The Constitution of the Company Flashcards
What is the primary purpose of a company’s constitution?
To establish the foundational framework for its operation, management, and the relationship between shareholders, directors, and the company itself.
What are the key components of a company’s constitution?
The Articles of Association and, historically, the Memorandum of Association.
What does Section 33 of the Companies Act 2006 establish?
A statutory contract between the company and its members based on the articles of association.
What are Model Articles?
Default rules for companies incorporated under the Companies Act 2006, which apply unless amended.
How are Model Articles categorized under the Companies (Model Articles) Regulations 2008?
Into articles for private companies limited by shares, private companies limited by guarantee, and public companies.
What is the role of the Articles of Association?
To govern a company’s internal rules, outlining the roles, powers, and responsibilities of directors and shareholders.
What case established that directors may act against shareholder preferences within their management authority?
Howard Smith Ltd v Ampol Petroleum Ltd [1974].
What section of the Companies Act 2006 allows shareholders to remove directors?
Section 168.
What are preemption rights?
Contractual rights allowing existing shareholders to purchase additional shares before they are offered to others to prevent ownership dilution.
What section of the Companies Act 2006 requires public companies to hold AGMs?
Section 336.
What is the significance of Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915]?
It clarified that provisions in the articles governing member-company relations are enforceable.
What case recognized member-to-member enforceability in quasi-partnership companies?
Rayfield v Hands [1960].
Which case ruled that a member could not enforce an article promising him a solicitor role?
Eley v Positive Government Security Life Assurance Co [1876].
What does Salmon v Quin & Axtens Ltd [1909] establish?
Members can enforce provisions that affect their rights as shareholders.
What are shareholder agreements?
Contracts setting additional governance arrangements, particularly in private companies, beyond the articles of association.
Which case upheld the enforceability of shareholder agreements?
Puddephatt v Leith [1916].
What is the rule established in Foss v Harbottle [1843]?
Individual members cannot sue for wrongs done to the company; only the company itself can sue.
What case allowed members to enforce personal voting rights?
Pender v Lushington [1877].
What case restricted enforcement of procedural breaches to the company?
Mozley v Alston [1847].
How can a company alter its articles of association?
By passing a special resolution with at least 75% approval under Section 21 of the Companies Act 2006.
What principle was established in Allen v Gold Reefs of West Africa Ltd [1900]?
Amendments to articles must be made in good faith for the benefit of the company as a whole.
What is the effect of entrenched provisions in the articles?
Entrenched provisions can only be altered with specific conditions under Section 22 of the Companies Act 2006.
What section of the Companies Act 2006 governs class rights and their variation?
Sections 630–635.
What is the ‘good faith’ requirement for altering articles?
Amendments must benefit the company as a whole and not unfairly prejudice specific members.
What case ruled that dissenting shareholders must vote in line with shareholder agreements?
Greenwell v Porter [1902].
Why are shareholder agreements advantageous?
They offer contractual freedom, require no publicity, and cannot be altered by majority vote.
What are some disadvantages of shareholder agreements?
They are suitable mainly for small companies and can only bind those who agreed to the contract.
What case emphasized the limitations of Section 33 in enforcing outsider rights?
Eley v Positive Government Security Life Assurance Co [1876].
What are the implications of Punt v Symons & Co Ltd [1903] regarding shareholder agreements?
Courts cannot enforce provisions restricting statutory powers unless explicitly agreed upon.
What reform proposals have been suggested for Section 33?
Allowing companies to entrench specific articles or clarify the enforceability of certain rights to reduce litigation.
What does Section 17 of the Companies Act 2006 define as the constitution of a company?
It includes the Articles of Association and any resolutions or agreements that affect the company.
What must every company have under Section 18 of the Companies Act 2006?
Articles of Association (AoA).
What happens if a company does not submit bespoke articles during incorporation?
Model articles prescribed under Section 20 CA 2006 apply by default.
What are the three schedules of Model Articles under the Companies (Model Articles) Regulations 2008?
Schedule 1: Private companies limited by shares, Schedule 2: Private companies limited by guarantee, Schedule 3: Public companies.
What is the contractual nature of a company’s constitution under Section 33 CA 2006?
It acts as a statutory contract between the company and its members, binding them in their capacity as members.
