3.
“ The memorandum contain the fundamental
condition upon which alone the company is
allowed to be incorporated. They are
conditions, introduced for the benefits of the
creditors and the outside public, as well as
the shareholders”
4.
Sec 18 (1) (b); every company must state the
objects of the company in its MOA
Object – purpose which the company is form
to achieve
Object will include power
Power – authority to achieve the object
-Third Schedule or Sec 19 (1).
5.
F: „Object‟ – to acquire the undertaking of two
existing railway company and to construct
and run certain railway.
Issue: Whether the hiring of locomotives and
rolling stock to another company – within the
object clause.
6.
H: Within the object clause
The power to hire locomotive and rolling
stock can be implied by the object to
construct and run certain railway.
7.
When a company indulges in activities which
are not authorized by the object clause.
Under the English law any contract which is
ultra vires would be : VOID ABINITIO &
CANNOT BE RATIFIED
8.
F: Object – to make, sell, lend or hire railway
plant, fittings, machinery, and rolling stock;
to carry on the business of mechanical
engineers and general contractors.
Directors entered into a contract – to
purchase a concession to construct a railway.
Then refused to proceed. Vendor of the
concession brought an action.
9.
H: The construction of railways ultra vires the
object of the company. Thus, the contract
was void.
The company was not liable for breach of
contract. Even if the shareholders agree, they
cannot ratify the contract.
10.
Sec 20 (1) – VALID
However, the doctrine would be applicable:
Sec 20 (2) (a); in proceeding by a member
against the company.
Sec 20 (2) (b); in proceeding by the
company/member against present or former
officer of the company.
Sec 20 (2) (c), in winding up petition by the
Minister.
11.
F: D Co. created 2 charges in favour of the P
Bank for the loan given to the third party.
Default in payment. P Bank proceed for an
order of sale of the land.
D Co – the charges was ultra vires its MOA
H: Not ultra vires. Even though ultra vires, it
could be saved by Sec 20 (1) (chan koh 14445)
12.
Sec 21 – The MOA maybe altered in the
manner provided by the Act and not
otherwise.
If the Act is silent, cannot be altered
Sec 154 – Any change must be lodged to the
Registrar.
13.
Sec 23 – change name
Sec 25 & 26 – public to private; vice versa
Sec 28 – object Clause
Sec 62 – share capital
Alteration requires special resolution or
ordinary resolution
14.
Regulate to the company‟s internal affair
Table A of Fourth Schedule is the specimen
of AOA – Sec 31 (2).
Subordinate to the MOA
General content; matters concerning of
shares, general meeting, directors…
15.
Sec 31 (1)
A company may be a special resolution
add, vary, amended or altered the AOA
MOA may restrict the ability of a company to
alter its AOA.
However there cannot be any provision in the
AOA which provides that an article is not
alterable.
16.
(1) Bona fide for the benefit of the company
as a whole.
Allen v Gold Reefs of West Africa Ltd
Lindley, M.R:
“the statutory powers to amend the article
must be exercised, not only in the manner
required by law, but also bona fide for the
benefit of the company as a whole”
17.
F : The D Co altered the AOA by introducing a
provision which gives the directors power to
buy out at a fair price the shareholding of
any member who competed with the
company‟s business.
18.
Evershed MR:
Bona fide benefit for the company as a
whole…means that the shareholder must
proceed upon what is honest opinion is the
benefit of the company as a whole….and the
company as whole does not mean the
company as a commercial entity distinct from
the corporators but it means the corporators
as a general body
19.
F: D Co altered its AOA which introduced a
power enabling the majority shareholders to
require any member to transfer his share at a
fair value to an approved transferee.
20.
H: The alteration was void.
Power conferred by the alteration was far
wider than necessary to achieve the purpose
of protecting the company from undesired
shareholder.
21.
Paterson J:
Alteration is for the benefit of the majority
members, not for the benefit of the company
as a whole.
22.
Brown v British Abbrasive
F: A company was in dire need of further capital
injection. The majority shareholders who
controlled 90% of the shareholding were willing
to inject capital into the company if the could buy
up the remaining shares of the minority. The
company altered its AOA so that the majority
shareholders may require any other shareholder
to sell his shares to them. Certain members of
the company object the alteration.
23.
H: The alteration of the AOA to allow the
majority shareholders to expropriate the
shares of minority shareholder was not for
the benefit of the company as a whole.
Therefore, it is void.
24.
Restriction by the MOA
Private Company – Sec 15
When there is classes of shares
-Sec 65, alteration of class rights could only
be done upon consent of the specific
proportion of the shareholders of that class.
In case of private company when the shares
are closely held-rare case
25.
H: The proposed alteration of the AOA was
null & void as it infringed the rights and
privileges given to some individuals on the
formation of the company
26.
Sec 33 (1):MOA and AOA contained covenants and
provisions which each members are bound to
observe.
Therefore, MOA and AOA constitute a
contract and bind the members as well as the
company.
27.
-The company and members can take action
against one another when either of them
failed to comply with the MOA and AOA.
Case: Hickman v Kent
28.
F : AOA – Any dispute should be referred to
arbitration.
H: brought action to court complaining some
irregularities in the company.
Defendant rely on the article to prevent H‟s
action.
29.
However, a member acting in the capacity
other than a member cannot enforce the MOA
and AOA.
Case : Eley v Positive Govt Life Assurance Co.
30.
F: In AOA – E was the permanent solicitor and
could be dismissed for misconduct. Later he
became a shareholder. When the company
terminated his employment, E sued the
company for breach of contract.
31.
H: Action failed. The article did not create
any contract between E (as a solicitor) and the
company.
The article conferred no rights on a member
who seeks to enforce a right in a capacity
other than a member.
32.
Member can bring action against another
member for the enforcement of MOA and
AOA.
33.
„The MOA and AOA constitute a contract
between the members inter se. Every member
has a personal right to have the terms of the
MOA and AOA observed. Action may be
brought directly against the other members
and the company does not have to be joined
as a party‟.
34.
Co has 2 shareholders. AOA – allow the maj.
Shareholder to purchase the shares of
another shareholder.
H: The article which empowers the requisition
of shares of the only shareholder is not
repugnant to the Companies Act. It was
purely a matter of contractual obligation.
35.
F: Article – Every member who intends to
transfer shares shall inform directors who will
take the shares equally between them at a fair
value.
Directors refused to purchase the shares.
R, the shareholder, took action.
36.
-outsiders cannot enforce the provisions in
MOA and AOA.
Ashbury J „…no article can constitute a
contract between the company and third
party‟
37.
F : P – Lessee, D – lessor of the land; in P‟s
AOA –Lessor has power to appoint a director
of the company.
Lessor – appoint itself as the director P
claimed that the appointment was invalid.
38.
H: Appointment was invalid because the D
was not a member.
„There is nothing in the article which confers
such right on the defendant since the
defendant was not a member of the
company‟.
39.
However, to bind the company, the outsider
should have a separate contract with the
company which incorporate the terms of
AOA.
In such situation, any alteration of AOA must
not breach the contract otherwise the
outsider may sue the company.
40.
F: By written agreement, Resp was appointed
as MD by SFL for 10 years. 3 years later SFL
was taken over by FFL and altered SFL articles
with empower FFL to remove any company
director.
FFL removed Resp from the directorship.
Resp sued for breach of contract.
H: Reps was entitled for damages.
