The Company's Constitution Flashcards
What is the main constitutional document of a company under CA 2006?
A) Memorandum of Association
B) Articles of Association
C) Shareholders’ Agreement
D) Model Articles
B) Articles of Association
Explanation: Under CA 2006, the Articles of Association regulate the internal management of the company, while the Memorandum is now only a formality required for incorporation.
Which of the following best describes the Memorandum of Association under CA 2006?
A) A declaration that subscribers wish to form a company
B) A legally binding contract between the company and its members
C) A document setting out the company’s objects and capacity
D) A document that can be amended by special resolution
A) A declaration that subscribers wish to form a company
Explanation: Under CA 2006, the Memorandum is no longer a constitutional document and only acts as a declaration by the first members when incorporating the company.
What happens if a company does not adopt its own Articles of Association?
A) It must use the Articles of a similar company
B) It cannot legally operate
C) It will use the Model Articles by default
D) It will be dissolved automatically
C) It will use the Model Articles by default
Explanation: If a company does not register specific Articles, the Model Articles prescribed by the Secretary of State apply by default under s. 20 CA 2006.
A private company is incorporated with Model Articles. After some time, the directors want to require at least three directors for board decisions instead of the default one. What must they do?
A) Pass a special resolution to amend the Articles
B) Apply to Companies House for approval
C) Pass an ordinary resolution
D) Enter into a shareholders’ agreement
A) Pass a special resolution to amend the Articles
Explanation: Amending the Articles requires a special resolution under s. 21 CA 2006, needing at least 75% shareholder approval.
A company’s Articles state that a shareholder cannot transfer shares without board approval. A shareholder attempts to transfer shares without approval, arguing this rule is unfair. What is the legal position?
A) The restriction is valid as long as it complies with CA 2006
B) The restriction is unenforceable because it limits the right to transfer shares
C) The shareholder can override the restriction with a special resolution
D) The company must seek court approval to enforce the restriction
A) The restriction is valid as long as it complies with CA 2006
Explanation: Articles are legally binding under s. 33 CA 2006. Restrictions on share transfers are enforceable if included in the Articles.
A company’s Articles state that shareholders can only demand a poll vote if at least 20% of shareholders request it. A minority shareholder wants to demand a poll vote with only 5% support. What is the legal position?
A) The shareholder must apply to the court to override the Articles
B) The shareholder can demand a poll vote as CA 2006 overrides the Articles in this matter
C) The shareholder cannot demand a poll vote as it does not meet the company’s requirements
D) The shareholder can negotiate with other members to meet the 20% threshold
B) The shareholder can demand a poll vote as CA 2006 overrides the Articles in this matter
Explanation: Some statutory rights override the Articles. s. 321 CA 2006 gives shareholders the right to demand a poll vote regardless of a higher threshold in the Articles.
A company wants to amend its Articles to require unanimous shareholder consent before issuing new shares. One shareholder refuses to consent. What is the correct legal position?
A) The amendment can proceed with a special resolution (75% approval)
B) The amendment cannot proceed as all shareholders must agree
C) The amendment must be approved by the court before being implemented
D) The company must pass an ordinary resolution
A) The amendment can proceed with a special resolution (75% approval)
Explanation: Under s. 21 CA 2006, Articles can be amended by special resolution unless an entrenched provision requires unanimous consent.
A company’s Articles state that a specific member has the right to be employed as the company’s solicitor. The company later removes them from this role. Can they enforce this provision?
A) No, because employment rights are not enforceable under the Articles
B) Yes, because the Articles are binding between members and the company
C) Yes, but only if they get court approval
D) No, because the provision is against CA 2006
A) No, because employment rights are not enforceable under the Articles
Explanation: Articles only bind members in their capacity as members, not in employment contracts (Eley v Positive Government Security Life Assurance Co [1876]).