What did Hickman v Kent or Romney Marsh Sheep-Breeders’ Association (1915) clarify?
Articles create a statutory contract enforceable between members and the company, but only in their capacity as members.
What was the ruling in Eley v Positive Government Security Life Assurance Co (1876)?
Articles did not bind the company to appoint Mr. Eley as its solicitor since he was acting as an outsider, not as a member.
What case allowed a member to enforce their personal voting rights under the articles?
Pender v Lushington (1877).
What are the limitations of Section 33 CA 2006?
It does not bind outsiders or address personal grievances unrelated to membership rights.
What does Model Article 3 grant to directors?
Responsibility for managing the company’s business, allowing them to exercise all powers of the company.
What is required to alter the articles of association under Section 21 CA 2006?
A special resolution with at least 75% approval.
What are entrenched provisions in articles under Section 22 CA 2006?
Articles that require stricter procedures for amendment than a standard special resolution.
What protections do Sections 630–635 CA 2006 provide?
Safeguard class rights, requiring consent for variations to those rights.
What principle was established in Allen v Gold Reefs of West Africa (1900)?
Amendments to articles must be bona fide and for the benefit of the company as a whole.
What did Greenhalgh v Arderne Cinemas Ltd (1951) establish about the benefit of amendments?
Amendments should benefit shareholders as a general body, even if some are disadvantaged.
What does Punt v Symons & Co Ltd (1903) state about altering articles?
A company cannot contract out of its statutory right to alter its articles.
What case highlighted the ability of shareholders to influence voting in line with shareholder agreements?
Puddephatt v Leith (1916).
What are the advantages of shareholder agreements compared to articles of association?
They offer contractual freedom, no public disclosure, and are not subject to alteration by majority shareholders.
What are the disadvantages of shareholder agreements?
They are not part of the company’s constitution and are unsuitable for large companies.
What case ruled that articles must benefit the company as a general body and not unfairly prejudice members?
Shuttleworth v Cox Brothers (1927).
What does Section 25 CA 2006 protect against?
Unfair prejudice to existing members when articles are amended.
What principle is reinforced in Mozley v Alston (1847)?
Only the company, not individual members, can enforce rights related to procedural breaches.
What are class rights under Sections 630–635 CA 2006?
Rights attached to specific classes of shares that cannot be altered without consent.
What case confirmed the enforceability of shareholder agreements against dissenting shareholders?
Greenwell v Porter (1902).
How does Russell v Northern Bank Development Corporation (1992) impact shareholder agreements?
It established that such agreements cannot restrict a company’s statutory powers.
What must amendments to articles satisfy to avoid judicial interference?
They must be reasonable and not an abuse of power, as stated in Shuttleworth v Cox Brothers (1927).
What is the significance of Section 282 CA 2006?
It defines ordinary resolutions, which require a simple majority to pass.
What did Salmon v Quin & Axtens Ltd (1909) establish regarding members’ enforcement rights?
Members can enforce provisions that directly affect their rights.
What is the significance of Browne v La Trinidad (1887) in enforcing articles?
It clarified that the articles could not bind the company to provide specific personal benefits outside the membership capacity.
What reform proposals have been suggested to improve the clarity of Section 33 CA 2006?
Allowing all articles to be enforceable unless explicitly excluded and providing clearer guidelines for enforcement rights.
What is the statutory contract created under Section 33 CA 2006?
It is a binding agreement between the company and its members, and among members themselves, based on the company’s constitution.
What document primarily governs the internal management of a company?
The Articles of Association.
How can articles of association be altered under Section 21 CA 2006?
By passing a special resolution requiring at least 75% shareholder approval.
What case established that alterations to articles must be made bona fide for the benefit of the company as a whole?
Allen v Gold Reefs of West Africa Ltd (1900).
What did Hickman v Kent or Romney Marsh Sheep-Breeders’ Association (1915) establish about statutory contracts?
Articles are enforceable only in matters related to membership rights.
Which case clarified that ‘the benefit of the company as a whole’ refers to the shareholders collectively?
Greenhalgh v Arderne Cinemas Ltd (1951).
What does Section 630 CA 2006 require for altering class rights?
Consent from the affected class of shareholders.
What did Pender v Lushington (1877) establish regarding member rights?
