Objects clause and authorised share capital

What is (or was) the objects clause of a company registered before 1st October 2009?

For companies registered before 1st October 2009 it was a requirement that the company's memorandum contained an objects clause. This set out the purposes for which the company had been registered. Directors were required to pursue these objects only, and if they pursued other objects they were acting 'ultra vires' and could be personally liable.

It was common for objects clauses to be very long and detailed, so that in practice almost anything was within the scope of the objects. From 1989 it was possible to have a very short 'general commercial' objects clause. Such a clause permitted anything of a commercial nature.

On 1st October 2009 the objects clause of an existing company was deemed to be part of the company's articles. It continued to have the same effect, but since that date it has been possible to discontinue it by means of a special resolution. If this is done, the company has unrestricted objects.

What is the position concerning an objects clause for a company registered on or after 1st October 2009?

Companies registered on or after 1st October 2009 do not routinely have an objects clause and most of them do not. This means that the objects of the company are unrestricted. If the members wish to have an objects clause, they are free to put one in the articles.

Must companies that are registered charities have an objects clause in their constitution?

Yes - such a company must have a suitable objects clause in its articles. Charitable companies are an exception to the general rule about objects clauses.

Are directors (other than in a charitable company) totally free to pursue any object that they wish?

Yes and no. They are not restrained by the constitution unless there is a restriction in the company's articles. On the other hand, they should be mindful of directors' general duties. These are explained elsewhere in this book. Section 171 states 'A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole'.

What is (or was) authorised share capital?

For companies having a share capital registered before 1st October 2009 it was a requirement that the company's memorandum stated the total authorised share capital and how it was divided into shares of different values and class. On 1st October 2009 this was deemed to be part of the company's articles and continued to apply. However, the members have been able to remove authorised share capital from the articles by means of an ordinary resolution.

Companies having a share capital registered on or after 1st October 2009 are not required to have an authorised share capital, and the great majority do not do so. It is possible for the members to put it in the articles if they wish to do so.

Basic questions about articles

What are the articles of association?

The articles of association govern the way in which a company's internal affairs are regulated. They may be likened to an agreement between all of the members and the company itself.

Are the articles of association important? Why are there not more questions about them in this section of the book?

The articles of association are extremely important in all companies. This section of the book covers the general principles. However, answers to questions on very many topics are likely to include phrases such as 'subject to the articles' and 'you should refer to the articles to answer this question'. The issues are addressed topic by topic throughout the book rather than all in one place. To repeat the point - yes, the articles of association are important.

 
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