Students Online Tutorial Cl c3
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Transcript of Students Online Tutorial Cl c3
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Learning Outcome
Understand the effect and implications of
Memorandum and Articles of Association
Understand the doctrine of ultra vires andSec 20 CA
Understand the duties of promoters of
companies
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Memorandum of Association
(a) Memorandum and Articles of Association Sec
16(1)
(b) A memorandum of association is the
companys constitution! "t contains the
companys name# re$istered office# ob%ect# and
liability of members# share capital and
particulars of subscribers & Sec 1'
(c) he memorandum of association of the
company can be altered by the members of
the company & by special resolution & S 21 CA
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Memorandum of
Association – the ObjectClause he ob%ects clause hich defines hat the
company can do in terms of its business
activities is contained in the Memorandum of Association & can be altered by special
resolution & S 2' CA
raditionally# anythin$ hich a company
does hich is not alloed in the
Memorandum is *ultra vires the company
and void!
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The Ultra Vires Doctrine
Under the traditional common la# theob%ects clause is important and relevant indeterminin$ hether the company has
acted ultra vires thereby renderin$ an actvoid ab initio!
he term +ultra vires, simply means +beyondthe poers, or +lac- of poer , in respect ofan act carried out by the company!
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Meaning of Ultra Vires
.rior to loans been $ranted to companies#
lenders often re/uire and eamination or
inspection of the Memorandum in order to
chec- the capacity of the company to
$rant loans!
oever# the application of the ultra viresprinciple is of limited relevance today!
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Sec 2 CA
his is because Sec 2!"# of the CA
provides that
if the company entered into any act orconveyance or transfer of property without
having the capacity or power to do so in
the Memorandum, the said act or
conveyance or transfer shall not be invalidor illegal by reason only of the lack of
power or capacity !
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Sec 2 CA
Sec 20(1) includes &
the entering into of an agreement by thecompany and including any act done on
behalf of a company by an officer or agent
of the company
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Sec 2 CA
Section 20(1) provides that the company
cannot no claim that the contract is ultra
vires or beyond the poers of the
company hen the ultra vires contract isfully performed!
herefore as can be seen# an ultra vires
transaction made by a company is nolon$er a complete nullity# incapable of
bein$ reco$nied as a transaction at all!
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$o%ers of com&an' – Sec
"( CA he poers of a company shall include
those poers set forth in the Third
Schedule of the Act unless they areepressly ecluded or modified by the
memorandum or articles of the company!
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Articles of Association
An Articles of Association constitutes the
re$ulations by hich the internal affairs of
the company are $overned!
Articles my adopt all or any of the
re$ulations contained in able A of the
3ourth Schedule Companies Act 1465 Sec 70 CA! able A is a model Articles for
a company limited by shares!
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Articles of Association
Articles may be amended (by alteration
and 8 or addition) by a special resolution
passed by the company sub%ect to the
Companies Act 1465 and to anyconditions in its Memorandum Sec 71
CA
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Articles of Association
9enerally most Articles deal ith matters
such as &
1! the re$istered office
2! the eclusion# holly or in part# able
A
7! the eecution or adoption of pre
incorporation contract or preliminary
a$reement# if any:
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Articles of Association
;! classes of shares and variation of
class ri$hts
5! lien on shares
6! calls on shares and forfeiture for non
payment of calls
'! transmission of shares
4! alteration of share capital
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Articles of Association
10! =eduction of share capital
11! 9eneral Meetin$s of members
12! >irectors 17! Accounts and audits
1;! >ividends and reserve funds
15! ?otices to members and 16! @indin$ up
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)ffects of Alterations
he Articles may be altered at any time &
the company cannot deprive itself of this
poer
S! 71(1) a company may by special
resolution alter or add to its articles
As! 71(1) & alteration or additions to the
articles are sub%ect to the CA and to any
conditions provided in the memorandum
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)ffect of Alterations
Sec 71(2) Alteration of the articles iseffective immediately on and from the dateof the special resolution or such date as is
specified in the resolution
Sec 71(2) he alteration is valid as ifori$inally contained in the articles and issub%ect in li-e manner to alteration byspecial resolution
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)ffect of Memorandum and
Articles Sec ** !"# & .rovisions in the
memorandum and articles of a company
hen re$istered become a statutory
contract of a special nature
1! bindin$ beteen the company and the
members /ua members: and
2! bindin$ beteen the members inter
se!
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)ffect of M + A and AA
Bnce re$istered# the Memorandum and Articles bind the company and the members
he Memorandum and Articles are acontract under seal bindin$ both themembers and the company!
he Articles of Association represent thecontract (terms) bindin$ both the companyand its shareholders (members)
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$romoters
.romoters are any persons hounderta-e to incorporate a company andta-es all necessary action to $et it $oin$ is
-non as +promoter,
Sec ; (1) +promoter or a corporation
ho as a party to the preparation of theprospectus or of any relevant portionthereof # but does not include a personactin$ in the professional capacity,
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Duties of $romoter
A promoter oes fiduciary duties to the
company & duties of disclosure#
accountin$
Must disclose all secret profits he ma-es
.rofit made from promotion must be
disclosed to an independent board of
directors A method of disclosin$ a profit is by
means of a prospectus
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$a'ments to $romoter
Art
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,uestions and Ans%ers
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Constitution of a
com&an'
.almville Derhad entered into a %oint venturea$reement ith Armada Derhad to develop a pieceof land and too- financin$ from the ban-! oeverthe M E A of .almville did not authorie this
transaction! he transactions ere hoeverapproved by ay of board resolution! alf aythrou$h the pro%ect# .almville decided to stop thepro%ect! Can Armada sue for breach of contract sincethere as no authority in the M E A and can the ban-recover the loanF
Anser ?otithstandin$ the lac- of poer and capacity that
as absent in the M E A# the transaction as savedby Section 20 of the CA!
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Constitution of a
com&an'
if the company entered into any act orconveyance or transfer of property withouthaving the capacity or power to do so in the
Memorandum, the said act or conveyance ortransfer shall not be invalid or illegal byreason only of the lack of power or capacity.
Section 20(1) provides that the companycannot no claim that the contract is ultra
vires or beyond the poers of the companyhen the ultra vires contract is fullyperformed
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Constitution of Com&an'
@hat are the duties of a promoterF
Anser
A promoter oes fiduciary duties to thecompany & duties of disclosure# accountin$
Must disclose all secret profits he ma-es
.rofit made from promotion must be
disclosed to an independent board ofdirectors
A method of disclosin$ a profit is by meansof a prospectus
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End of
Chapter 3
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