The company’s constitution

Question 1

What are the two key pieces of legislation?

Answer 1

Companies Act 2006

Companies Act 1985

Question 2

Under CA 1985 what constitutional documents were required?

Answer 2

Articles and the Memorandum.

Question 3

Under CA 2006 what constitutional documents are required?

Answer 3

Articles only.

Question 4

Does a company incorporated under CA 2006 require a memo?

Answer 4

No, the memo no longer forms part of the company’s constitution - it is only required as part of the procedure to register a company at Companies House.

Question 5

What is the purpose of the memo for a company incorporated under CA 2006?

Answer 5

It amounts to a declaration on the part of the company’s subscribers that they wish to form a company and agree to become members of that company.

Question 6

What was the consequence of the Memo under CA 1985?

Answer 6

Companies were required to include an objects clause setting out the purpose for which the company had been formed.

Acting outside of this purpose was described as acting `ultra vires’ or outside of that company’s capacity.

Question 7

What does it mean that Companies formed under CA 2006 have unrestricted objects?

Answer 7

Unless the objects are specifically restricted in the company’s Articles, the ultra vires rule does not apply.

Question 8

Does the objects clause still apply to companies incorporated under CA 1985?

Answer 8

Yes, unless the articles are amended to remove the objects clause.

Question 9

What is the purpose of the Articles?

Answer 9

To regulate the relationship between the shareholders and the company.

Question 10

What types of provisions are included in the Articles?

Answer 10

The number of directors required to transact business (both to form a quorum at board meetings and to take decisions at board meetings);

The method of appointment of directors;

The powers of directors;

How board meetings are to be conducted;

Any special rights attaching to shares;

How shareholder meetings are to be conducted; and

How and to whom shareholders may transfer their shares

Question 11

What must the Articles comply with?

Answer 11

The minimum provisions of CA 2006 (this is known as the legality test).

Question 12

Can a company include more onerous procedures in it’s Articles than contained in CA 2006?

Answer 12

Yes, for example, a private company must have a minimum of one director, but the Articles could provide for three.

Question 13

Are there some CA 2006 provisions that can’t be overridden by the Articles?

Answer 13

Yes, for example, the right to demand a poll vote at a GM.

Question 14

What are the three types of Articles?

Answer 14

Model Articles

Amended MA Articles

Tailor made Articles

Question 15

How does a company amend its Articles?

Answer 15

Special resolution

Question 16

What is the basic rule in relation to amending Articles?

Answer 16

The alteration must be bona fide in the interests of the company as a whole.

Question 17

Can provisions in the Articles be entrenched?

Answer 17

Yes, CA 2006 provides for this. However, rare in practice.

Question 18

What does entrenchment of a provision in the Articles mean?

Answer 18

It is one which can only be amended or repealed if specific conditions are met. Entrenched Articles can nevertheless be amended by the agreement of all the members, or by court order.

Question 19

What is the legal effect of the Articles?

Answer 19

It acts as a contract between the company and the members.

Question 20

Are the Articles a contract between the members themselves?

Answer 20

The courts appear to be of the opinion that members will only be able to enforce provisions contained in the Articles through the company itself.

If a member is likely to wish to enforce the rights against other members, they should enter a SHA.

Question 21

Are the Articles a contract between the company and its members?

Answer 21

Yes, however, a member may not enforce any rights contained in the Articles against the company that are not relevant to his capacity as a member, for example, the right to vote or the right to receive a dividend.