The constitution of the company (Memorandum of association and the articles of association) The constitution of the company is its

governance system, the rules and principles prescribing how it is to run. In fact, the constitution includes amongst others; Memorandum and Articles of association, resolutions and other legal rules found in statutes and case law. Memorandum of Association Before incorporation companies are required to submit a memorandum of association to the registrar of companies, which must be signed by at least two subscribers from amongst the companys first shareholders. The memorandum relates to the companys external affairs and represents the company to the outside world. All companies are required to submit a memorandum of association to the registrar of companies, and it must be signed by two subscribers from amongst the companys first shareholders. Although the memorandum of association may contain a number of additional clauses there are a certain number of clauses that must be set out in any memorandum. These compulsory clauses are as follows: (i) Name clause Except in relation to specifically exempted companies such as those involved in charitable work, companies are required to indicate that they are operating on the basis of limited liability. Thus private companies are required to end their names either with the word limited or the abbreviation ltd; and public companies must end their names with the words public limited Company or the abbreviation plc (CA 1985 ss.25, 27 & 30). Although there is no longer an official Business Names Registry, the Registrar of companies maintains a register of business names, and will refuse to register any company with a name that is the same as one already on that index (CA 85 s.26(c)). This control is less rigorous than that exercised under the previous legislation and has led to an increase in the use of the tort of passing off, as a means of protection the goodwill attached to particular business names. Name of the company and law of passing off A passing off may be brought against any person who misrepresents to the public that goods or services it, the misrepresentation person, is providing, are associated with the claimant trader, thereby causing damage to the claimant trader. The claimant must demonstrate that it has goodwill that has been damaged by the misrepresentation. NB; Merely calling a company a name can never amount to passing-off. Certain categories of names are, subject to the decision of the Secretary of State, unacceptable per se, as follows: (i) Names which in the opinion of the secretary of state constitute a criminal offence (s.26 (1)(e). (ii) Names which in the opinion of the secretary of state are offensive (s.26 (1)(e). (iii) Names, which are likely to give the impression that the company is connected with either government or local government Authorities (s.26 (2)(a). (iv) Names which include a word or expression specified under the Company and Business Names Regulations 1981 (s.26 (2)(b). Page 1 of 5

The name of a company can always be changed by a special resolution of the company so long as it continues to comply with the above requirements (s.28 (1)). Change of name Under S28 of CA 85, the secretary of state has power to require a company to alter its name under the following circumstances: (i) Where it is the same as a name already on the Registrars index of the companys names (ii) Where it is too like a name that is on the index. Moreover the name can always be changed by a special resolution of the company so long as it continues to comply with the above requirements, that is s28 of CA 85. The

role of the company names adjudicators under the Companies Act 2006.

Under ss.6974 of CA 2006 a new procedure has been introduced to cover situations where a company has been registered with a name (i) that it is the same as a name associated with the applicant in which he has goodwill, or (ii) that it is sufficiently similar to such a name that its use in the United Kingdom would be likely to mislead by suggesting a connection between the company and the applicant (s.69). Section 69 can be used not just by other companies but by any person to object to a company names adjudicator if a companys name is similar to a name in which the applicant has goodwill. There is list of circumstances raising a presumption that a name was adopted legitimately, however even then, if the objector can show that the name was registered either, to obtain money from them, or to prevent them from using the name, then they will be entitled to an order to require the company to change its name. Under s.70 the Secretary of State is given the power to appoint company names adjudicators and their staff and to finance their activities, with one person being appointed Chief Adjudicator. Section 71 provides the Secretary of State with power to make rules for the proceedings before a company names adjudicator. Section 72 provides that the decision of an adjudicator and the reasons for it, are to be published within 90 days of the decision. Section 73 provides that if an objection is upheld, then the adjudicator is to direct the company with the offending name to change its name to one that does not similarly offend. A deadline must be set for the change. If the offending name is not changed, then the adjudicator will decide a new name for the company. Under s.74 either party may appeal to a court against the decision of the company names adjudicator. The court can either uphold or reverse the adjudicators decision, and may make any order that the adjudicator might have made. (ii) Registered office clause This is the companys legal address. It is the place where legal documents such as writs or summonses can be served on the company. It is also the place where statutory documents and registers, such as the register of members, are required to be kept available for inspection. The memorandum does not state the actual address of the registered office, but only the country within which the company is registered, whether Scotland or England and Wales. The precise location of the registered office however, has to be stated on all business correspondence (s.351). Page 2 of 5

(iii) Objects clause This clause sets out the purposes for which the company was established and, strictly speaking, any activity beyond those stated objects is ultra vires, and used to be void. The word ultra vires means beyond the powers Case: Ashbury Railway Carriage v riche Facts: The objects clause of the company set out the purpose of the company as the making and selling of railway carriages. The company entered a contract to purchase a concession for constructing a railway. Held: The contract was ultra Vires and beyond the capacity of the company. However, as a consequence of the amendment to s. 35 of the CA 1985, introduced by the CA 1989, ultra vires has been reduced essentially to a matter of internal regulation and outsiders are not affected by it. Companies can alter their objects clauses by passing a special resolution, and in any event can register as general commercial companies which allows them to pursue any business they wish to. (iv) Limited liability clause This simply states, and makes outsiders aware of the fact, that the liability of the members of the company is limited. (v) Authorized capital clause - Statement of capital and initial shareholdings This states the maximum amount of share capital that a company is authorized to issue. The authorized capital must be divided into shares of a fixed monetary value and it follows, therefore, that United Kingdom company law does not recognize no-fixed- value shares, as do other jurisdictions. As companies do not have to issue shares to the full extent of their authorized capital, it is imperative to distinguish authorized capital from issued capital, which is the amount of shares actually issued. The current minimum value of issued capital in relation to a public limited company is 50.000. (vi) Association clause This merely states that the subscribers wish to form a company. In addition the memorandums of public companies are required to state that they are public companies.

