University of Exeter, Business SchoolCorporate Law 2011/12Part A (Sections 1-3): CREATING THE COMPANYSECTION 2 - PROMOTION & FORMATION OF A COMPANYMaterial to accompany lectures and lecture slidesPromotion of CompaniesWhaley Bridge Calico Printing Co v Green (1880) 5 QBD 109:“The term promoter is a term not of law, but of business, usefully summing up in a single word of number of business operations familiar to the commercial world by which a company is generally brought into existence.” (Bowen J)Twycross v Grant (1877) 2 CPD 469“A promoter … is one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose … and so long as the work of formation continues, those who carry on that work must, I think, retain the character of promoters. Of course, if a governing body, in the shape of directors, has once been formed, and they take … what remains to be done in the way of forming the company, into their own hands, the functions of the promoter are at an end.” (Cockburn CJ)Sealy’s assessment:“Such attempts at definition as have been made by the courts, seem to have been concerned only to ensure that enough flexibility was retained to catch the next ingenious rogue which the pre-incorporation period might produce.”Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218Emma Silver Mining Co v Grant (1879) 11 ChD 918Gluckstein v Barnes [1900] AC 240:“These gentlemen … bring the company into existence by means of the usual machinery. They appoint themselves sole guardians and protectors of this creature of theirs, half-fledged and just struggling into life, bound hand and foot while yet unborn by contracts tending to their private advantage, and so fashioned by its makers that it could only act by their hands and only see through their eyes. They issue a prospectus representing that they had agreed to purchase the property for a sum largely in excess of the amount which they had, in fact, to pay. On the faith of this prospectus they collect subscriptions from a confiding and credulous public. And then comes the last act. Secretly, and therefore dishonestly, they put into their own pockets the difference between the real and the pretended price.” (Lord Macnaghten). Pre-incorporation ContractsKelner v Baxter (1866) LR 2 CP 174Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45s. 51(1): A contract that purports to be made by or on behalf of a company at a time when the company has not been formed has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the company or as agent for it, and he is personally liable on the contract accordingly.S. 51(2) (applies also to the making of a deed)Phonogram Ltd v Lane [1982] QB 938Braymist Ltd v Wise Finance Co Ltd [2002] Ch 273Phonogram Ltd v Lane [1982] QB 938Cotronic (UK) Ltd v Dezonie [1991] BCLC 721Oshkosh B’Gosh Inc v Dan Marbel Inc Ltd [1989] BCLC 507Natal Land Co v Pauline Colliery Syndicate [1904] AC 120Formation of CompaniesThe registration systemS. 9(1) The memorandum of association must be delivered to the registrar together with an application for registration of the company, the documents required by this section and a statement of compliance.Companies House: S. 7(2) – not for an unlawful purposeR v Registrar of Companies ex parte Attorney-General [1991] BCLC 476S. 8(1) A memorandum of association is a memorandum stating that the subscribers –(a) wish to form a company under this Act, and(b) 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.S. 9(2): The application for registration must state-(a) the company’s proposed name,(b) whether the company’s registered office is to be situated in England and Wales (or in Wales), in Scotland or in Northern Ireland,(c) whether the liability of the members of the company is to be limited and if so whether it is to be limited by shares or by guarantee, and(d) whether the company is to be a private or public company.S. 9(5) The application must … contain - … (b) a copy of any proposed articles of association (to the extent that these are not supplied by the default application of model articles ...S. 9(4)(a) : statement of capital and initial shareholdingsS. 10 : details of statementS. 12 : statement of proposed officersS. 9(1) : statement of complianceS.13(1) The statement of compliance required to be delivered to the registrar is a statement that the requirements of this Act as to registration have been complied with.(2) The registrar may accept the statement of compliance as sufficient evidence of compliance.S. 16(1) The registration of the company has the following effects as from the date of incorporation.(2) The subscribers to the memorandum, together with such other persons as may from time to time become members of the company, are a body corporate with the name stated in the certificate of incorporation.(3) That body corporate is capable of exercising all the functions of an incorporated company.(4) The status and registered office of the company are as stated in, or in connection with, the application for registration.(5) In the case of a company having a share capital, the subscribers to the memorandum become holders of the shares specified in the statement of capital and initial shareholdings.(6) The persons named in the statement of proposed officers –(a) as director, or(b) as secretary or joint secretary of the company,are deemed to have been appointed to that office.The company nameSs. 58-59 : statusS. 53 : prohibited namesR v Registrar of Companies ex p Attorney-General [1991] BCLC 476S. 54 : names requiring permissionS. 55 : other restricted namesThe Company and Business Names (Miscellaneous Provisions) Regulations 2009The Company and Business Names (Sensitive Words and Expressions) Regulations 2009 S. 66 : same name as existing co (s. 1099 – index of co names)Ss. 67-68 : provisions for change of nameSs. 69-74 : adjudication systemS. 77(1) A company may change its name – (a) by special resolution … or (b) by other means provided for by the company’s articles ….Ss. 78-81 : issue of new Certificate of IncorporationSs. 