Students Online Tutorial Cl c3

8/21/2019 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 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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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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;! 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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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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