COMPANY LAW

MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION

TOPICS

The Memorandum of Association

The Articles of Association

MEMORANDUM OF ASSOCIATION
Bowen LJ in Guinness v Land Corporation of Ireland (1882) The memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated. They are conditions introduced for the benefit of the creditors, and the outside public, as well as of the shareholders. (The articles of association are the internal regulations of the company).

MEMORANDUM OF ASSOCIATION
Therefore it defines the essential components of the companys structure Statutory requirements s 18(1):
The name of the company The objects of the company A share capital clause A liability clause An association clause A subscriber clause

MEMORANDUM OF ASSOCIATION
A third party who deals with the company may refer to the companys Memorandum which is deposited with SSM. (refer to the preceding lectures) Thus the Memorandum is a public document and today can be viewed electronically via the e-info portal of the SSM website. HTTP://WWW.SSM.COM.MY/EN/SSM-SERVICES

AMENDING THE MEMORANDUM OF ASSOCIATION

It is often the case that a company may wish to alter its Memorandum of Association. This is natural as the company evolves and needs to adapt to change. Amending the Memorandum is subject to specific statutory provisions.

AMENDING THE MEMORANDUM OF ASSOCIATION

S 23- the companys name S 25- unlimited to limited S 26- public to private S 28- object clauses S 62- share capital S 64- reduce the share capital

AMENDING THE MEMORANDUM OF ASSOCIATION

Generally amendments can be made by way of a special resolution except those that deal with matters involving shares. Changes to the provisions of the Memorandum of Association must also be notified to the Companies Registry.

AMENDING THE MEMORANDUM OF ASSOCIATION

The changes to the Memorandum of Association cannot be made in breach of other company law rules and there are protections against such changes where they increase the liability of individual shareholders, vary the rights of any class of shareholders or otherwise prejudice minority shareholders.

AMENDING THE MEMORANDUM OF ASSOCIATION

Special Resolutions require the votes of 75% of members present in person or by proxy, who are entitled to vote and do vote.

The meeting at which the resolution is proposed must have had at least 21 days notice, unless a shorter period was agreed by majority in number of members holding at least 95% of the shares. Certain matters can only be decided by special resolution and the articles cannot provide to the contrary.

THE OBJECTS CLAUSE

The object clause of the Memorandum of the company contains the object for which the company is formed. An act of the company must not be beyond the objects clause, otherwise it will be ultra vires and, therefore, void and cannot be ratified even if all the members wish to ratify it.

THE OBJECTS CLAUSE

ultra vires (uhl-trah veye-rehz) adj. Latin for "beyond powers," in the law of corporations, referring to acts of a corporation and/or its officers outside the powers and/or authority allowed a corporation by law.

THE OBJECTS CLAUSE

The doctrine of ultra vires has been developed to protect the investors and creditors of the company. This doctrine prevents a company to employ the money of the investors for a purpose other than those stated in the objects clause of its memorandum. Thus, the investors and the company may be assured by this rule that their investment will not be employed for the objects or activities which they did not have in contemplation at the time of investing their money in the company.

THE OBJECTS CLAUSE - UK

Ashbury Railway Carriage and Iron Company Ltd v. Riche, (1875) The objects of the company as stated in the objects clause of its memorandum, were to make and sell, or lend on hire railway carriages and wagons, and all kinds of railway plaint, fittings, machinery and rolling stock to carry on the business of mechanical engineers and general contractors to purchase and sell as merchants timber, coal, metal or other materials; and to buy and sell any materials on commissions or as agents. The directors of the company entered into a contract with Riche for financing a construction of a railway line in Belgium. The contract was ratified by all the members of the company, but later on it was repudiated by the company. Riche sued the company for breach of contract.

Issue: whether the contract was valid and if not, whether it could be ratified by the members of the company?

THE OBJECTS CLAUSE - UK

The House of Lords held unanimously that:
(a) The contract was beyond the objects as defined in the objects clause of its memorandum and, therefore it was void, and

(b) The company had no capacity to ratify the contract.

THE OBJECTS CLAUSE - UK

Following the Ashburys case, the shortcomings or disadvantages of this rule became apparent. The doctrine creates hardships both for the management and outsiders dealing with the company. An outsider dealing with the company is, in law, presumed to have knowledge of the provisions of the memorandum and articles of the company. A contract made by an outsider with the company in respect of anything which is not covered under the objects clause in its memorandum is ultra vires and therefore void.

AVOIDING ULTRA VIRES - UK

Owing to the difficulties of the ultra vires rule, businesses attempted to evade the ultra vires rule. One approach was to make the objects clause wide enough to cover various situations. All sorts of objects, which a company may wish to adopt, are stated in the objects clause.