The impact of the Companies Act 2006 upon the Memorandum of Association for companies incorporated prior to 1 October 2009 With effect from 1 October 2009, the Memorandum of Association became a short document, essentially showing the intent to form a company, the identity of the initial subscribers, and the respective share capital subscribed by them. For companies incorporated prior to 1 October 2009, s28 of the Companies Act 2006 (CA 2006) operated to move the other provisions (including any objects clauses) from the Memorandum of Association into the Articles of Association (Articles). The objects clause moved to the Articles and s31 CA 2006 provides that unless a companys Articles expressly restrict objects, a companys objects are unrestricted. In respect of companies incorporated before 1 October 2009, if they are to have unrestricted objects, company secretarys should consider proposing an amendment to the Articles (inclusive of objects as of 1 October 2009) to remove any restrictive objects clause.

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Articles of Association
(a) Articles Generally The articles of association regulate the internal operation of the company. Although all companies are required to have articles of association, it is not compulsory to register individual articles. In the event of non-registration, the model articles contained in Table A of the Companies Regulations 1985 apply automatically. Amongst other things, these articles relate to the rights attached to particular shares, the rules relating to the transfer of such shares, the conduct of meetings, and the appointment, powers and payment of directors. The Articles are documents evidencing the existence of a contract between shareholders/members and the company. A company has three options: (i) It may adopt Table A in full. (ii) It may adopt Table A with modifications. (iii) It can exclude Table A entirely and write its own articles. (Table A has existed in various forms since 1862 - a company which adopts Table A will be bound by the Table A existing at the time it was incorporated, not a later version). Articles must be: (i) Printed (ii)Set out in numbered paragraphs (iii)Signed by the subscribers to the memorandum

(b)Alteration of Articles CA 1985, s.9 - articles can be altered by special resolution, which must be notified to the Registrar of Companies within 15 days. Any provision in the articles which would have the effect of making them unalterable is void. There are certain restrictions on the companys power to alter its articles: (i) Express Statutory Restrictions s.16 - cannot alter articles to increase a members liability without his consent. s.369(1) sets out notice periods for calling meetings and states this cannot be shortened by a provision in the articles. (ii) General Law and Public Policy A provision in the articles which is contrary to public policy is void. The same would apply to any provision which was inconsistent with the companies legislation. (iii) Court Order - Certain sections of the 1985 Act give the court power to order that no alteration be made to the articles. (iv) Memorandum - An alteration to the articles which conflicts with the memorandum would be effectively
void.

(v) Improper Use of Power to Alter Articles The Power to alter the articles must be exercised bona fide for the benefit of the company as a whole. The articles may be altered by a special resolution of the company (section 9), provided the alteration is made bona fide in the interest of the company as a whole (Greenhalgh v Arderne Cinemas Ltd (1951)). Case: Greenhalgh v Arderne Cinemas Ltd (1951)

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Facts: The issue was the removal from the Articles of the members right of first refusal of any shares which a member might wish to transfer, the majority wished to make the change in order to admit an outsider to membership in the interest of the company. Held: The benefit to the company as a whole was held to be a benefit, which any individual hypothetical member of the company could enjoy directly or through the company and not merely a benefit to the majority of members only. The test of good faith did not require proof of actual benefit but merely the honest belief on reasonable grounds that the benefit could follow from alteration. Case; Shuttleworth v Cox Facts: The purpose of the alteration was to remove from office a director who had repeatedly failed to account to the company for money in his hands. Held: The alteration was valid. Conclusion: Articles can be altered by special resolutions of a General Meeting, subject to the limitations that the Articles cannot: Conflict with the memorandum Conflict with company law Be illegal Alter class rights Override a court order Be otherwise than for the best interest of the company. A member cannot challenge an alteration carried out in good faith for the benefit of the company, even if the alteration adversely affects his own rights. 3. Legal Effect of Memorandum and Articles The legal effect is described in s.14 CA 1985. The memorandum and articles operate as a contract between the company and its members, which both parties are bound to honour. The effect of this is: (a) Each member, in his capacity as a member, is bound to the company as if he personally had signed the memorandum and articles. (b)The company is bound to each member in his capacity as a member. (c)The memorandum and articles do not constitute a contract binding the company or any member to an outsider - or to a shareholder in any other capacity than as a member. (d) Provisions of the memorandum or articles can sometimes form part of an extrinsic contract between the company and an outsider. This can happen in one of three ways: (i) Where provisions of the memorandum or articles are expressly incorporated into an express contract between the company and the outsider. (ii) Where there is no express contract but a provision in the memorandum/articles is incorporated by implication from the conduct of the parties. (iii) Where there is an express contract which is silent on a particular matter, and relevant provisions in the articles or memorandum are used to fill in any gaps. The company is not actually liable to the outsider on the basis of the articles, but under the extrinsic contract. (e) A member has a right to compel the company to act according to the articles even if not enforcing a right which is personal to himself as a member. (f) The memorandum and articles constitute a contract between each member and every other member. Page 5 of 5