UBML2013: COMPANY LAW

TOPIC 3: CONSTITUTION OF A
COMPANY
LEARNING OUTCOMES
What 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 ASSOCIATION
To 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; and
Subscribers clause - name & address of
subscribers to the M/A S. 18(1)(g).
Query? Are they for all types of companies?
OBJECT CLAUSE - I
It 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 - II
Under 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 - III
If 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/A
Allowed 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 - I
Provisions that regulate internal management
and operation of a co.
Matters set out in A/A
Division 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 - II
Co 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/A
Can 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 - I
Acts 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 members
Company 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 - II
Contract between member and every other
member
Member 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 - III
Contract between co and non member
M/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 - IV
Query? 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
RECORDS
Defined 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 RETURN
All 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.

SUMMARY
M/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?