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Company Law > The Constitution of the Company > Flashcards

The Constitution of the Company Flashcards

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1
Q

What is the primary purpose of a company’s constitution?

A

To establish the foundational framework for its operation, management, and the relationship between shareholders, directors, and the company itself.

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2
Q

What are the key components of a company’s constitution?

A

The Articles of Association and, historically, the Memorandum of Association.

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3
Q

What does Section 33 of the Companies Act 2006 establish?

A

A statutory contract between the company and its members based on the articles of association.

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4
Q

What are Model Articles?

A

Default rules for companies incorporated under the Companies Act 2006, which apply unless amended.

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5
Q

How are Model Articles categorized under the Companies (Model Articles) Regulations 2008?

A

Into articles for private companies limited by shares, private companies limited by guarantee, and public companies.

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6
Q

What is the role of the Articles of Association?

A

To govern a company’s internal rules, outlining the roles, powers, and responsibilities of directors and shareholders.

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7
Q

What case established that directors may act against shareholder preferences within their management authority?

A

Howard Smith Ltd v Ampol Petroleum Ltd [1974].

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8
Q

What section of the Companies Act 2006 allows shareholders to remove directors?

A

Section 168.

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9
Q

What are preemption rights?

A

Contractual rights allowing existing shareholders to purchase additional shares before they are offered to others to prevent ownership dilution.

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10
Q

What section of the Companies Act 2006 requires public companies to hold AGMs?

A

Section 336.

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11
Q

What is the significance of Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915]?

A

It clarified that provisions in the articles governing member-company relations are enforceable.

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12
Q

What case recognized member-to-member enforceability in quasi-partnership companies?

A

Rayfield v Hands [1960].

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13
Q

Which case ruled that a member could not enforce an article promising him a solicitor role?

A

Eley v Positive Government Security Life Assurance Co [1876].

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14
Q

What does Salmon v Quin & Axtens Ltd [1909] establish?

A

Members can enforce provisions that affect their rights as shareholders.

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15
Q

What are shareholder agreements?

A

Contracts setting additional governance arrangements, particularly in private companies, beyond the articles of association.

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16
Q

Which case upheld the enforceability of shareholder agreements?

A

Puddephatt v Leith [1916].

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17
Q

What is the rule established in Foss v Harbottle [1843]?

A

Individual members cannot sue for wrongs done to the company; only the company itself can sue.

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18
Q

What case allowed members to enforce personal voting rights?

A

Pender v Lushington [1877].

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19
Q

What case restricted enforcement of procedural breaches to the company?

A

Mozley v Alston [1847].

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20
Q

How can a company alter its articles of association?

A

By passing a special resolution with at least 75% approval under Section 21 of the Companies Act 2006.

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21
Q

What principle was established in Allen v Gold Reefs of West Africa Ltd [1900]?

A

Amendments to articles must be made in good faith for the benefit of the company as a whole.

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22
Q

What is the effect of entrenched provisions in the articles?

A

Entrenched provisions can only be altered with specific conditions under Section 22 of the Companies Act 2006.

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23
Q

What section of the Companies Act 2006 governs class rights and their variation?

A

Sections 630–635.

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24
Q

What is the ‘good faith’ requirement for altering articles?

A

Amendments must benefit the company as a whole and not unfairly prejudice specific members.

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25
Q

What case ruled that dissenting shareholders must vote in line with shareholder agreements?

A

Greenwell v Porter [1902].

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26
Q

Why are shareholder agreements advantageous?

A

They offer contractual freedom, require no publicity, and cannot be altered by majority vote.

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27
Q

What are some disadvantages of shareholder agreements?

A

They are suitable mainly for small companies and can only bind those who agreed to the contract.

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28
Q

What case emphasized the limitations of Section 33 in enforcing outsider rights?

A

Eley v Positive Government Security Life Assurance Co [1876].

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29
Q

What are the implications of Punt v Symons & Co Ltd [1903] regarding shareholder agreements?

A

Courts cannot enforce provisions restricting statutory powers unless explicitly agreed upon.

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30
Q

What reform proposals have been suggested for Section 33?

A

Allowing companies to entrench specific articles or clarify the enforceability of certain rights to reduce litigation.

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31
Q

What does Section 17 of the Companies Act 2006 define as the constitution of a company?

A

It includes the Articles of Association and any resolutions or agreements that affect the company.

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32
Q

What must every company have under Section 18 of the Companies Act 2006?

A

Articles of Association (AoA).

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33
Q

What happens if a company does not submit bespoke articles during incorporation?

A

Model articles prescribed under Section 20 CA 2006 apply by default.

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34
Q

What are the three schedules of Model Articles under the Companies (Model Articles) Regulations 2008?

A

Schedule 1: Private companies limited by shares, Schedule 2: Private companies limited by guarantee, Schedule 3: Public companies.

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35
Q

What is the contractual nature of a company’s constitution under Section 33 CA 2006?

