Module 11: Constitution of a Company

Question 1

What is the memorandum of association?

Answer 1

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

Question 2

What is the company’s constitution?

Answer 2

Comprises its Articles of Association and any resolutions and agreements which affect the constitution

Question 3

Section 17 CA 2006 defines a company’s constitution as?

Answer 3

The company’s articles of association

Any resolutions and agreements affecting a company’s constitution

Question 4

What are the articles of association?

Answer 4

Rules, agreed on by company’s members, which govern a company’s internal affairs

Question 5

Internal rules set out in the AoA include?

Answer 5

Appointment and dismissal of directors
Powers, responsibilities and liabilities
Admin requirements relating to calling, conduct and voting at GMs
Members rights
Dividend policy

Question 6

Articles cannot contain what?

Answer 6

Anything contrary to provisions of CA 2006 or general law

Question 7

CA 2006 requires all companies to have AoA, how may this come about?

Answer 7

May chose to adopt a model

Draft own articles

Question 8

How may companies amend its articles of association?

Answer 8

Special resolution
75% majority
Binding on all members

Question 9

What is special resolution?

Answer 9

75% majority vote

Question 10

What does section 22 CA 2006 provide for?

Answer 10

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If entrenched can only be altered/repealed by special res or stricter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

Question 11

Safeguards to members for alteration to the articles?

Answer 11

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

Question 12

When a company changes its articles when must they submit amended copy?

Answer 12

Within 15 days of the amendment taking effect

Could be fined

Question 13

What is the bona fide test?

Answer 13

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

Question 14

If purpose of the alteration is to benefit the company as a whole?

Answer 14

Normally valid even though it is shown that the minority does in fact suffer

Question 15

Expulsion of Minorities is concerned with what?

Answer 15

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

Question 16

Sidebottom v Kershaw, Leese and Co Ltd 1920

Answer 16

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

Question 17

Dafen Tinplate CO Ltd v Llanelly Steel Co Ltd 1920

Answer 17

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

Question 18

What are the objects of a company?

Answer 18

Aims and purposes

Question 19

The CA 2006 specifies what with regards to objects?

Answer 19

Company has unrestricted objects

Unless articles specifically restrict the company’s objects

Question 20

Protection to 3rd parties in section 39 and 40 of CA 2006?

Answer 20

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

Question 21

Main purpose of the rules on company name?

Answer 21

Ensure 3rd parties aren’t misled

Question 22

Main rules related to choice of company name include?

Answer 22

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

Question 23

How long does the company names adjudicator have to publish a decision?

Answer 23

90 days of determining an application

Power to order to change

Question 24

What is a passing off action?

Answer 24

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

Question 25

Aerators Ltd v Tollit 1902

Answer 25

Tollit proposed to form a company named Automatic Aerators Patents
Rejected Aerators application as word ‘aerator’ was in general use

Question 26

Ewing v Buttercup Margarine 1917

Answer 26

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

Question 27

HFC Bank plc v Midland bank plc 2000

Answer 27

Action for passing off, Midland Bank rebranded as HSBC
Did not represent that they were connected
Failed

Question 28

Company name disclosure requirements?

Answer 28

Legible on outside of office

All business docs

Question 29

Who decides if company will change the address of its registered office?

Answer 29

Board of directors not shareholders

May continue to validly service any doc until 14 days after eg of new address

Question 30

What does the registered office determine?

Answer 30

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

Question 31

Effect of section 33 is that company’s articles of association have a contractual effect between?

Answer 31

Members and company
Company and members
Members themselves
NOT to 3rd parties

Question 32

Hickman v Kent or Romney Marsh Sheepbreeders Association 1915

Answer 32

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

Question 33

Pender v Lushington 1877

Answer 33

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

Question 34

Eley v Positive Gov Security Life Assurance Co 1876

Answer 34

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

Question 35

Rayfield v Hands 1960

Answer 35

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

Question 36

Re New British Iron Co, ex parte Beckwith 1898

Answer 36

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