Legally Binding The Compmay Flashcards
What are the 3 ways a company can enter into a contract?
S.43 and 44 CA2006 = 3 ways a company enters into a contract:
1. By affixing its common seal to a document
• Common seal = stamp used to sign
• s.45(1) CA2006 = companies not legally required to have a common seal
• Company articles say who can use the seal and when
○ Model articles = can only be used with the directors’ authority
- By a person who has authority to contract on behalf of the company
- By complying with the rules in s.44(2)-(8)
• s.44(2) CA2006 = a document is validly executed if it is signed for on behalf of the company by
○ 2 authorised signatories; or
○ A director of the company in the presence of a witness who attests the signature
• s.44(3) CA2006 = every director and company secretary of the company is an authorised signatory
What 5 rules and procedures are typically dealt with in the articles of association?
• Typically establishing rules and procedures for:
- Directors’ powers and responsibilities;
- Appointments and removal of directors;
- How board meetings and general meetings will be run;
- Allotting shares and paying dividends; and
- Capital and borrowing powers of the company
Who creates model articles? What are the 3 sets? When do the model articles apply?
- s.19(1) CA2006 empowers the Secretary of State to make regulations setting out model articles
- 3 sets of model articles:
- For private companies limited by shares
- For private companies limited by guarantee
- For public companies
- s.20(1)(a) CA2006 = If promoters don’t register own articles, model articles apply
- s.20(1)(b) CA2006 = If promoter does register own articles, model articles still apply unless excluded or modified by company’s own articles
Can the courts interpret the articles? They can imply terms on the articles?
• Interpretation of articles = Attorney General of Belize v Belize Telecom Ltd [2009] = the courts cannot add words to the articles to make them fairer or more reasonable
• The courts can imply terms into the articles where it is necessary to do so
• Implying = what would a reasonable unconnected person with background knowledge think the term meant providing that:
i. They read the contract at the time it was made; and
ii. Would consider the term to be so obvious or necessary for business efficiency
How can a company amend its articles?
When must it send notice to Companies House?
What are the 2 limitations?
What are 4 examples of the second limitation?
• s.21 CA2006 = company can amend articles by passing a special resolution or if all the members so agree (Cane v Jones [1980] )
- Must send copy of amended articles to CH within 15 days
- Failure is a criminal offence
2 Limitations:
1. Statue can entrench certain provisions
• S.22 CA2006 = an entrenched provision can be amended or repealed:
a. By meeting or complying with certain conditions and procedures, that are more restrictive than a special resolution
b. If all the members agree or if the court orders
- Courts impose limitations:
a. An amendment isn’t valid if it deprives a member of a right that has already accrued (unless the members agrees)
b. A company cannot contract out of the statutory ability to alter its articles
c. If the amendment breaches a separate contract between the company and 3rd party, the alteration will stand, but company can be liable for breach of contract
d. Allen v Gold Reefs of West Africa Ltd [1900] = the power to alter the articles must be exercised bona fide for the benefit of the company as a whole
○ If the amendment benefits the members but not the company = invalid
○ Subjective = if members honestly believed that the amendment was for the company’s benefit as a whole = the amendment is valid (unless motivated by fraud or malice)
What is a statutory contract? What are 5 differences between a standard contract and a statutory contract?
- s.33(1) CA2006 = the constitution of the company forms a statutory contract between the company and its members and the members themselves
- Differences between standard contract and s.33 contract:
- Binding between: standard contract = binds the parties to the contract at the time it was made, s.33 = binds the company and its members
- Alteration of terms: standard = requires the consent of all parties to the contract, s.33 = by passing a special resolution, with the consent of all members, or by court order
- Enforceable by 3rd party: standard = only where s.1 of the Contracts (Rights of 3rd Parties) Act 1999 applies, s.33 = no, cannot be enforced by outsiders
- Enforcement of terms: standard = any term can be enforced, s.33 = Only those terms that relate to membership rights can be enforced
- Rectification of contract: standard = can be rectified, s.33 = cannot
Who can sue who under a statutory contract?
If a member breaches a term of the constitution, the company can sue the member for breach of contract
• If the company breaches = a member can sue the company for breach of contract
• If member(s) breach = another member can sue for breach of contract
How is the ability of the company and members to enforce the constitution limited? (2 ways)
• The ability of the company and members to enforce the constitution is limited in 2 ways:
1. Outsiders and outsider rights
○ Members can usually only enforce the s. 33 contract if they bring a claim in their capacity as members
○ Privity of contract rule = only the parties to a contract can enforce it
○ Outsiders can’t sue for breach of s.33 contract and members can’t sue to enforce outsider rights
- Internal irregularities
○ Occurs where the alleged wrong is a transaction which could be made binding on the company and all its members by a simple majority of the members
What is a shareholder agreement?