A

It acts as a statutory contract between the company and its members, binding them in their capacity as members.

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36
Q

What did Hickman v Kent or Romney Marsh Sheep-Breeders’ Association (1915) clarify?

A

Articles create a statutory contract enforceable between members and the company, but only in their capacity as members.

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37
Q

What was the ruling in Eley v Positive Government Security Life Assurance Co (1876)?

A

Articles did not bind the company to appoint Mr. Eley as its solicitor since he was acting as an outsider, not as a member.

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38
Q

What case allowed a member to enforce their personal voting rights under the articles?

A

Pender v Lushington (1877).

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39
Q

What are the limitations of Section 33 CA 2006?

A

It does not bind outsiders or address personal grievances unrelated to membership rights.

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40
Q

What does Model Article 3 grant to directors?

A

Responsibility for managing the company’s business, allowing them to exercise all powers of the company.

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41
Q

What is required to alter the articles of association under Section 21 CA 2006?

A

A special resolution with at least 75% approval.

42
Q

What are entrenched provisions in articles under Section 22 CA 2006?

A

Articles that require stricter procedures for amendment than a standard special resolution.

43
Q

What protections do Sections 630–635 CA 2006 provide?

A

Safeguard class rights, requiring consent for variations to those rights.

44
Q

What principle was established in Allen v Gold Reefs of West Africa (1900)?

A

Amendments to articles must be bona fide and for the benefit of the company as a whole.

45
Q

What did Greenhalgh v Arderne Cinemas Ltd (1951) establish about the benefit of amendments?

A

Amendments should benefit shareholders as a general body, even if some are disadvantaged.

46
Q

What does Punt v Symons & Co Ltd (1903) state about altering articles?

A

A company cannot contract out of its statutory right to alter its articles.

47
Q

What case highlighted the ability of shareholders to influence voting in line with shareholder agreements?

A

Puddephatt v Leith (1916).

48
Q

What are the advantages of shareholder agreements compared to articles of association?

A

They offer contractual freedom, no public disclosure, and are not subject to alteration by majority shareholders.

49
Q

What are the disadvantages of shareholder agreements?

A

They are not part of the company’s constitution and are unsuitable for large companies.

50
Q

What case ruled that articles must benefit the company as a general body and not unfairly prejudice members?

A

Shuttleworth v Cox Brothers (1927).

51
Q

What does Section 25 CA 2006 protect against?

A

Unfair prejudice to existing members when articles are amended.

52
Q

What principle is reinforced in Mozley v Alston (1847)?

A

Only the company, not individual members, can enforce rights related to procedural breaches.

53
Q

What are class rights under Sections 630–635 CA 2006?

A

Rights attached to specific classes of shares that cannot be altered without consent.

54
Q

What case confirmed the enforceability of shareholder agreements against dissenting shareholders?

A

Greenwell v Porter (1902).

55
Q

How does Russell v Northern Bank Development Corporation (1992) impact shareholder agreements?

A

It established that such agreements cannot restrict a company’s statutory powers.

56
Q

What must amendments to articles satisfy to avoid judicial interference?

A

They must be reasonable and not an abuse of power, as stated in Shuttleworth v Cox Brothers (1927).

57
Q

What is the significance of Section 282 CA 2006?

A

It defines ordinary resolutions, which require a simple majority to pass.

58
Q

What did Salmon v Quin & Axtens Ltd (1909) establish regarding members’ enforcement rights?

A

Members can enforce provisions that directly affect their rights.

59
Q

What is the significance of Browne v La Trinidad (1887) in enforcing articles?

A

It clarified that the articles could not bind the company to provide specific personal benefits outside the membership capacity.

60
Q

What reform proposals have been suggested to improve the clarity of Section 33 CA 2006?

A

Allowing all articles to be enforceable unless explicitly excluded and providing clearer guidelines for enforcement rights.

61
Q

What is the statutory contract created under Section 33 CA 2006?

A

It is a binding agreement between the company and its members, and among members themselves, based on the company’s constitution.

62
Q

What document primarily governs the internal management of a company?

A

The Articles of Association.

63
Q

How can articles of association be altered under Section 21 CA 2006?

A

By passing a special resolution requiring at least 75% shareholder approval.

64
Q

What case established that alterations to articles must be made bona fide for the benefit of the company as a whole?

A

Allen v Gold Reefs of West Africa Ltd (1900).

65
Q

What did Hickman v Kent or Romney Marsh Sheep-Breeders’ Association (1915) establish about statutory contracts?

A

Articles are enforceable only in matters related to membership rights.

66
Q

Which case clarified that ‘the benefit of the company as a whole’ refers to the shareholders collectively?

A

Greenhalgh v Arderne Cinemas Ltd (1951).

67
Q

What does Section 630 CA 2006 require for altering class rights?

A

Consent from the affected class of shareholders.

