#3183 - Company Constitution - Business Law and Practice

Definition:

S.17 Part 3 CA 2006: “Unless the context otherwise requires, references in the Companies Act to a company’s constitution include –

(a) Company’s articles, AND

(b) Any resolutions and agreements to which chapter 3 applies

(See S.29 - Resolutions and agreements affecting the company’s constitution - i.e. special resolutions, shareholders agreements).

What is the company empowered to do - Objects clause

• Under Old style memorandum (prior to CA 2006) – companies had objects clauses’ that would restrict the company’s contractual capacity. Any transaction beyond objects clause would be UV.

• S.31(1) CA 2006: “Unless a company’s Articles specifically restricts the objects of the company, its objects are unrestricted”

• S.28(1): if the old-style memorandum had an objects clause – it becomes part of the company’s constitution.

• S.8 New style memorandum is not part of company’s constitution – it only shows initial subscribers for shares.

• Therefore company that was incorporated PRIOR to the CA 2006 should amend its articles or be restricted by its objects.

THIRD Parties – protection:

S.39(1): ‘The validity of an ACT DONE BY A COMPANY shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution’.

Therefore a contract can STILL BE ENFORCED even if the company is acting beyond its capacity. This gives protection to third party contractors.

How can a third party get this protection?

a) It must be an act done by the company (i.e. agent’s authority issue? Does the agent have authority?)

b) The act done cannot be illegal (S.39)

c) The third party must be acting in good faith

Do the company’s agents have sufficient authority to bind the company?

• S.43 CA 2006: Contracts can be made on behalf of the company by any person acting under its authority [express or implied].

Key question: Was the contract beyond the powers of the board? Consider the articles and whether a special resolution was needed and was it carried out or has director avoided a minority protection ?

Good Faith:

• S.40(1) CA 2006: To get protection, the third party must be acting in good faith.

• What is GOOD FAITH?

• Company should get copy of board minutes approving transaction and authorizing the director to sign.