Business law lecture 3
Structure of a company
■ Remember:
■ Board of Directors( management committee)
■ General meeting (members)
■ Articles allocate power between these bodies
■ There may be a separate shareholders’ agreement
Documents needed to incorporate a limited liability company
■ Articles (including objects clause if there is one)
■ Memorandum of Association: name and number of subscribers
■
■ Application for registration setting out company name, share capital, address of reg
office, that liability of members is limited, statement of name and addresses of
directors (can be reg office) and a statement of compliance with CA 2006
■ Subscribers=those who agree to take shares in the company
■ Subscribers become first members on registration
Share capital
■ Application for reg must include statement of capital and initial shareholdings
■ Share capital can be divided into small amounts
■ Company A: £1000 divided into 1000 shares of £1 each
■ Each share is allocated a par or nominal value= minimum amount for which shares
can be issued ( ie at reg)
■ Each share has a nominal value = £1
■ Could be issued at higher but not lower price. ie could be issued at £10 per share.
■ Share capital can be increased s 617 CA 2006
The Company’s Constitution
■ 1. The content of the constitution: CA 2006, ss. 17-20
■ The constitution of the registered company is composed of the articles of
association and certain types of resolution passed by the members of the company:
CA 2006, ss. 17 and 29
■ A company must have articles which must be registered. In default the company’s
articles will be the model articles prescribed by the Secretary of State: CA 2006, ss.
18-20
What is the company’s constitution?
■ Section 17
■ Unless the context otherwise requires, references in the Companies Acts to a
company's constitution include–
■ (a) the company's articles, and
■ (b) any resolutions and agreements to which Chapter 3 applies (see section 29)
, Compulsion to have a constitution
■ Section 18
■ (1) A company must have articles of association prescribing regulations for the
company
■ (2) Unless it is a company to which model articles apply by virtue of section 20
(default application of model articles in case of limited company), it must register
articles of association
■ (3)Articles of association registered by a company must—
(a)be contained in a single document, and
(b)be divided into paragraphs numbered consecutively.
■ (4)References in the Companies Acts to a company's “articles” are to its articles of
association.
Articles delegate power to Directors:
Art 3 and 4 of model articles
■ 3. Directors’ general authority
■ 3.Subject to the articles, the directors are responsible for the management of the
company’s business, for which purpose they may exercise all the powers of the
company.
■ 4. Shareholders’ reserve power
■ 4.—(1) The shareholders may, by special resolution, direct the directors to take, or
refrain from taking, specified action.
■ (2) No such special resolution invalidates anything which the directors have done
before the passing of the resolution.
Why have bespoke articles? ie what is missing in Model Articles ?
■ Some pitfalls:
■ Model Art 11(2) quorum is 2: two directors- easily deadlocked
■ Model Art 14:interested director cannot vote or count in the quorum- blocks deals
easily
■ Alternate directors: model article silent but might need at the last moment.
Issues to do with articles
■ We need to look at :
■ Contractual effect of articles
■ Enforceability of the articles and
■ Alteration of the articles
The articles as a contract:
Section 33 CA 2006
■ (1) The provisions of a company's constitution bind the company and its members to
the same extent as if there were covenants on the part of the company and of each
member to observe those provisions.
■ (2) Money payable by a member to the company under its constitution is a debt
due from him to the company.
Structure of a company
■ Remember:
■ Board of Directors( management committee)
■ General meeting (members)
■ Articles allocate power between these bodies
■ There may be a separate shareholders’ agreement
Documents needed to incorporate a limited liability company
■ Articles (including objects clause if there is one)
■ Memorandum of Association: name and number of subscribers
■
■ Application for registration setting out company name, share capital, address of reg
office, that liability of members is limited, statement of name and addresses of
directors (can be reg office) and a statement of compliance with CA 2006
■ Subscribers=those who agree to take shares in the company
■ Subscribers become first members on registration
Share capital
■ Application for reg must include statement of capital and initial shareholdings
■ Share capital can be divided into small amounts
■ Company A: £1000 divided into 1000 shares of £1 each
■ Each share is allocated a par or nominal value= minimum amount for which shares
can be issued ( ie at reg)
■ Each share has a nominal value = £1
■ Could be issued at higher but not lower price. ie could be issued at £10 per share.
■ Share capital can be increased s 617 CA 2006
The Company’s Constitution
■ 1. The content of the constitution: CA 2006, ss. 17-20
■ The constitution of the registered company is composed of the articles of
association and certain types of resolution passed by the members of the company:
CA 2006, ss. 17 and 29
■ A company must have articles which must be registered. In default the company’s
articles will be the model articles prescribed by the Secretary of State: CA 2006, ss.
18-20
What is the company’s constitution?
■ Section 17
■ Unless the context otherwise requires, references in the Companies Acts to a
company's constitution include–
■ (a) the company's articles, and
■ (b) any resolutions and agreements to which Chapter 3 applies (see section 29)
, Compulsion to have a constitution
■ Section 18
■ (1) A company must have articles of association prescribing regulations for the
company
■ (2) Unless it is a company to which model articles apply by virtue of section 20
(default application of model articles in case of limited company), it must register
articles of association
■ (3)Articles of association registered by a company must—
(a)be contained in a single document, and
(b)be divided into paragraphs numbered consecutively.
■ (4)References in the Companies Acts to a company's “articles” are to its articles of
association.
Articles delegate power to Directors:
Art 3 and 4 of model articles
■ 3. Directors’ general authority
■ 3.Subject to the articles, the directors are responsible for the management of the
company’s business, for which purpose they may exercise all the powers of the
company.
■ 4. Shareholders’ reserve power
■ 4.—(1) The shareholders may, by special resolution, direct the directors to take, or
refrain from taking, specified action.
■ (2) No such special resolution invalidates anything which the directors have done
before the passing of the resolution.
Why have bespoke articles? ie what is missing in Model Articles ?
■ Some pitfalls:
■ Model Art 11(2) quorum is 2: two directors- easily deadlocked
■ Model Art 14:interested director cannot vote or count in the quorum- blocks deals
easily
■ Alternate directors: model article silent but might need at the last moment.
Issues to do with articles
■ We need to look at :
■ Contractual effect of articles
■ Enforceability of the articles and
■ Alteration of the articles
The articles as a contract:
Section 33 CA 2006
■ (1) The provisions of a company's constitution bind the company and its members to
the same extent as if there were covenants on the part of the company and of each
member to observe those provisions.
■ (2) Money payable by a member to the company under its constitution is a debt
due from him to the company.