68
Q

What did Pender v Lushington (1877) establish regarding member rights?

A

Members can enforce their personal voting rights under the articles.

69
Q

What happens if an alteration to the articles is deemed unfairly prejudicial?

A

Minority shareholders can challenge it under Section 994 CA 2006.

70
Q

What is a shareholder agreement, and how does it differ from the articles of association?

A

A private contract between shareholders that offers flexibility but does not override statutory provisions.

71
Q

What principle was reinforced in Shuttleworth v Cox Bros & Co Ltd (1927)?

A

Amendments must not lack reasonable grounds or constitute an abuse of power.

72
Q

What protections are offered under Section 25 CA 2006?

A

Articles cannot be amended in a way that unfairly prejudices existing members.

73
Q

What did Sidebottom v Kershaw Leese & Co Ltd (1920) uphold?

A

Alterations expelling shareholders in competition with the company are valid if beneficial to the company.

74
Q

What case criticized the erosion of minority protections in article alterations?

A

Citco Banking Corporation NV v Pusser’s Ltd (2007).

75
Q

What does Section 29 CA 2006 require regarding resolutions affecting the constitution?

A

They must be filed with Companies House to form part of the constitution.

76
Q

What does Section 22 CA 2006 permit regarding entrenched provisions in articles?

A

These provisions require stricter procedures for alteration.

77
Q

What was the significance of Dafen Tinplate Co Ltd v Llanelly Steel Co Ltd (1920)?

A

The court struck down an amendment expelling dissenting shareholders as oppressive.

78
Q

What limitation on amendments was established in Punt v Symons & Co Ltd (1903)?

A

A company cannot contract out of its statutory right to alter its articles.

79
Q

How does Section 283 CA 2006 define a special resolution?

A

A resolution requiring at least 75% of votes cast to pass.

80
Q

What key benefit do shareholder agreements offer compared to articles of association?

A

Confidentiality, as they are not required to be filed with Companies House.

81
Q

What does Russell v Northern Bank Development Corporation (1992) say about shareholder agreements?

A

They cannot restrict the statutory power of a company to alter its articles.

82
Q

What does the phrase ‘for the benefit of the company as a whole’ mean in practice?

A

Changes should benefit shareholders collectively and not just a specific group.

83
Q

What are the three types of model articles provided under the Companies (Model Articles) Regulations 2008?

A

For private companies limited by shares, private companies limited by guarantee, and public companies.

84
Q

What was the outcome of Eley v Positive Government Security Life Assurance Co (1876)?

A

Articles did not bind the company to employ Mr. Eley as its solicitor because he acted as an outsider.

85
Q

What does Section 31 CA 2006 state about a company’s objects?

A

Unless restricted, a company has unrestricted capacity to act.

86
Q

How does Allen v Gold Reefs of West Africa Ltd (1900) influence article alterations?

A

It ensures changes are made bona fide and benefit the company.

87
Q

What does Section 994 CA 2006 allow shareholders to claim?

A

Relief for unfairly prejudicial conduct or amendments.

88
Q

What case upheld an injunction enforcing shareholder agreement provisions?

A

Puddephatt v Leith (1916).

89
Q

What does Section 18 CA 2006 require for incorporation?

A

Submission of articles of association.

90
Q

What are the statutory limitations on altering articles under the Companies Act 2006?

A

Compliance with mandatory provisions, protecting class rights, and ensuring fairness.

91
Q

What did Gambotto v WCP Ltd (1995) establish in Australia?

A

Alterations affecting minority rights must be justified by necessity or fairness.

92
Q

What case confirmed that directors are bound by the articles in their decision-making?

A

Howard Smith Ltd v Ampol.

93
Q

What case confirmed that directors are bound by the articles in their decision-making?

A

Howard Smith Ltd v Ampol Petroleum Ltd (1974).

94
Q

What are the key features of Model Article 3?

A

Assigns management powers to directors and allows shareholder intervention through special resolutions.

95
Q

What are pre-emption rights in share issuance?

A

Rights that protect existing shareholders from dilution by offering them the first opportunity to purchase new shares.

96
Q

What does Section 282 CA 2006 define?

A

An ordinary resolution, requiring a simple majority to pass.

97
Q

What is the importance of Foss v Harbottle (1843)?

A

It restricts individual claims, requiring the company to act as the proper claimant.

98
Q

What does Section 25 CA 2006 safeguard against in altering articles?

A

Prejudicial amendments to existing members.

99
Q

What did Sidebottom v Kershaw Leese & Co Ltd (1920) demonstrate about bona fide amendments?

A

Amendments expelling competing shareholders were upheld as benefiting the company.

100
Q

What does Mozley v Alston (1847) restrict?

A

Enforcement of procedural breaches to the company itself, not individual members.

101
Q

What role does judicial discretion play in article amendments?

A

Courts evaluate whether amendments are bona fide and for the benefit of the company, creating flexibility but also inconsistency.

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