Please enable JavaScript.
Coggle requires JavaScript to display documents.
The constitution as a contract - Coggle Diagram
The constitution as a contract
S.33 provides that the provisions of a company's constitution bind the constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions
The constitution forms a contract between
the company and its members
the members themselves
Alteration of terms
Can be altered by passing a special resolution
With the consent of all members
By a court order
Cannot be enforced by outsiders
Only the terms relating to membership rights can be enforced
The ability of the company and its members to enforce the constitution is limited in two important ways
Outsiders and outsiders rights
Members cannot sue to enforce outsider rights
Members can only enforce the s.33 contract if they bring a claim in their capacity as members
An outsider right in the consitution can be enforced if a separate agreement outside of the constitution allows for such enofrement
Internal Irregularities
A member whose constitutional membership rights have been breached will usually be prevented from enforcing such rights if the breach constitutes an internal irregularity which occurs where the alleged wrong is a transaction which be made binding on the corporation and on all its members by a simple majority of the members
Shareholders agreement
Do not typically form part of a company's constitution but they do supplement the consittution
An agreement entered into by two or more members which usually sets out certain rules regarding the relationship of those members
If the company is also a party to the agreement then it may also establish rules relating to the relationship between the company and the members
The terms of a shareholders agreement can be enforced by or against any person who is party to the agreement this can provide the claimant access to several remedies including damages, injunctions or specific performance
Problems can arise where the company is party to the agreement and the agreement seeks to restrict the company's statutory rights, in such a case the court may hold that the shareholders are bound by the agreement but the company is not