What are the 2 advantages? Who does it bind? What are the remedies?
- = an agreement (contract) between 2 or more members of a company to set out their relationship rules
- If a company is also party to the agreement = SA may also contain relationship rules between the members and the company
- Company can enter into SA on incorporation or post-incorporation
- Not part of constitution but supplements it
- Typically used only by companies with small no. of members
• Advantages:
- Easily amended if all the parties agree (resolution not required like altering the articles)
- Agreement is private = anything agreed remains off the public record (articles are published)
- All the terms bind all the parties
- Can be enforced by or against any person who is party the agreement
- Remedies = damages, injunctions, or specific performance
- If agreement tries to restrict the company’s statutory rights = courts may hold SA binding on the members but not the company
What is the ultra vires doctrine?
- Ultra vires doctrine = where a company exceeds its contractual capacity (acts beyond powers)
- Might result in the directors being in breach of s.171(a) CA2006 (duty to act within one’s powers) and the company, or the members via a derivative claim, suing the directors
What is an object clause? What are the 2 benefits? What are the 2 problems?
- Prior to CA2006, capacity was restricted via an objects clause in the memorandum, stating the purpose of the company
- Benefits = clearly indicate to relevant persons why company was set up and helped ensure the company engaged in its areas of expertise
- Acted outside the object = contract is ultra vires and void
• 2 problems of object clause:
1. Memorandum couldn’t be altered so neither could the objects clause
• Impossible for companies to expand into new business areas
• s.28 CA2006 = object clauses of companies created pre CA2006 form part of the company’s articles (i.e. can amend)
• s.31 CA2006 = unless articles specifically restrict, company’s objects are unrestricted
• Companies incorporated under CA2006 do not need an objects clause and will have unrestricted objects
○ If choose to include one it will restrict the company’s contractual capacity
- 3rd parties might find contracts entered into void
• s.39 CA2006 = a contract entered into by a company cannot be invalidated on the ground that the contract is outside the scope of the company’s contractual capacity
What is an agency relationship?
What does s.43 CA2006 say about how a company can enter a contract?
What can the principle do if the agent lacks authority?
- Agency relationship = 1 person (principle) appoints another (agent) to engage in or act on principle’s behalf
- The directors are agents of the company (the principal)
s.43 CA2006 = a company contract can be made on behalf of a company by a person acting under its authority
• If an agent lacks authority, the principal can ratify the agent’s actions (usually by passing an ordinary resolution)
What is express actual authority? How may this be conferred?
ACTUAL AUTHORITY:
• Prior consent is needed
Express Actual Authority:
• Refers to = authority that has been expressly conferred upon an agent
• The articles may do so:
• Art. 3 MA = expressly confers wide authority on the directors to exercise powers of management
• The board of directors may do so:
• Art. 5 MA = authorises directors to delegate their power of management
• Powers can be limited by the articles
What is implied actual authority? Which case is an example? What are the 2 limitations when implied actual authority will not be bestowed?
Implied Actual Authority:
• Refers to = authority that has been conferred based on conduct of the parties, or the relationship between them
• What would be considered normal/necessary to complete a task or fulfil a position
• Hely-Hutchinson v Brayhead Ltd [1968] = formally appointed as chair but not officially as managing director. Courts held he had implied actual authority of managing director to carry out role as chair and company was liable
○ Have implied actual authority to do all such things as a person in that position usually has
• Courts have placed 2 limitations upon an agent’s implied actual authority
• Implied actual authority will not be bestowed upon:
1. An agent where it would conflict with an express limitation or prohibition by the company
2. A director where he acts contrary to the interests of the company
What is apparent authority? What is the difference between actual and apparent authority? What are the 3 requirements that must be satisfied to establish if someone has apparent authority?
- = the authority of an agent as it appears to others
- Actual authority is about the authority that the principal has bestowed upon the agent, and APPARENT authority is about the relationship between the principal and the 3rd party
• 3 requirements must be satisfied to establish if an agent has apparent authority:
1. There must be representation that the agent has authority to enter contract on behalf of the principal
○ Can be oral or in writing but usually made by conduct
○ Agent himself cannot make this representation
2. The 3rd party relied on this representation.
○ They must have known about the representation and of the principal’s existence but not have known or ought to have known that the agent lacked authority
3. The 3rd party altered their position – for example entering the contract
