Corporate constitution

Question 1

Registration of a company

Answer 1

company does not gain existence as legal personality until has been duly incorporated through process of registration by S.9

needs one or more subscribers = S.7

Question 2

Certificate of incorporation (what constitutes incorp & case of when will not be incorporated - personal services)

Answer 2

S.15(2) outlines what certificate should state once incorporation requirements have been met.

R v Registrar of Companies Ex Parte G; a company created for personal services was quashed by court.

Question 3

Jubilee cotton mills v lewis

Answer 3

a company comes into existence on date of certificate even if registrar signed at later date - case concerned a certificate that was considered conclusive despite any irregularities to registration being subsequently discovered

Question 4

Trading certificates for public companies (extra certificate required for PLC)

Answer 4

A public company formed also requires the issue of a trading certificate pursuant to S.761-767 - PLC may not do business or exercise any borrowing powers without trading certificate.

Question 5

changing corporate name

Answer 5

S.77 company can change its name at any time by special resolution; usually requiring majority of 75%

resolution must be sent to registrar of companies with the appropriate form; S.77-81

if new name acceptable & formalities correct the registrar will issue a “certificate of incorporation on change of name”

Question 6

Oshkosh B’Gosh v Dan Marbel (effect of name change)

Answer 6

a company remains same legal person when its registered name is changed and continues to have same legal rights and obligations as it did under original name - contract made in name it was going to acquire but had not yet; intention to contract with company already form so no pre-corp contract

Question 7

F.Goldsmith v Baxter (effect of name change)

Answer 7

company does not have to use their registered name for all purposes and can use an abbreviated version or different name for trading purposes - memorandum of agreement name company wrong, but held still valid (court looking at circumstances i.e. no other company by misspelled name)

Question 8

OTV Birwelco (effect of name change)

Answer 8

purchaser of business may change its name to that of the vendors or use vendors name in trading to retain good will.

Question 9

Company constitution set up

Answer 9

consists of two parts under S.15:

memorandum of association: become much simpler and only covers matters specified in S.8

Articles of association: governed the internal affairs of the company inc arrangements for its management (voting, quorum etc)

companies no longer required to have objects clause that stated purpose and range of activities for which company is carried on. - still has one in essence but is treated as a provision of its articles (S.28) if it is not a matter covered in S.8

S.17 provides that company’s constitution includes not only it’s articles but also any resolutions and agreement which affect the constitution.

Question 10

Shareholders resolutions & requirements

Answer 10

shareholders of a PUBLIC company have to pass a resolution at a duly convened meeting:

ordinary resolution: S.281 - usually used for things such as appointing/removing directors
Special resolution: S.283 - 75% at meeting - usually used for changing articles of constitution/change name of company etc.

Shareholders of a PRIVATE company can pass a resolution at a duly convened meeting or through a written resolution in accordance with provisions set out in S.288 -300.

circulating a written resolution for necessary approval can be done by directors and shareholders if they hold at least 5% voting rights (or lower if specified in articles) S.292

Question 11

Shareholders voting rights and variations (Cases)

Answer 11

general rule: every shareholder has one vote per share, but is subject to any provision in company’s articles specifying voting rights (S.284)

Pender v Lushington: A company member’s right to vote cannot be interfered with because it is a personal right of a member to sue in his own name the right to enforce his voting rights - case wrongfully refused to recognize votes of nominee who director had given voting share rights to.

Bushell v Faith: voting rights can be increased in certain circumstances = property company owned block of flats = £300 capital; 100 shares to Mr Bushell and 200 to sisters. Articles stated under a resolution to remove a director, the director should carry weighted votes (3 votes per share) - sisters tried to remove faith but unsuccessful (F = 300 votes; S = 200)

Question 12

Shareholder meetings (requirements)

Answer 12

private companies: no longer required to hold annual general meeting

public company: still required to in accordance with S.336 - 340

power to convene meeting usually invested in directors but shareholders have right to convene if have 5% paid up voting shares (S.303)

Question 13

Shareholders statutory powers

Answer 13

S.168: power to remove/appoint director of company by ordinary resolution in accordance with prescribed procedure - public company: each director must be appointed separately (S.160)

S.21: power to alter company’s constitution by special resolution, power subject to special rules applying to entrenched provisions and provisions conferring special right on a class of shareholders.

company’s constitution cannot override shareholder’s statutory powers and company itself cannot contract out any of them.

Question 14

entrenching provisions in a company’s constitution

Answer 14

expressly drafter provision so as to require a greater majority or stricter procedure to alter/remove it. - S.22 states provisions of articles can be entrenched through specifying that they can only be altered/removed subject to special conditions/in accordance with a special procedure (cannot be altered by special resolution)

provisions entrenched in memorandum before CA 2006

Question 15

Class rights + entrenched provision

Answer 15

shareholder can enjoy entrenched protection if their shares constitute a “separate” class in accordance with S.629 - procedure governing class rights set out in S.630 - 634

Question 16

Reasons why shares may be divided into different classes

Answer 16

1) to confer different financial rights
2) common technique for protecting participants in joint venture companies
3) greater protection for minority shareholders
4) gives certain shareholders greater control over composition of company’s management in spite of small size of their share holding

Question 17

Cumbrian Newspapers v Cumberland Herald (rights can be attached to shareholders not shares in exceptional circumstances)

