Company constitutions: articles of association

Question 1

As a lawyer, when dealing with articles of association what are the 4 things you will need to accomplish?

Answer 1

1. evaluate the suitability of precedent articles to be used as its AoA
2. assess whether the AoA are consistent/compatible with the CA 2006
   2b. assess whether amendments make business sense
3. if AoA are not consistent, or need to be changed, need to apply the procedure for amending articles
4. use written resolutions to implement such a procedure

Question 2

Explain why a Company’s objects clause would be restricted?

Answer 2

All companies incorporated under the 1985 Act had an objects clause in their MoA, which restricted their objects.

Question 3

If a company’s objects clause was previously restricted in its MoA, can it include a new provision in its new AoA that will make its objects clause unrestricted under CA 2006?

Answer 3

CA 2006 s28(1) states that a companyʼs old memorandum of association is to be treated as its articles of association.

However, because s21(1) CA 2006 allows a company to amend its articles at any time, changing the objects clause from restricted to unrestricted in the companyʼs new articles is permitted.

Question 4

Is there anything in the CA 2006 which requires shareholder approval for a specific amount of spending by directors?

Answer 4

No

Question 5

To what extent can a company amend its MoA or AoA and how would a company know that a proposed change is compatible with the CA 2006.

Answer 5

If the CA 2006 is silent on a matter relating to a proposed change, then there will be no compatibility issues.

Question 6

If a company was to implement a provision in its AoA, allowing the directors to change the name of the company from time to time under s77 CA 2006, would this be compatible?

Answer 6

This is permitted under s77(1)(b) CA 2006.

Question 7

If a company was to implement a provision in its AoA, allowing the directors to change the name of the company to whatever they wanted, from time to time under s77 CA 2006, would this be compatible?

Answer 7

If the entry stated that the directors could change the name to whatever they wanted, this would be incompatible because of the limiting effects of ss 54 and 55 CA 2006 concerning things like sensitive names, etc.

Question 8

If a company wanted to insert a provision in its AoA to allow the directors to amend the articles, would this be compatible with the CA 2006?

Answer 8

This is not permitted and would be incompatible because s21(1) CA 2006 requires that a special resolution be passed to amend the articles.

Question 9

If a company wanted to insert a provision in its AoA providing that no director shall be removed from office except by unanimous decision of shareholders in a general meeting, would this be compatible?

Answer 9

s168(1) CA 2006 states that a company can remove director by ordinary resolution (i.e. requiring a bare majority).

Therefore, this provision is not permitted because it provides for a higher threshold.

Note that a Bushell v Faith clause may in practice be included in the articles to get around this (see SGS 7 notes below).

Question 10

What if a company wanted to implement a provision outlining a specific quorum for board meetings? Would this be compatible with the CA 2006?

Answer 10

CA 2006 is silent on quorum for board meetings, therefore this is permitted.

Question 11

What if a company wanted to implement a provision outlining a specific quorum for a general meeting? Would this be compatible with the CA 2006?

Answer 11

In a case of a company with more than one member, s318(2) CA 2006 requires a quorum of two members to be present.

However, this is subject to the articles (ie articles may require a different number) - therefore for a company with more than one member, this kind of provision would be permitted.

In the case of a single-member company, s318(1) sets the quorum at 1 without qualification, therefore this provision would not be permitted for a company with only one member.

Question 12

If a company wanted to implement a provision providing that the chairman shall not have a casting vote in a decision taken by the directors in their AoA, would this be compatible?

Answer 12

CA 2006 silent on this point, therefore it is permitted.

Question 13

If a company wanted to implement a provision to allow its directors to change its AoA, would this be compatible with the CA 2006?

Answer 13

s21(1) CA 2006 prescribes a special resolution to AoA. This power is reserved for SH and requires a resolution of the SH and not directors. The prescription is unqualified and therefore this provision is incompatible with CA 2006.

Question 14

If a company wanted to implement a provision to prevent the use of written resolutions in its AoA, would this be compatible with the CA 2006?

Answer 14

S.300 CA 2006 states that any article preventing the use of written resolutions is void. Therefore it is incompatible.

Question 15

If a company wanted to implement a provision to to allow for pre-emption rights on a transfer of shares in AoA, would this be incompatible with the CA2006?

Answer 15

The CA 2006 does not contain any preemption rights on a transfer of shares so there is no issue with compatibility here.

Question 16

Imagine you were asked by the client to implement some changes to AoA, which you had noted at a meeting with them. How would you go about drafting a summary procedure plan to give effect to the amendments they want to make to their AoA?

Answer 16

1. examine the instructions given by client and each of the changes they want to make.
2. examine whether the changes are compatible with the CA 2006
3. identify the procedural requirements (ie. what type of meeting is required to give effect to each change that needs to be made)
4. identify which forms are needed
5. then arrange the actions you have identified in chronological order.
6. Use the NQAV format

Question 17

What section deals with written resolutions?

Answer 17

Under 288(3)(a) CA 2006 directors have the power to propose a written resolution.

Question 18

What are the key features to be included in a form of a written resolution?

Answer 18

1. must state it is a “written resolution of [co.name]”
2. if it involves the amendment of articles it should state it is a special resolution
3. must state how shareholder can indicate agreement (ie by which means)
4. a note should be included that under s296(3) CA 2006, once an agreement is made, it cannot be revoked.
5. should also include a lapse date s279 CA 2006, which is specified in articles, but if not, then it will lapse in 28days
6. should note that in the case of joint holders of shares, only the vote of senior holder will be counted

Question 19

http://www.cram.com/flashcards/converting-a-shelf-company-procedure-plan-7825999

Answer 19

converting a shelf company procedure

Question 20

If MA are unamended who has the casting vote to break a tie?

Answer 20

MA 13

(1) The chairman will have a casting vote in the event of a tie.
(2) however, chairman will not have casting vote if articles state otherwise.