledge of Irregularity: actual or constructive notice of internal irregularities - Pratt v. Sassoon: a lender was aware of procedural irregularities, so the mortgage was not binding.
- Negligence: could have discovered irregularities through proper inquiries - Bihari Lal v Dinshaw: property transfer by an accountant was void because the plaintiff should have checked the accountant’s authority.
- Forgery of documents - Ruben v Fingall - forged share certificate was not binding on the company.
- Acts Outside Authority of officer: company is not bound by that contract - Kreditbank Cassel v. Schenkers Ltd: a branch manager’s unauthorized endorsing of bills did not bind the company.