82-85 : disclosure of nameRegistered OfficeS.86S. 9(5)(a)S. 87 : change of registered officeCertificate of IncorporationS. 14 If the registrar is satisfied that the requirements of this Act as to registration are complied with, he shall register the documents delivered to him.S. 15 (1) On the registration of a company, the registrar of companies shall give a certificate that the company is incorporated.(2) The certificate must state –(a) the name and registered number of the company(b) the date of its incorporation,(c) whether it is a limited or unlimited company, and if it is limited whether it is limited by shares or limited by guarantee,(d) whether it is a private or a public company, and(e) whether the company’s registered office is situated in England and Wales (or in Wales), in Scotland, or in Northern Ireland.S. 15(4): The certificate is conclusive evidence that the requirements of this Act as to registration have been complied with and that the company is duly registered under this Act. Disclosure RequirementsS. 1080(1) The registrar shall continue to keep records of –(a) the information contained in documents delivered to the registrar under any enactment,(b) certificates of incorporation issued by the registrar, and(c) certificates issued by the registrar under section 869(5) or 885(4) (certificates ofregistration of charge).S. 1085(1) Any person may inspect registerS. 1087(1) : material not available for public inspectionS. 1000 : strike off registerSs. 3 & 5 CDDA : persistent default as ground for disqualificationS. 854(1) Every company must deliver to the registrar successive annual returns each of which is made up to a date not later than the date that is from time to time the company’s return date.S. 854(2) : ‘return date’S. 858 : return within 28 daysSs. 855 & 856 : contents of annual returnSs. 393-414 : annual accountsCaparo Industries plc v Dickman [1990] 2 AC 606:“[T]he purpose of annual accounts, so far as members are concerned, is to enable them to question the past management of the company, to exercise their voting rights, if so advised, and to influence future policy and management.” (Lord Jauncey)S. 415(1) : fair review of business etcSs. 416-7 : details of annual reportS. 463 : liability of directorSs. 475-481 : auditors’ reportS. 475: (1) A company’s annual accounts for a financial year must be audited in accordance with this Part unless the company—(a) is exempt from audit under—section 477 (small companies), orsection 480 (dormant companies); or(b) is exempt from the requirements of this Part under section 482 (nonprofit-making companies subject to public sector audit).(2) A company is not entitled to any such exemption unless its balance sheetcontains a statement by the directors to that effect.S. 476 : demand for reportCaparo Industries plc v Dickman [1990] 2 AC 606:“It is the auditors’ function to ensure, so far as possible, that the financial information as to the company’s affairs prepared by the directors accurately reflects the company’s position in order, first, to protect the company itself from the consequences of undetected errors or, possibly, wrongdoing … and, secondly, to provide shareholders with reliable intelligence for the purpose of enabling them to scrutinise the conduct of the company’s affairs and to exercise their collective powers to reward or control or remove those to whom that conduct has been confided.” (Lord Oliver)The Company’s ConstitutionSs.17 & s.32 : constitutional documentsSs. 29-30 : resolutions etc forwarded to Companies HouseS. 28 : dealing with provisions of old-style memorandumWelton v Saffery [1897] AC 299: “Individual shareholders may deal with their own interests by contract in such way as they may think fit. But such contracts, whether made by all or some only of the shareholders, would create personal obligations … and would not become a regulation of the company, or be binding on the transferees of the parties to it, or upon new or non-assenting shareholders.” (Lord Davey)s. 18(1) A company must have articles of association prescribing regulations for the company.(2) Unless it is a company to which model articles apply by virtue of section 20 (default application of model articles in case of limited company), it must register articles of association.(3) Articles of association registered by a company must –(a) be contained in a single document, and(b) be divided into paragraphs numbered consecutively.S. 19 : power to prescribe model articlesCompanies (Model Articles) Regulations 2008S. 20(1): On the formation of a limited company –(a) if articles are not registered, or(b) if articles are registered, in so far as they do not exclude or modify the relevant model articles,the relevant model articles (so far as applicable) form part of the company’s articles in the same manner and to the same extent as if articles in the form of those articles had been duly registered.Rayfield v Hands [1960] Ch 1:“the proper way to construe the articles of association of a company is as a commercial or business document to which the maxim “validate if possible” applies.”(Vaisey J)Holmes v Keyes [1959] Ch 199:“I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy.”Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693Folkes Group plc v Alexander [2002] 2 BCLC 254Equitable Life Assurance Society v Hyman [2002] 1 AC 408S 21(1) A company may amend its articles by special resolution.Cane v Jones [1980] 1 WLR 1451S. 26Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656Russell v Northern Bank Development Corpn [1992] 1 WLR 588.Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656:“The power thus conferred on companies to alter the regulations contained in their articles is limited only by the provisions contained in the statute and the conditions contained in the company’s memorandum of association. … [H]owever … the power conferred … must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are always implied, and are seldom, if ever, expressed.” (Lindley MR)Shuttleworth v Cox Brothers & Co [1927] 2 KB 9:“Now when persons, honestly endeavouring to decide what will be for the benefit of the company and to act accordingly, decide upon a particular course, then, provided there are grounds on which reasonable men could come to the same decision, it does not matter whether the court would or would not come to the same decision or a different decision. It is not the business of the court to manage the affairs of the company. That is for the shareholders and directors.”“The alteration may be so oppressive as to cast suspicion on the honesty of the persons responsible for it, or so extravagant that no reasonable men could really consider it for the benefit of the company. In such cases, the court is, I think, entitled to treat the conduct of shareholders as it does the verdict of a jury, and to say that the alteration of a company’s articles shall not stand if it is such that no reasonable men could consider it for the benefit of the company.” (Bankes LJ)Dafen Tinplate v Llanelly Steel Co (1907) Ltd [1920] 2 Ch 124Sidebottom v Kershaw, Leese & Co [1920] 1 Ch 154Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286:“… the phrase, “the company as a whole”, does not (at any rate in such a case as the present) mean the company as a commercial entity, distinct from the corporators: it means the corporators as a general body. That is to say, the case may be taken of an individual hypothetical member and it may be asked whether what is proposed is, in the honest opinion of those who voted in its favour, for that person’s benefit. I think that the matter can, in practice, be more accurately and precisely stated by looking at the converse and by saying that a special resolution of this kind would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders, so as to give the former an advantage of which the latter were deprived.” (Evershed MR)Citco Banking Corporation NV v Pusser’s Ltd [2007] BCC 205“Some commentators have not found this approach entirely illuminating but for the purposes of this appeal it is not necessary to discuss such cases further.” (Lord Hoffman)S. 22(1) A company’s articles may contain provision (“provision for entrenchment”) to the effect that specified provisions of the articles may be amended or repealed only if conditions are met, or procedures are complied with, that are more restrictive than those applicable in the case of a special resolution.(2) Provision for entrenchment may only be made –(a) in the company’s articles on formation, or(b) by an amendment of the company’s articles agreed to by all the members of the company.S. 22(3) : amendment by unanimous agreement or court orderS. 23 : notice to RegistrarBushell v Faith [1970] AC 1099The effect of the ‘statutory contract’Dignam & Lowry: “the law surrounding the operation of the section 33 contract is complex, confusing, contradictory and frustrating. This is not for the usual reason that it is a complex area and takes some time to absorb. It is rather because the law on s. 33 is dominated by layer upon layer of contradictory case law.”S. 33(1) The provisions of a company’s constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions.Hickman v Kent or Romney Marsh Sheep Breeders’ Association [1915] 1 Ch 881Rayfield v Hands [1960] Ch 1Scott v Frank Scott (London) Ltd [1940] Ch 794Bratton Seymour v Oxborough [1992] BCLC 693“By virtue of [the Act] the articles of association become, upon registration, a contract between a company and members. It is, however, a statutory contract of a special nature with its own distinctive features. It derives its binding force not from a bargain struck between parties but from the terms of the statute. It is binding only insofar as it affects the rights and obligations between the company and the members acting in their capacity as members. If it contains provisions conferring rights and obligations on outsiders, then those provisions do not bite as part of the contract between the company and the members, even if the outsider is coincidentally a member. Similarly, if the provisions are not truly referable to the rights and obligations of members as such it does not operate as a contract. Moreover the contract can be altered by a special resolution without the consent of all the contracting parties. It is also, unlike an ordinary contract, not defeasible on the grounds of misrepresentation, common law mistake, mistake in equity, undue influence or duress. Moreover, … it cannot be rectified on the grounds of mistake…. [N]either the company nor any member can seek to add to or subtract from the terms of the articles by implying a term derived from extrinsic surrounding circumstances. ” (Steyn LJ)Beattie v E & F Beattie Ltd [1938] Ch 708 : “[T]he contractual force given to the articles of association by the section is limited to such provisions of the articles as apply to the relationship of the members in their capacity as members” (Greene MR)Eley v Positive Government Security Life Assurance (1876) 1 Ex D 88Salmon v Quin & Axtens [1909] 1 Ch 311; [1909] AC 442Re New British Iron Co [1898] 1 Ch 324: “That article is not in itself a contract between the company and the directors; it is only part of the contract constituted by the articles of association between the members of the company inter se. But where on the footing of that article the directors are employed by the company and accept office the terms of article 62 are embodied in and form part of the contract between the company and the directors.” (Wright J)Swabey v Port Darwin Gold Mining Co (1889) 1 Meg 385Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701Objects of a companyS. 31(1) Unless a company’s articles specifically restrict the objects of the company, its objects are unrestricted.S. 171: A director of a company must –(a) act in accordance with the company’s constitution, and(b) only exercise powers for the purposes for which they are conferred.S. 39(1) The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution.。
