This essay will consist in an attempt to analyse

This essay will dwell in an effort to analyze the place of company members with respect to the articles of association of the company which they join. It will get down by looking at how each member is bound by the articles of association and so travel on to look at how this differs from other signifiers of contract. It will eventually travel on to analyze the ways in which articles of association restrict the rights of those outside the company from implementing their commissariats.

The articles of association for a company prescribe the ordinances of that company. When these articles are registered, they bind the members of the company to the same extent as if they had been signed and sealed by each member and contained compacts on the portion of each member to stay by the contents of the articles. This is contained in subdivision 14 ( 1 ) of the Companies Act 1985 which states as follows:

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“Subject to the commissariats of this Act, the memoranda and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained compacts on the portion of each member to detect all the commissariats of the memoranda and of the articles.”

This indicates that the articles of association become a kind of contract between the company and its members. This is a statutory contract and as such has its ain characteristics as distinct from an ordinary commercial contract. These will be discussed below. The construct of the articles as a contract is one which has developed over a long period of clip. For illustration, Steyn LJ in the instance ofBratton Seymour Service Co Ltd V Oxborough[ 1 ] discussed subdivision 14 ( 1 ) in footings of whether a term can be implied in to articles of association non on the footing of the dictions or deductions derivable straight from the diction, but on the footing of extrinsic grounds as to purpose. He concluded that this was non possible stating:

“…if it were permitted, it would affect the place that the different deductions would notionally be possible between the company and different endorsers. Merely as the company or an single member can non seek to get the better of the statutory contract by ground of particular fortunes such as deceit, error, undue influence and duress and is moreover non permitted to seek a rectification, neither the company nor any member can seek to add to or to deduct from the footings of the articles by manner of connoting a term derived from extrinsic environing circumstances.”[ 2 ]

A instance dating back to 1940 besides confirms the articles’ stiff contractual position. The instance ofScott V Frank F Scott ( London ) Ltd[ 3 ] held that one time the articles are registered, the tribunal has no power to rectify them even if they do non harmonize with what is proved to be the coincident purpose of the members. Furthermore, money collectible by a member to the company under the memoranda or articles is a debt due from him to the company, and is of the nature of a forte debt. This can be seen in the instance ofSt Johnstone Football Club Ltd v Scottish Football Association Ltd[ 4 ] which involved mulcts collectible to the company pursuant to the articles. The new Companies Act 2006, mostly re states the place in the 1985 Act although subdivision 34, in force from October 2008, provides that the restriction period for debts will in fact be 6 old ages as opposed to 12 old ages as was antecedently the place.

As described above the regulations associating to articles of association are stiff and strictly enforced. However, whilst they are described as making a statutory contract, there are distinguishable difference between how they operate and how an ordinary commercial contract operates. There is the fact that the articles operate as between the company and its members and between the members inter se. It has been held that the contractual force of the articles operates between the members merely in their capacity as members and does non for illustration affect the relationship between the company and its managers in their capacity as managers. [ 5 ] With respect to the place between the company and the members:

“The articles constitute a contract between the company and a member in regard of his rights and liabilities as a stockholder ; and a company may action a member and a member may action a company to implement and keep breaches of the ordinances contained in the articles covering with such matters.”[ 6 ]

They do non of class bind him in his capacity as an person.

With respect to the power to change the articles, this can be done by the company, without the consent of the members. Alteration is effected by particular declaration topic to the commissariats of the Companies Act 1985 and any particular conditions contained in its memoranda. Any changes made are, capable to such commissariats, every bit valid as if originally contained in the articles, and are capable in similar mode to change by particular declaration. [ 7 ]

Indeed the of import instance ofRussell v Northern Bank Development Corp Ltd[ 8 ] held that companies can non shackle their ability to change the articles of association. In this instance the stockholders had forged understandings with the company such that the company could non increase their capital without the consent of all the members. The understanding stated that it was to hold precedency over the articles where there was a struggle.