AVOIDING ULTRA VIRES -UK

Bell Houses Ltd., v. City Wall Properties Ltd. (1966) A company was authorized by the objects clause of its memorandum to carry on any other trade or business, which could, in the opinion of the directors be advantageously carried on by the company in connection with its general business. This clause was held valid.

ULTRA VIRES POSITION IN THE UK TODAY

Its importance has been diminished as a result of the Companies Act 2006 s 31, which allows for unlimited objects for which a company may be run. Furthermore, any limits a company does have in its objects clause has no effect whatsoever for people outside a company (s 39 CA 2006), except as a general issue of authority of the company's agents.

ULTRA VIRES MALAYSIA

Section 20 Companies Act 1965: the doctrine has been modified and thus it states that the fact that the company did not have the capacity to enter into a particular transaction is irrelevant as against third parties. Hence an ultra vires transaction may be valid.

ULTRA VIRES MALAYSIA

However, by section 20(2), the companys lack of capacity or power may be asserted or relied upon: in proceedings against the company by any member, or debenture holder who is secured by a floating charge over the companys property, to restrain the company from doing an ultra vires act or transaction; in proceedings by the company or by any member of the company against the present or former officers of the company; in any petition by the Minister to wind up the company.

ULTRA VIRES MALAYSIA

In Malaysia, although ultra vires transactions which have been completed cannot be invalidated, the officers are not free to ignore the objects clause of the company. Thus, an injunction can be brought to prevent an uncompleted ultra vires transaction. Further, the officers who were responsible for the ultra vires transaction may be made liable to the company. This could involve issues of breaches of directors duties. This may be relevant if the borrowing transaction materially affects the companys ability to pay creditors. Finally, it is even possible to have the company wound up on grounds of serious ultra vires transaction.

THE ARTICLES OF ASSOCIATION

An official document giving details of the structure and running of a company, for example the powers of directors, the rights of shareholders, the way in which the accounts will be approved, etc or A set of regulations for the internal management of a company.

THE ARTICLES OF ASSOCIATION

If we recall, the incorporation of a company requires the submission of:
An original copy of the Memorandum and Articles of Association stamped at RM100.00. The first directors and secretaries shall be named in the Memorandum and Articles of Association. The subscribers to the companys shares shall sign the Memorandum and Articles of Association in front of a witness.

THE ARTICLES OF ASSOCIATION

So a company must have an AA. A company has the following options:
- adopt Table A, Fourth Schedule of the CA 1965; - do not create an AA. Then the Table A, Fourth Schedule of the CA 1965 becomes the default AA; - creates its own AA, yet does not exclude the application of Table A, Fourth Schedule of the CA 1965, thus Table A will be applicable in the event of any lacuna.

- See Section 30 of CA 1965

THE ARTICLES OF ASSOCIATION

For incorporation of a private company, the Articles of Association shall contain the following stipulations:
a. Restriction on the right to transfer the companys shares; b. Limitation on the number of members to not exceed fifty; c. Prohibition on any invitation to the public to subscribe the shares/debentures of the company; and

d. Prohibition on public invitation to the public to deposit money with the company.

THE ARTICLES OF ASSOCIATION

For listing, companies are required with Chapter 7 of the Bursa Malaysias Listing Requirements. Understandably, as a listed company, there are greater controls on the structure of the AA particularly those that relate to capital, borrowing and lending, voting etc.

THE ARTICLES OF ASSOCIATION

If there is a conflict between the MA and MA, then the provisions of the MA shall prevail. If there is a conflict between the AA and any statutory provision, then the question of which one prevails will depend on the words used in the context of the issue.

Amending The Articles of Association

S 31(1) the company is free to alter its articles by special resolution. Lindley MR in Allen v Gold Reefs of West Africa Ltd [1900]: a member must vote bona fide for the benefit of the company as a whole Latham CJ in Peters American Delicacy Co Ltd v Heath (1939) : The Court will not interfere unless the decision is one that no reasonable person could make.

AMENDING THE ARTICLES OF ASSOCIATION

Evershed MR in Greenhalgh v Ardene Cinemas Ltd [1951] Ch 286: the majority may not oppress or treat the minority unfairly. Sometimes a company may impose other requirements in its MA that also must be complied with before the AA can be altered. (see s 31(1)

CA 1965)

Legal effects of the MA and the AA

It is a binding contract between the company and its members;

Hickman v Kent Sheep Breeders Association (1876) Eley v Positive Government Security Life Assurance Co (1875)

It is also a contract between individual members in their capacity as members.

Wong Kim Fatt v Leong & Co Sdn Bhd (1976) Rayfield v Hands (1958)