5/11/2011 Company Law I Lecture 5:Corporate Constitution Constitution ·Two documents:: ■Memorandum of Association Articles of Association 1
5/11/2011 1 1 Company Law I Lecture 5: Corporate Constitution 2 Constitution • Two documents: Memorandum of Association Articles of Association
5/11/2011 Memorandum of association Standard forms:see Sch 1 Tables B-E. ·Cl1:company name CI 2:registered office CI 3:objects of company CI 4:liability of members limited [for limited liability companies] CI 5:share capital clause-authorised capital and par value [for companies limited by shares] Details of original subscribers. Objects of the company Objects:business or activities of company. Former doctrine of "ultra vires":contract that contravenes objects clause and outside of the corporate capacity of the company is ultra vires the company and void. 2
5/11/2011 2 3 Memorandum of association • Standard forms: see Sch 1 Tables B-E. • CI 1: company name • CI 2: registered office • CI 3: objects of company • CI 4: liability of members limited [for limited liability companies] • CI 5: share capital clause - authorised capital and par value [for companies limited by shares] • Details of original subscribers. 4 Objects of the company • Objects: business or activities of company. • Former doctrine of “ultra vires”: contract that contravenes objects clause and outside of the corporate capacity of the company is ultra vires the company and void
5/11/2011 Ashbury Railway Carriage and Iron Co Ltd v Riche (1875)LR 7 HL 653 (House of Lords) ·Co objects:: Make,sell,lease rail carriages Mechanical engineering and contracting ·Mining ·Co agreed to provide Riche with finance to build a railway in Belgium Held:contract void as ultra vires,ratification is wholly ineffective. Ashbury Railway Carriage and Iron Co Ltd v Riche(1875)LR 7 HL 653 (House of Lords) Clause 4 of the Articles: "an extension of the company's business beyond or for other than the objects or purposes expressed or implied in the memorandum shall take place only in pursuance of a special resolution." ·Is it a good case?? 3
5/11/2011 3 5 Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653 (House of Lords) • Co objects: Make, sell, lease rail carriages Mechanical engineering and contracting Mining • Co agreed to provide Riche with finance to build a railway in Belgium • Held: contract void as ultra vires, ratification is wholly ineffective. 6 Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653 (House of Lords) • Clause 4 of the Articles: “an extension of the company’s business beyond or for other than the objects or purposes expressed or implied in the memorandum shall take place only in pursuance of a special resolution.” • Is it a good case???
5/11/2011 Rationale and practical effects of ultra vires doctrine Rationale of doctrine:protection of shareholders and creditors. Injustices of doctrine in practice. Circumventing the doctrine:very wide objects clauses drawn up. Abolition of ultra vires doctrine: 1997 amendments Company has capacity as a natural person:s 5A. Stating objects is optional:s 5(1A)(b). Unless members want to dispense with "Limited"in the name:s 5(1A)(a). 4
5/11/2011 4 7 Rationale and practical effects of ultra vires doctrine • Rationale of doctrine: protection of shareholders and creditors. • Injustices of doctrine in practice. • Circumventing the doctrine: very wide objects clauses drawn up. 8 Abolition of ultra vires doctrine: 1997 amendments • Company has capacity as a natural person: s 5A. • Stating objects is optional: s 5(1A)(b). - Unless members want to dispense with “Limited” in the name: s 5(1A)(a)
5/11/2011 Where company does have objects Company must comply with objects clause:s 5B(1). Member may bring proceedings to restrain it from acting contrary to objects:s 5B(2)(subject to proviso). Action contrary to objects clause is not invalid by reason only of the contravention:s 5B(3). Effect of ss 5A,5B:examples Objects clause:restriction to business of running a restaurant. Directors wish to venture into retailing clothes. Scenario 1:directors have not yet acted on intentions. Scenario 2:directors have caused company to contract with clothing manufacturer. 10 6
5/11/2011 5 9 Where company does have objects • Company must comply with objects clause: s 5B(1). • Member may bring proceedings to restrain it from acting contrary to objects: s 5B(2) (subject to proviso). • Action contrary to objects clause is not invalid by reason only of the contravention: s 5B(3). 10 Effect of ss 5A, 5B: examples • Objects clause: restriction to business of running a restaurant. • Directors wish to venture into retailing clothes. • Scenario 1: directors have not yet acted on intentions. • Scenario 2: directors have caused company to contract with clothing manufacturer