Answer 17

1) rights annexed to shares
2) rights for particular people under constitution
3) rights attached to particular shares but conferring benefit on group - case meets requirement here because did not have rights on particular shares but conferred to him in capacity of a shareholding member)

Question 18

Altering articles by special resolution - S.21 (no less than 75% S.283) COMMON LAW CASE

Answer 18

Allen v Gold Reefs; power to alter articles must be exercised bona fide for benefit of company as a whole (subjective test)

case offered little scope/meaning of test = RIXON criticised it as “almost meaningless” when adjusting shareholder’s conflicting interests

Question 19

Test still unclear despite interpretation of it in Shuttleworth v Cox Bros

Answer 19

company’s articles provided that plaintiff and 4 other directors would hold office unless disqualified on grounds in article. a further disqualification added that director could be disqualified/asked to resign if requested in writing by all co-directors - plaintiff asked to resign and unsuccessfully challenged validity of alteration - HELD; for shareholders to decide whether alteration was for benefit of company provided it not such a character that no reasonable man would regard it.

so objective and subjective test now: reasonable man + benefit of company as a whole.

Question 20

Citco Bank v Pussers

Answer 20

Co.’s articles altered to give chairman a voting control of the company - privy council followed shuttleworth and reversed trial judgement saying that alteration valid despite citco stating resolution invalid because they were passed in interest of chairman to give him indisputable control and not bona fide for company - reasonable man test used here.

DEBATE: L. Hoffman took view that ‘some other test’ is needed where proposed alteration concern ‘rights of shareholders in which company as a corporate entity has no interest’ - so where company has no interest and where there must inevitably be winners and losers between different groups of shareholders, must objective test be if court is not to give up power to majority vote.

Question 21

Greenhaigh v Ardene Cinemas (problem with test)

Answer 21

co. articles said any shareholder who wish to sell their shares must first offer existing shareholders - special resolution was passed so shares could be sold to outsiders with a ordinary resolution. Minority shareholders challenged validity of alteration - CoA rejected claim and held voting shareholder could ‘proceed on what, in his honest opinion, is for the benefit of the company as a whole’ - alteration merely relaxation on stringent restriction on transfer of shares and so bona fide for benefit of company

Question 22

S.33 membership rights enforceable are ones contained in articles

Answer 22

e.g. right to attend & vote in general meeting (pender v lushington)

HICKMAN PRINCIPLE: enforces locus standi (right to bring action) principle restrictions on who can enforce company’s articles and prevent floodgates of aggravating litigation against the company - reflects courts reluctance to get involved in company’s internal management according to rule in Foss v Harbottle

Question 23

Foss v Harbottle ruling

Answer 23

1) proper plaintiff in respect to alleged wrong done to company is prima facie company
2) where alleged wrong is a transaction which might be made binding on a company by a single majority of the members, no individual member is allowed to bring claim in respect of it.

but if alleged wrong done to member personally and infringes on their personal rights, then rule in Foss v Harbottle doesn’t apply and member can proceed in claim = only personal rights enforceable by members but breach of internal management is breach of company and cannot be challenged by individual shareholders

Question 24

Hickman v Kent (S.33)

Answer 24

art. of association here provided that disputes between companys and its members should be referred to arbitration - member sought legal proceedings before arbitration when in dispute with company - HELD: company entitled to enforce articles against own members = members bound by articles.

Astbury J: ‘no articles can constitute a contract between a company and a 3rd person - no right given by an article to a person other than in capacity as member can be enforced upon by company.

Question 25

Problems with Hickman

Answer 25

1) only artificial distinction and not clearly defined = hickman decision conflicts with S.33; former states only membership rights can be enforced, but latter makes no distinction between different rights and merely states these provisions should be observed.
2) difficult to reconcile Hickman & Axtens case so further blurs distinction of membership and outsider rights
3) Wedderburn: reconcile this by stating belief every member has right personally to see company is run according to articles, except those already identified as concerning internal procedures only.

Question 26

Bratton Seymore services v Oxborough (differenced between contract and articles of association) - good for starting essay.

Answer 26

company’s articles of association create a statutory contract between company and its members and individual members (s.33) distinct from ordinary contract as explained by CoA:

1) it originates from statute instead of bargain between 2 parties
2) will not be made invalid on grounds of misrep, mistake or undue influence
3) contract binds present members and future members joining
4) contract can be amended by special majority of 3/4 members vote in favour of resolution (S.21), compared to consent of all parties involved in ordinary contract
5) normal contract = all parties enforce rights; Art of Assoc = not everyone can enforce rights against company.

Question 27

Eley v Positive life association

Answer 27

Articles contained clause which provided a particular member be appointed and sought breach; unsuccessfully sued company because there was no contractual relationship between member as solicitor (3rd person role) and the company.

Question 28

Quin & Axten v Salmon (difficult to balance with Hickman case because members not allowed to override articles for own personal motive but here Salmon sought way around it)

Answer 28

C’s articles contained clause stating ‘no resolution would be valid if either of 2 managing directors voted against such a resolution - Salmon exercised his right to veto such a resolution but company purported to carry it out anyway - salmon sought injunction; initially refused because resolution only referred to resolution of directors so no claim under S.33 but CoA held Salmon as a member could require company to abide by its articles - clear salmon motive was to protect position as a director but could only do so acting in capacity as member.