Company Law - Company Constitution and Articles of Association

Flashcards on Company Constitution, Articles of Association, and Company Borrowing, based on lecture notes.

Company Constitution

A set of legal documents that define how a company can operate.

Promoters

The people who create companies.

Memorandum of Association

A memorandum stating that the subscribers wish to form a company under this Act, and agree to become members of the company and, in the case of a company that is to have a share capital, to take at least one share each.

Memorandum of Association Details

Gives the company's name, names of its members (shareholders), the number of shares held by the members, and the location of its registered office.

Memorandum of Association

It also states the company’s objectives, amount of authorized share capital, whether liability of its members is limited by shares or by guarantee, and what type of contracts the company is allowed to enter into.

Articles of Association

The internal rule book that every incorporated organization must have and work by; also forms a part of the constitution of an organization.

Articles of Association as a Contract

A contract between the members (stockholders, subscribers) and the organization and among the members themselves.

Articles of Association - Rights and Duties

Sets out the rights and duties of directors and stockholders individually and in meetings and certain statutory clauses must be included.

Hickman v Kent and Romney Marsh Sheepbreeders’ Association (1915) - Point of Law

Companies must adhere to their own rules when making decisions that affect the rights of its members.

Pender v Lushington (1877) - Point of Law

Companies must adhere to their own rules when making decisions that affect the rights of its members.

Rayfield v Hands (1958) - Point of Law

The articles bind members to each other as well as to the company.

Eley v The Positive Government Security Life Assurance Company Ltd (1876) - Point of Law

An outsider cannot sue a company based on breach of the articles.

Changing the Articles of Association

Requires the consent of 75% of shareholders rather than a simple majority (if there are multiple share classes, then 75% of each share class must approve the changes).

Allen v Gold Reefs of Africa Ltd (1900) - Point of Law

Changing the articles must be in the best interests of the company.

Bushell v Faith (1970) - Point of Law

There may be conditions attached to making alterations which effectively restrict the ways in which the articles can be amended.

Two Major Forms of Company Financing

Share capital and debentures.

Preference Shares

Shares of a company’s stock with dividends that are paid out to shareholders before common (ordinary) stock dividends are issued.

Ordinary (Equity) Shares

Represent the basic voting shares of a corporation.