Topic 2

Question 1

Nature of constitution

Answer 1

Forms a contract between the original subscribers.

• Allows other persons to join the company as members if they agree to be bound by terms in the constitution
• Public document open to inspection through ACRA

Question 2

Terms of the contract can only be altered if

Answer 2

• Necessary majority agree to alteration

- Court approves the proposed alteration where the alteration would affect interest of other parties such as creditors

Question 3

Content of Constitution

Answer 3

COMMUNICATES WITH OUTSIDE WORLD ABOUT WHAT THE COMPANY IS

• Name of Company
• Liability
• Full names, addresses and occupations of subscribers
• Internal management procedures

Question 4

Alteration of constitution

Answer 4

• Members must pass a special resolution (i.e 75% of members present and voting)
• Minimum notice period is 21 days for public, 14 days for private

Resolution must be lodge with the Registrar within 14 days after having been passed.
-Printed copy of amended constitution must be lodged

Question 5

Entrenching Provision

Answer 5

• Provision in the company’s constitution that other provisions may not be altered or may be altered if a special resolution is met.
• To preserve a right stated in a clause in the constitution by making it difficult to alter that clause.
• May only be altered or removed if all members agree.

Question 6

Entrenched Provision

Answer 6

the clause that has an entrenching provision

Question 7

Effect of the Constitution

Answer 7

Contract between

• company and members
• between members themselves

Question 8

Statutory Contract

Answer 8

The company’s constitution when registered shall bind the company and the members to the same extent as if they respectively have been signed and sealed by each members. All members must observe all the provisions of the constitution.

Question 9

Copies to members

Answer 9

A member of company may request the company to send him a copy of constitution

Question 10

Objects Clause

Answer 10

Set out purposes for which the company is set up. Company should only engage in activities specified in its objects clause.

Company can opt to
-not have objects and have unrestricted capacity

Question 11

Ultra Vires

Answer 11

Company engages in activities outside of object clause

Question 12

Alteration of “objects”

Answer 12

• Special procedure requiring 21 days written notice

- Involves obtaining consent of all debenture holders

Question 13

Powers

Answer 13

Ability to achieve project

Companies usually have the power to

• borrow money and incur interest charges
• give its assets as security for such loans

Question 14

Agency

Answer 14

Agents may bind principal (company) to contracts if he had acted within his scope of express, implied or apparent authority.

Question 15

Company’s Agents

Answer 15

• Officer (director, company secretary, executive employee, liquidator)
• Employee
• Other person having professional relationship with it

Question 16

Scope of Authority - Express

Answer 16

Authority to act on behalf of company is given by the company i.e principal. Principal:

• Board of Directors
• General meeting of members

Agent’s express authority usually found in

• Resolution of the board of directors
• Resolution of members in general meeting

Question 17

Scope of Authority - Implied

Answer 17

Arises from the position to which the company has appointed him. Law deems him to have such authority.

Question 18

Implied authority of managing director

Answer 18

Operational decisions

Question 19

Implied authority of entire board of directors

Answer 19

Power to vote and make long term strategic decisions.