Members can enforce their personal voting rights under the articles.
What happens if an alteration to the articles is deemed unfairly prejudicial?
Minority shareholders can challenge it under Section 994 CA 2006.
What is a shareholder agreement, and how does it differ from the articles of association?
A private contract between shareholders that offers flexibility but does not override statutory provisions.
What principle was reinforced in Shuttleworth v Cox Bros & Co Ltd (1927)?
Amendments must not lack reasonable grounds or constitute an abuse of power.
What protections are offered under Section 25 CA 2006?
Articles cannot be amended in a way that unfairly prejudices existing members.
What did Sidebottom v Kershaw Leese & Co Ltd (1920) uphold?
Alterations expelling shareholders in competition with the company are valid if beneficial to the company.
What case criticized the erosion of minority protections in article alterations?
Citco Banking Corporation NV v Pusser’s Ltd (2007).
What does Section 29 CA 2006 require regarding resolutions affecting the constitution?
They must be filed with Companies House to form part of the constitution.
What does Section 22 CA 2006 permit regarding entrenched provisions in articles?
These provisions require stricter procedures for alteration.
What was the significance of Dafen Tinplate Co Ltd v Llanelly Steel Co Ltd (1920)?
The court struck down an amendment expelling dissenting shareholders as oppressive.
What limitation on amendments was established in Punt v Symons & Co Ltd (1903)?
A company cannot contract out of its statutory right to alter its articles.
How does Section 283 CA 2006 define a special resolution?
A resolution requiring at least 75% of votes cast to pass.
What key benefit do shareholder agreements offer compared to articles of association?
Confidentiality, as they are not required to be filed with Companies House.
What does Russell v Northern Bank Development Corporation (1992) say about shareholder agreements?
They cannot restrict the statutory power of a company to alter its articles.
What does the phrase ‘for the benefit of the company as a whole’ mean in practice?
Changes should benefit shareholders collectively and not just a specific group.
What are the three types of model articles provided under the Companies (Model Articles) Regulations 2008?
For private companies limited by shares, private companies limited by guarantee, and public companies.
What was the outcome of Eley v Positive Government Security Life Assurance Co (1876)?
Articles did not bind the company to employ Mr. Eley as its solicitor because he acted as an outsider.
What does Section 31 CA 2006 state about a company’s objects?
Unless restricted, a company has unrestricted capacity to act.
How does Allen v Gold Reefs of West Africa Ltd (1900) influence article alterations?
It ensures changes are made bona fide and benefit the company.
What does Section 994 CA 2006 allow shareholders to claim?
Relief for unfairly prejudicial conduct or amendments.
What case upheld an injunction enforcing shareholder agreement provisions?
Puddephatt v Leith (1916).
What does Section 18 CA 2006 require for incorporation?
Submission of articles of association.
What are the statutory limitations on altering articles under the Companies Act 2006?
Compliance with mandatory provisions, protecting class rights, and ensuring fairness.
What did Gambotto v WCP Ltd (1995) establish in Australia?
Alterations affecting minority rights must be justified by necessity or fairness.
What case confirmed that directors are bound by the articles in their decision-making?
Howard Smith Ltd v Ampol.
What case confirmed that directors are bound by the articles in their decision-making?
Howard Smith Ltd v Ampol Petroleum Ltd (1974).
What are the key features of Model Article 3?
Assigns management powers to directors and allows shareholder intervention through special resolutions.
What are pre-emption rights in share issuance?
Rights that protect existing shareholders from dilution by offering them the first opportunity to purchase new shares.
What does Section 282 CA 2006 define?
An ordinary resolution, requiring a simple majority to pass.
What is the importance of Foss v Harbottle (1843)?
It restricts individual claims, requiring the company to act as the proper claimant.
What does Section 25 CA 2006 safeguard against in altering articles?
Prejudicial amendments to existing members.
What did Sidebottom v Kershaw Leese & Co Ltd (1920) demonstrate about bona fide amendments?
Amendments expelling competing shareholders were upheld as benefiting the company.
What does Mozley v Alston (1847) restrict?
Enforcement of procedural breaches to the company itself, not individual members.
What role does judicial discretion play in article amendments?
Courts evaluate whether amendments are bona fide and for the benefit of the company, creating flexibility but also inconsistency.