“Lord Jauncey…citing the pronouncement of Russell LJ in Bushell VReligion[ 1969 ] 1 All ER 1002 at 1006that a company could non by ‘its articles or otherwise ‘ depriveitself of the power to change its articles, he considered that the adverb ‘otherwise ‘ made it clear that it was non simply ‘fetters on the power toalterarticles of associationimposed by the statutory model of a company that were objectionable but besides other hobbles to which the company was a party that produced a similar consequence.[ 9 ]

It is right to state that the articles must be altered in such a manner that they would hold been valid at the beginning of the company, and they must be altered for the benefit of the company as a whole [ 10 ] . However, the fact remains that change does non necessitate the consent of the members and can even impact their rights retrospectively. This is a historical place [ 11 ] and has non altered in either the passage of the 1985 statute law or the Companies Act 2006.

With respect to the operation of the articles of association on an understanding between the company and an foreigner, the articles do non under any fortunes constitute a contract which can be taken advantage of by the foreigner [ 12 ] . Furthermore, it has been held:

“If it contains commissariats confabulating rights and duties on foreigners, so those commissariats do non seize with teeth as portion of the contract between the company and the members, even if the foreigner is coincidently a member.”[ 13 ]

This rule is historically exemplified by the 1876 instance ofEley Vs Positive Security Life Assurance Ltd[ 14 ] . In this instance, a canvasser was named as company canvasser for the company in the Articles of Association for that company. Although he was ne’er in fact named as canvasser, he did make work in that capacity. When his services were dispensed with, he sued for breach of contract of the footing of the articles of association. It was held that he was unable to make so as the articles merely operated between stockholders inter Se and could non be relied upon by person who is non a party to the articles [ 15 ] .

This place has been developed to corroborate that even members of the company can non trust on the articles of association when they are moving in capacities other than as a member. In the instance ofBeatie V E and F Beatie[ 16 ] Mr Beatie was a manager of the company every bit good as a member. There was a clause in the articles of association saying that if any difference arose between members so it must foremost be referred to independent arbitration and non go the topic of legal proceedings. The complainant, who was a minority stockholder, brought an action against Mr Beatie for breach of fiducial responsibility as he became leery about the degree of wage which Mr Beatie was having as a manager. Mr Beatie tried to hold the action struck out on the footing that it breached the articles. It was held that the action against Mr Beatie was non in his capacity as a member, but and a manager and hence an foreigner. There was hence no breach of the articles.

In decision, it is clear that articles do so adhere each member of a company as if signed and sealed by them. The contract between the members is non a commercial contract, but alternatively derives its force from legislative act. It is most distinguishable from ordinary contracts in that it can be altered without the consent of the members. It is besides right to state that it has really limited operation between the company and its members and the members inter se, foreigners are neither edge by nor able to trust on its footings.

BIBLIOGRPHY

Referenced

  • Companies Act 1985
  • Bratton Seymour Service Co Ltd V Oxborough[ 1992 ] BCLC 693 CA
  • Scott V Frank F Scott ( London ) Ltd[ 1940 ] Ch 794
  • St Johnstone Football Club Ltd v Scottish Football Association Ltd1965 SLT 171
  • Beattie v E & A ; F Beattie Ltd[ 1938 ] Ch 708 at 721,
  • Hickman v Kent or Romney Marsh Sheep Breeders ‘ Association[ 1915 ] 1 Ch 881
  • Russell v Northern Bank Development Corp Ltd[ 1992 ] 3 All ER 161
  • Halsbury’s Laws of EnglandCompaniesVolume 7 ( 1 ) 2004 Reissue
  • D.D Prentice, LLB, JD, MACompany LawAll England Law Review 1992
  • Companies Act 2006
  • Eley Vs Positive Security Life Assurance Ltd 1876 CA
  • Allen v Gold Reefs of West Africa Ltd[ 1900 ] 1 Ch 656
  • Hickman v Kent or Romney Marsh Sheep Breeders ‘ Association[ 1915 ] 1 Ch 881
  • Micahel Otley and Joanna GrayBrief Case on Company LawRoutledge Cavendish 2002.

Background Reading

  • Gower and Davies’Principles of Modern Company Law7th edition, Sweet and Maxwell 2003
  • Mayson French and Ryan Company Law 24th edition Oxford University Press 23rdAugust 2007.
  • Charlesworth’s Company Law 17th edition, Sweet and Maxwell 3rdAugust 2005.
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