Module 11: Constitution of a Company Flashcards
What is the memorandum of association?
A brief document evidencing the intention of tis subscribers to form a company and become members on formation
Not possible to amend or update once submitted
What is the company’s constitution?
Comprises its Articles of Association and any resolutions and agreements which affect the constitution
Section 17 CA 2006 defines a company’s constitution as?
The company’s articles of association
Any resolutions and agreements affecting a company’s constitution
What are the articles of association?
Rules, agreed on by company’s members, which govern a company’s internal affairs
Internal rules set out in the AoA include?
Appointment and dismissal of directors Powers, responsibilities and liabilities Admin requirements relating to calling, conduct and voting at GMs Members rights Dividend policy
Articles cannot contain what?
Anything contrary to provisions of CA 2006 or general law
CA 2006 requires all companies to have AoA, how may this come about?
May chose to adopt a model
Draft own articles
How may companies amend its articles of association?
Special resolution
75% majority
Binding on all members
What is special resolution?
75% majority vote
What does section 22 CA 2006 provide for?
Conditional entrenchment of certain provisions
On formation of subsequently by unanimous agreement
If entrenched can only be altered/repealed by special res or stricter
Cannot prevent amendment
Safeguards to members for alteration to the articles?
Void if conflicts with Companies Act or general law
Member can’t be compelled by any alteration for shares
Can only vary class rights is procedure is followed
Subject to review by court if bona fide test is breached
When a company changes its articles when must they submit amended copy?
Within 15 days of the amendment taking effect
Could be fined
What is the bona fide test?
Strike a balance between:
Majority entitled to alter the articles even though minority believe is prejudicial to their interest
Minority being entitled to protection against alteration intended to benefit the majority rather than company as a whole
If purpose of the alteration is to benefit the company as a whole?
Normally valid even though it is shown that the minority does in fact suffer
Expulsion of Minorities is concerned with what?
Alteration of the articles in order to:
Remove director from office
Permit majority of members to enforce a transfer to themselves of the shareholding of a minority
Valid even if discriminatory provided benefits company as a whole
Sidebottom v Kershaw, Leese and Co Ltd 1920
Articles altered to enable directors to purchase shareholding of members that competed
Justifiable alteration if made bona fide in the interests of the company of a whole
Was justifiable
Dafen Tinplate CO Ltd v Llanelly Steel Co Ltd 1920
D minority shareholder transferred its custom from L to another supplier
Majority L sought to protect its interests by altering articles to provide for compulsory acquisition of D’s shares
What are the objects of a company?
Aims and purposes
The CA 2006 specifies what with regards to objects?
Company has unrestricted objects
Unless articles specifically restrict the company’s objects
Protection to 3rd parties in section 39 and 40 of CA 2006?
39: Validity of company’s acts can’t be called into question on ground of lack of capacity because of anything in its constitution
40: includes actions by directors
Main purpose of the rules on company name?
Ensure 3rd parties aren’t misled
Main rules related to choice of company name include?
End with plc or ltd Refused if same as another, is offensive Restrict certain words e.g connect with Her Majesty's Gov or local authority, international if not, profession if not Objections to the company names adjudicator- if similar to a name which has goodwill. Got to show: Circumstances apply, acted in good faith, interest not affected Passing-off action Disclosure requirements Protecting names Changing names
How long does the company names adjudicator have to publish a decision?
90 days of determining an application
Power to order to change
What is a passing off action?
May bring an action to prevent another party using if feel rights infringed
Interdict/injunction to prevent further violation and may have a claim for damages
Will have to shows word does not have a general use
Distinctive so confusion will result
Aerators Ltd v Tollit 1902
Tollit proposed to form a company named Automatic Aerators Patents
Rejected Aerators application as word ‘aerator’ was in general use
Ewing v Buttercup Margarine 1917
Ewing sole trader as Buttercup Dairy Co in Scotland and north of England
Buttercup margarine registered since 1916 in London
Granted as Ewing planned to open shops in south and could be confusion
HFC Bank plc v Midland bank plc 2000
Action for passing off, Midland Bank rebranded as HSBC
Did not represent that they were connected
Failed
Company name disclosure requirements?
Legible on outside of office
All business docs
Who decides if company will change the address of its registered office?
Board of directors not shareholders
May continue to validly service any doc until 14 days after eg of new address
What does the registered office determine?
Which registrar has jurisdiction over the company
Nationality and domicile
Country can’t be changed but can change within, can trade in others irrespective of where registered
Effect of section 33 is that company’s articles of association have a contractual effect between?
Members and company
Company and members
Members themselves
NOT to 3rd parties
Hickman v Kent or Romney Marsh Sheepbreeders Association 1915
Constitution as contract between members and the company
Articles provided that any dispute referred to arbitration
Took case to high court
Bound to go to arbitration first
Pender v Lushington 1877
Constitution as contract between company and members
Not entitled to case more than 100 votes
Transferred shares to circumvent
Bound to recognised votes of members including this nominee
Eley v Positive Gov Security Life Assurance Co 1876
Contractual effect between company and member only where member acting in capacity as member
Solicitor E drafted articles that must always employ him
E member
E sued when ceased to employ
E couldn’t rely on articles as contract between company and members and he was not asserting in capacity of member
Rayfield v Hands 1960
Constitution as contract between members themselves
Every director should be shareholder and must dispose of shares of any member who gave notice
Directors claimed couldn’t enforce obligation to acquire
Contract between member and member so bound by its terms
Re New British Iron Co, ex parte Beckwith 1898
Incorporation of articles into contract with outsider
Directors pay divided
Liquidation, claimed owed fees, denied contract
Could not rely on articles they could refer to articles to establish amount payable
