WS1: The Company's Constitution

Question 1

What constitutional documents does CA 1985 require companies to have?

Answer 1

Memorandum
Articles of Association

Question 2

What does a company need constitutionally under CA 2006?

Answer 2

Articles of Association only - memorandum only required as part of procedure to register a company at CH

Question 3

What did a pre-2006 Memorandum require?

Answer 3

Objects Clause

Question 4

How do objects work post-2006

Answer 4

Unrestricted unless specifically restricted in Articles

Question 5

How does CA 2006 translate objects clauses in memorandums?

Answer 5

They are treated like a clause of Articles of Association until amended to remove objects clause

Question 6

What is the ‘Legality Test’ for a company?

Answer 6

Articles must comply with the minimum provisions of CA

Question 7

Give me an example of a CA requirement that cannot be removed:

Answer 7

S321 CA: Right to demand a poll vote at a general meeting

Question 8

Give me an example of a power available to companies by default under the provisions of CA 2006 unless articles say otherwise:

Answer 8

Power of a private company to issue redeemable shares.

Question 9

What are the three choices for Articles?

Answer 9

Model Articles / Table A Articles

Amended Model Articles

Tailor Made Articles

Question 10

What resolution is needed to alter the articles?

Answer 10

Special resolution

Question 11

How can an entrenched provision in Articles be overturned?

Answer 11

Unanimous agreement of members, or a court order

Question 12

What is the basic rule when amending a company’s articles?

Answer 12

Alterations must be bona fide in the interests of the company as a whole e.g. amendment to articles isn’t valid if no reasonable man could consider it to be for the benefit of the company.

Question 13

Give me two examples of case law on bona fide alterations of a company’s articles:

Answer 13

Sidebottom v Kershaw: A provision which gave the directors power to buy out shareholders who competed with their business was held to be valid as was in best interests of the company

Re Charterhouse: In the absence of any finding of bad faith, improper motive or irrationality, there is no basis for the challenge to the validity of an amendment.

Question 14

What is the general rule on the legal effect of the Articles?

Answer 14

It is that articles evidence a contract between the company and its members in their capacity as members and with respect to their rights and obligations as members.

Question 15

Can members enforce rights contained in Articles against the company that are not relevant to their capacity as a member?

Answer 15

No

Question 16

Can members enforce Articles against other members?

Answer 16

If a member accepts a personal obligation to another member via articles, suggested that articles can be enforced.

If not a personal obligation, Articles can only be enforced via the company itself.

Question 17

What is a more sensible option than attempting to enforce articles against another member?

Answer 17

To enter into a shareholders agreement instead.