UBML2013: COMPANY LAWTOPIC 3: CONSTITUTION OF A COMPANY

LEARNING OUTCOMESWhat are Memorandum of Association (M/A) and Articles of Association (A/A)?What are the differences?What is the legal capacity of a co?Can M/A and A/A be altered? What are the legal effects of M/A and A/A?What are statutory books, records and returns?

MEMORANDUM OF ASSOCIATIONTo register a co, must have M/A S. 16(1).M/A must contain following compulsory clauses - S. 18: Name clause S. 18(1)(a);Object clause S. 18(1)(b);Share capital clause S. 18(1)(c);Liability clause S. 18(1)(d);Association clause S. 18(1)(h) subscribers take up the numbers of shares agreed; andSubscribers clause - name & address of subscribers to the M/A S. 18(1)(g).Query? Are they for all types of companies?

OBJECT CLAUSE - IIt defines cos powers.It states the purpose for which co exists.Details what co can do.Co must act within its object clause.Query? What happens if co does an act which is beyond its object clause? Under common law:a. It is ultra vires Ashbury Rly Carriage & Iron Co v Riche (1875) LR 7;b. Act is null and void.Query? What are the consequences?

OBJECT CLAUSE - IIUnder CA 1965:ultra vires act is not invalid S. 20(1).Query? What are the consequences?However: S. 20(2)A SH/DH secured by floating charge can restrain the ultra vires act;Co/SH can bring action against present/former officers; Query? Will this affect validity of ultra vires act under S. 20(1)? Minister can petition to court to wind up co.

OBJECT CLAUSE - IIIIf any party suffered loss due to restrain under S. 20(2), party can be compensated S. 20(3).Object clause can be altered by passing special resolution S. 28(1).Hv, holders of not less than 10% of cos issued capital/debentures can apply to court to cancel alteration within 21 days S. 28(6). Query? Thereafter what happens?

ALTERATION OF M/AAllowed only if CA allows S. 21(1)Query? What is the implication?The following are alterable:Change of co name S. 23;Conversion of limited to unlimited co or vice versa S. 25;Conversion of private co to public co S. 26;To increase or reduce share capital S. 64.

ARTICLES OF ASSOCIATION - IProvisions that regulate internal management and operation of a co.Matters set out in A/ADivision of power & relationship between GM of SH and BOD;Method of appointment of directors;Procedure of meetings;Procedure for allotment and transfer of shares;Manner, dividends are declared;Rights and obligations of members;Query? What is the nature of A/A?

ARTICLES OF ASSOCIATION - IICo limited by shares need not lodge their own A/A S. 29(1).Can adopt Table A of Fourth Schedule CA.Model A/A which constitutes clear and comprehensive set of regulations.Co can adopt all or any of the regulations contained S. 30(1).Query? If co lodge own A/A, will Table A apply? Co limited by guarantee must lodge own A/A.

ALTERATION OF A/ACan be altered by passing special resolution S. 31(1).Hv, subject to following limitations:A/A cannot be altered if it is provided in the M/A that A/A is unalterable;Query? What is the solution?SH must vote bona fide for the benefit of the co as a whole Allen v Gold Reefs of West Africa Ltd [1900]1 Ch 656;Alteration must be for proper purpose and fairness Gambotto v WCP Ltd [1995] 13 ACLC 344;If alteration require member to buy more shares or pay more for shares, must get written approval from the member S. 33(3); If alteration affects only one class of SH, there is additional procedure.

LEGAL EFFECT OF A/A AND M/A - IActs like a contract between S. 33(1)Co and members; and Member and every other member.Query? What is the effect and consequence? Contract between co and membersCompany can force members to comply with A/A and M/A - Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 881;Members can also require company to comply with M/A and A/A Pender v Lushington (1877) 6 Ch D 70.

LEGAL EFFECT OF A/A AND M/A - IIContract between member and every other memberMember can force another member to comply with A/A and M/A Arunachalam v Kwality Textiles (Malaysia Sdn Bhd [1990] 2 MLJ 167. Query? What if it seems unfair to mSH? Wong Kim Fatt v Leong & Co Sdn Bhd (1950-1985) MSCLC 264;Hv, cannot enforce provision in some other capacity - Eley v Positive Government Security Life Assurance (1875) 1 Ex D 20;It must be qua member.

LEGAL EFFECT OF A/A AND M/A - IIIContract between co and non memberM/A and A/A is not a contract between co and non-members;Thus, cannot give outsiders rights against co based on A/A or M/A - Forbes v NSW Troting Club Ltd [1977] NSWLR 515.Query? What is the legal justification?

LEGAL EFFECT OF A/A AND M/A - IVQuery? What happens if there is a separate contract between outsider and co?A/A can still be altered. But, co is in breach of contract and can be sued - Southern Foundries v Shirlaw [1940] AC 701.

STATUTORY BOOKS AND RECORDSDefined in S. 4(1).Must keep, record and explain transactions and financial position. Otherwise co and officers are guilty. Retained for at least 7 years.Enable co to prepare true and fair accounts. Enable auditors to examine and ascertain cos financial position.

ANNUAL RETURNAll cos must lodge AR with ROC. Within 1 month after AGM. Must have following information - address of registered office, summary of share capital, list of members, particulars of officers and auditors, key financial data, auditors report and changes in particulars since last AR. It is a public document.

SUMMARYM/A and A/A constitute important documents to the running and management of a co.Although M/A and A/A are alterable, procedures must be complied with.Requirement of statutory books, records and returns ensure disclosure of information for the purpose of accuracy and reliability.

QUESTIONS?