Company constitution

What is the definition of a company's constitution?

The Act defines a company's constitution for the first time, though the

definition is exactly what everyone thought it was.

Section 17 of the Act reads in full as follows:

'Unless the context otherwise requires, references in the Companies Acts

to a company's constitution include -

the company's articles, and

any resolutions and agreements to which Chapter 3 applies (see

section 29)'

Section 29 reads in full as follows:

'(1) This chapter applies to -

any special resolution

any resolution or agreement agreed to by all the members of a company that, if not so agreed to, would not have been effective for its purpose unless passed as a special resolution;

any resolution or agreement agreed to by all the members of a class of shareholders that, if not so agreed to, would not have been effective for its purpose unless passed by some particular majority or otherwise in some particular manner;

any resolution or agreement that effectively binds all members of a class of shareholders though not agreed to by all those members;

any other resolution or agreement to which this Chapter applies by virtue of any enactment.

(2) References in subsection (1) to a member of a company, or of a class of members of a company, do not include the company itself where it is such a member by virtue only of its holding shares as treasury shares.'

Intriguingly Section 17 uses the word 'include', which makes it a non- exhaustive definition. It is, though, difficult to see what else might be encompassed.

Memorandum of association

What is in the memorandum of a company incorporated on or after 1st October 2009?

Section 8 of the Act reads as follows:

'(1) A memorandum of association is a memorandum stating that the subscribers -

wish to form a company under this Act, and

agree to become members of the company and, in the case of a company that is to have a share capital, to take at least one share each.

(2) The memorandum must be in the prescribed form and must be authenticated by each subscriber.'

The memorandum of a company formed from 1st October 2009 is an extremely short document. It just consists of evidence that one or more persons wish to form a company and be a member of it. In the case of a company that is to have a share capital it also provides evidence of their intention to take at least one share in it.

In view of the very limited function of the memorandum, being just a historical document of record, it is not possible or necessary to ever amend it.

What was in the memorandum of a company with a share capital registered before 1st October 2009?

The following had to be included:

The name of the company.

If it was a public company, that fact.

The situation of the registered office, i.e. whether it was in England and Wales, Wales, or Scotland.

The objects of the company.

If relevant, that the liability of the members was limited.

The amount of authorised share capital and its division into shares of a fixed amount.

The memorandum ended with a formal subscription clause.

What was in the memorandum of a company limited by guarantee registered before 1st October 2009?

The following had to be included:

The name of the company.

The situation of the registered office, i.e. whether it was in England and Wales, Wales, or Scotland.

The objects of the company.

A statement that the liability of the members was limited.

The amount of the guarantee, i.e. the maximum amount that each member undertakes to contribute in the event of a winding up.

Other clauses were often included. They could, for example, include provisions prohibiting the distribution of profits and specifying the application of assets on winding up.

The memorandum ended with a formal subscription clause.

What has happened to the memorandum of a company registered before 1st October 2009?

From 1st October 2009 the provisions of the memorandum of a company already registered at that date (apart from the subscription clause etc) were deemed to be part of the articles. Section 28 of the Act reads as follows:

'(1 ) Provisions that immediately before the commencement of this Part were contained in a company's memorandum but are not provisions of the kind mentioned in section 8 (provisions of new- style memorandum) are to be treated after the commencement of this Part as provisions of the company's articles.

This applies not only to substantive provisions but also to provision for entrenchment (as defined in section 22).

The provisions of this Part about provision for entrenchment apply to such provision as they apply to provision made on the company's formation, except that the duty under section 23(1 )(a) to give notice to the registrar does not apply.'

Would you please explain what is meant by "entrenchment" as mentioned in the answer to the last question.

"Entrenchment" is fully explained in the section of this chapter about articles. However, an old-style memorandum may have contained some provisions that could only be changed following a certain procedure or not changed at all. In particular, this arrangement was sometimes used relating to the rights attached to preference shares. In order to preserve this protection Section 28(2), quoted above, provides that the entrenching effect will be maintained.


 
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