The Objects of Company
The Companies Act 1985 requires that the memorandum of association of a company states the objects of its existence and operations. The objects of the company identify the nature of a company's corporate powers, and sets the boundaries for those powers. A company is authorised to pursue those objects explicitly set out by its constitution and conduct its business accordingly.
Ultra Vires
It used to be the case that transactions ultra vires the company’s objects clause were void and unenforceable. The UK Companies Act 1989 however altered this position. Many companies still use long form objects in their memorandum of association for a number of reasons. Banks usually insist on specific objects for their internal procedures, despite the change in law so long ago.
Companies Act 1989
The Companies Act 1989 permits a shorter statement of the company’s objects in order to reduce the length of objects clauses and increase certainty in the legitimate exercise of corporate power for the benefit of third parties. Where the company’s memorandum states that the object of the company is to carry on business as a general commercial company, the company may carry on any trade or business whatsoever, and the company has power to do all such things as are incidental or conducive to the carrying on of any trade or business by it. This dispenses with the prejudice that used to be caused to parties contracting with the company, when the company did not actually have the authority to enter the contract in the first instance. In such cases, third parties would thus be left with an unenforceable contract.
Content of Memorandum of Association
The memorandum of association of a company limited by shares must state the name of the company, and if it is a public company, ‘public limited company’ or, if a private company, ‘limited’ as the last words or word in its name; the location of the company’s registered office; the objects of the company; that the liability of members is limited (it may also provide that the liability of directors or managers is unlimited); and the amount of the share capital with which the company proposes to be registered, and the division of the share capital into shares of a fixed amount.
There must also be shown in the memorandum against the name of each subscriber the number of shares they takes; if no number is given, a subscriber is deemed to be liable to pay for at least one share.
Effect of the Memorandum
After the memorandum is registered, it binds the company and its members as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles. Therefore, the memorandum becomes a contract between the company and its members; it is a statutory contract with its own distinctive features.
How far the memorandum constitutes a binding contract between a company and its members on the one hand and between its members inter se on the other hand, is not clear. It has been held that the contractual force given to the articles of association is limited to those provisions which apply to the relationship of members in their capacity as members and does not extend to those provisions which govern the relationship of a company and its directors as such.
Although the Companies Act does not expressly state that the company be bound by the contract; nor does it expressly limit the ambit of the provisions in the memorandum, the courts have interpreted it being binding only in respect of rights and liabilities of the member as a shareholder but not in any private capacity. Shareholders' rights found in the memorandum and articles include: the right to dividends; the right to vote at company meetings; the right to appoint directors; the right to participate in surplus assets on a winding up; the right to have statutory and company procedures followed.
The members may sue each other on the contract contained in the memorandum and articles and do not need to do so through the company, if they are suing in respect of shareholders' rights.
Money payable by a shareholder to the company under the memorandum or articles is a debt due from him to the company, and is of the nature of a specialty debt and actionable for 12 years, rather than the usual 6 year period.
The conditions contained in the memorandum of association cannot be altered, except in the cases, in the mode and to the extent for which express provision is made in the Act.
The alterations which may be made in the memorandum without a court’s confirmation are:
The alterations which may be made in the memorandum, with confirmation by the Court:
Notice Requirements for Changes
A company is not entitled to rely on shareholders consent for any alteration of its memorandum or articles if the shareholder did not receive notification of the proposal to make the alteration within the requirements of the Companies Act. Minimum notice periods apply to those authorised to attend and vote at meetings to make such changes.
For instance, the name of a company may be changed by special resolution. The resolution must be passed by at least three-quarters of the shareholders present and voting at an extraordinary general meeting. When a minute of the meeting is provided to Registrar of Companies and the statutory fee paid, the new name will be placed on the Registrar in place of the previous company name. An altered certificate of incorporation is then issued and the change of name takes effect from the date of issue. Until the certificate is obtained however, the company exists under its original name, although notice of a call stating the new name which is sent before the certificate is obtained is considered effective. The effect of the issue of the certificate of incorporation on change of name is to recognise the continued existence of the company under its new name, not re-incorporation. The company name of the entity remains the same.
The change of name does not affect any rights or obligations of the company. If after the issue of the certificate it is found that the special resolution was not duly passed, application may be made to the Registrar of Companies to vacate the registration.
Powers of the Secretary of State
The Secretary of State for Trade and Industry may direct the company to change its name where:
As with the name of a company, a company may change its memorandum with respect to the statement of the company’s objects, by special resolution.
An application may be made to the court for the alteration to be cancelled:
The application must be made within 21 days after the date on which the resolution was passed and may be made on behalf of those entitled to make the application by such one or more of their number as they may appoint in writing for the purpose. The court may confirm the alteration by way of an order, either wholly or in part and on such terms and conditions as it thinks fit.
The company may provide for the purchase by the company of the shares of any shareholders of the company and for the reduction of its capital, and may make such alterations in the company’s memorandum and articles as may be required in consequence of that provision.
A company is not entitled to rely on other persons on any alteration of its memorandum that shareholder did not receive proper notification of the general meeting under the Act.
Where a charity is a company or other body corporate having power to alter the instruments establishing or regulating it as a body corporate, no exercise of that power which has the effect of the body ceasing to be a charity is valid so as to affect the application of any property acquired under any disposition or agreement previously made otherwise than for full consideration in money or money’s worth, or any property representing property so acquired.
The Benefit of Limited Liability under Company Law
The Companies Acts lay down a mechanism to manage personal liability in business transactions. This corporate veil that protects the individuals own assets may only be pierced in exceptional circumstances, the most common being insolvent trading and fraudulent trading or conduct.
Business Structures – Partnership Assets – Decision Overturned
Companies: Internal Governance – Types of Companies under the Companies Act UK
Companies: Internal Governance – Directors’ Duties Under the Companies Act 2006
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