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Topic 3: The Company Constitution (1) - Coggle Diagram
Topic 3: The Company Constitution (1)
Introduction
Process of Simplification
Companies Act 2006:
A simplification of all these rights and duties derived from cases, different duties, different documentation because of codification of the law
Streamlining documents requirement in a company registration
Joint Stock Companies Act 1856:
2 documents needed:
Memorandum of association and;
Articles of association
But now you only need articles of association, don't need memorandum of association anymore
Co Law Review Steering Group
simplifies
it all:
Similar to Australia, we thought that why not just use a single constitution rather than using various bits of documents and bits of law which all have to be interpreted with one another
Let's just have a single constitution like Australia does
White Paper DTI 2002:
2.2: The Government agrees with the Review that neither 'objects clauses - the clause in a company's memorandum of association that defines its purpose - nor the split between the memorandum and articles in general serve a useful purpose any longer and should be removed
2.3: The members of a company will be able to amend the constitution by special resolution. They will also be able - if they all agree - to make it more difficult to make changes, by requiring a higher majority or even unanimity. As now, anyone doing business with the company in good faith will not need to worry about the details of the company's constitution
Resolutions
A key mode for members to control the company
2 basic types:
(1) Ordinary resolution requiring over 50% of the voting shares (e.g. 50.1% but NOT 50%) - S.282 CA 2006
(2) Special resolution requiring 75% or over - S.283 CA 2006
Can be written or in person - S.281 CA 2006
One other type of resolution
Where the articles are entrenched, it can include a higher voting threshold, usually 90%
Sometimes unofficially called an extraordinary resolution
Application documents sent to registrar (memorandum of association:
Company's proposed name
Registered office
Members liability
Public or private? - S.9
Statement of capital - S.10
Objects (all the types of business a company could engage in) are not
unrestricted
per S.31(1)
Articles of Association
Appointment and powers of directors:
Instructions on appointing new directors, removing one
Defines the scope of powers they have in the office
General management of the company:
Defines the general management powers of the company, who runs what and how
These articles are essentially the building blocks of a company
Without these articles, a company CANNOT RUN
Key sections:
S.18 - Registration (now a single document)
S.19 - Secretary of State can set out model articles
S.19(3) - Allows a company to 'adopt all or any of the provisions of model articles
Model Articles:
SI 2008/3229 - model articles for private companies limited by shares, private companies by guarantee and public companies
S.20 - If no articles, model ones apply
Transfer of shares, dividends and rights of different types of shares
Instructions on how to transfer shares
List of types of shares, so that we call them different classes of shares
Similar for dividends: how and when a dividend is called, who gets what
Object clauses
Companies that are registered under CA 2006 no longer needs any object clauses - S.31
Ultra vires (beyond company's powers) becomes irrelevant
Ultra vires on restricted objects:
If a company adopts object clauses, the doctrine of
ultra vires shall apply
This means that a company's
objects
becones irrelevant
Interpretation of the articles
A contract of a unique nature
Sometimes called:
'social contract' / 'relational contract' / 'statutory contract'
Characterised by longevity: they can last forever in theory, as long as the company lasts, or when they performed they service then they are extinguished
Characterised by incompleteness: even with firm guidelines/restrictions, they can be changed or added upon
The differences between social contracts and normal contracts
(1) Statute Force v Bargain between Parties
Differences between where the contract gets its force from:
Standard contract: force comes from bargaining between the 2 parties subject to the contract (force comes from the binding bargain)
Statutory contract: force comes from statute because statutes define what the contract is (the statute says what the contract is)
(2) Contract Law Remedies Unavailable:
Contract law remedies such as specific performance, rescission etc are not available in a statutory contract
Why:
if documents fundamentally underpins the "life" and operability of the company, then what happens if we rescind it?
Or what would happen if we rectified it (maybe a clash with internal management principle also...)
We would potentially cause the company to ceast to exist which is not desirable
(3) Alteration by Special Majority S.21(1) v Unanimous Agreement:
Standard contract: you must have unanimous agreement
Statutory contract: companies with this contract doesn't work like that because if you destroy the contract and overwrite it, the company will ceast to exist and you have to create another contract with another company