Evaluating Company’s Constitution And Statuary Contract


The company’s constitution and the statuary contract are devised by the Memorandum of Association and the Article of Association for the concordance and creation of legal agreement of company’s contract among the members of the company and with the company as well. This paper will evaluate the contextual details and terms established for creation of contract through examining the company’s constitution, which binds the members and the legal entity through the means of preserved legal provisions.


Company’s constitution serves as the legal medium for binding the members of the company with the company and among themselves. The statute for the constitution is provided by the Memorandum of Association and Article of Association for creating the statuary contract in order to create expectationsand obligations among the members and preserve the membership rights and resolve disputes . For instance the stakeholders of a company are legally obliged towards other stakeholders and the company through entering into a legal contract.

Terms Of Contract

Company’s contract contained in the article is created by articulated by the Article of Association in order to set out the parameters, legal boundaries, and information about the company’s objective and existence. It includes comprehensive details, including company’s name, names and details of shareholders, board of directors, criterion for meetings, conduct of the members, responsibilities of shareholders and roles of management and voting rights to the stakeholders . Moreover, the obligation for the articles requires signature by the subscribers of the company.The definition of the company’s constitution is confined to affecting resolutions and the agreements within the company for special purposes and disputes, which is effective with approval of all the members, unless requires to pass the special resolution to change the articles of the company with the decision of other members and stakeholders of the company. The provision of special resolution is valid for the need to amend changes in formal arrangements and strict legal concordance for altering the articles .

Inconsistencies In Terms Of Contract

The implications to adhering to the contracts by the article of association entails for the need to enforce legal grounds as per the Company Act of 2006 for various cases.Therefore, the compliance with the article becomes mandatory for the members of the company to refer to the arbitrary clause. For instance, the case of Hickman v Kent & Romney Marsh Sheep Breeders Association (1915) 1 CH 881 was upheld by the court on the basis of the clause obliging the members and the company for referring to the arbitration. On contrary, in special circumstances such as the case of Beattie v E & F Beattie Ltd (1938) CH 708, theplaintiff, director and stakeholders of the company was denied the arbitrary action by the court as the dispute was under his capabilities. Cotemporary cases denotes of complex issues and inconsistency of the court for effectively declaring decision criterion as per the compliance with Company Act of 2006 .

Despite constitution of the articles; the enforcement by the court remains in effective due to extraordinary situations and lack of arbitraryacceptance by the company and members. According to Vaisey LJ in Rayfield v Hand (1960) Ch1; the considerations for a general rule for company’s contract doesn’t cover extraordinary provisions including quasi-partnership between the members and company effective enforcement . The case entailed that the members of a company couldn’t reinforce on another, the mandate to acquire shares, where it was an obligation as per the article. In considering the action against the company or its members, the rights are confined to the capacities of membership rights for the member. Similarly, The court established the articulation for fixing the provision for remuneration for directors as filed by the plaintiff managing director in Re Richmond Gate Property Co Ltd (1965) 1 WLR 335 W .For the clause of making amendment to the company’s article, the company underwent temporary liquidation while the plaintiff, member of the company claimed services as per the quasi-contract. However, the court realized since the criterion for remuneration clause was not formulated in the article, the plaintiff wasn’t held entitled for remuneration, for the absence of a quasi-contract.

The case of Wood v Odessa Waterworks Co (1988) 42 CH D 636 establishes that the plaintiff stakeholder of the company claimed the right to constitution through payment of dividend relatively to payment through debenture bonds. Yet, according to Farewell L J in consideration of Quin & Axtens Ltd v Salmon [1909] AC 442 ; the courts are unlikely to apply the consideration for article of association’s constitution for the company’s contract to bind stakeholders and the company. As per the contractual agreement, any party may sue in case of breach or litigation for arbitration. In this regard, James Wingram in Foss v Harbottle claimed that the establishment of proper plaintiff rule was essential for taking action against the breach or wrongdoing on part of the management, to enforce corrective actions and remedy through the means of ordinary resolutions .

However, failure to ratify the arbitration in the continuity of company meetings illustrates the fraudulent on part of the essential members and stakeholders of the firm for inefficiency. In this case, the article of memorandum and the memorandum shall be self-sufficient for guidance and management of the company without seeking court . For instance, in the case of Cane v R Home Treat Ltd (1991) BCLC 705, the plaintiff administrator’s concern for business activities outside the capacities of article was deemed to the company requiring altering its objectives. Thus, constitution for the registered company may be ratified or modified to device special resolution. In contrast, the court of LuxSmore L J refused the rectification of the article and memorandum of the company at the time of registering company, since one of the three brothers in ownership had deceased by the time dispute was claimed by the other two brothers .

The use of articles and memorandum within the company may create the possibility of restricting application. This may be overcome through a supplementary stakeholder’s agreement for entering into a contract at the time of company creation.In this regard, the Company Act of 2006 entails for the provision of common decision among the stakeholders for establishing grounds of presuppositions and statuary obligations to incorporate a written consent of stakeholders, nominal value of the share division and aspects for special resolutions to consider for restricting company boundaries and objectives . In Quin & Alex Ltd v Salmon (1909) AC 442 the majority of the company’s shares were held in the name of two directors; Alexton and Salmon, for which the article entailed for acquiring the meeting resolution with consent of both as mandatory and other directors, otherwise dissented. The resolutions of the shareholders were held inconsistent as per the article, for which plaintiff, director Salmon was granted injunction and withhold the others from imposing it on company.

Recognition Of Outsider’s Rights

The court held disregard of the members resolution in Re HR Harmer Ltd (1985) 2 ER 689 for noncompliance with the company article and misuse of the management power. However, the company’s contract doesn’t bind external parties that may not be a part of the company to recognize the enforcement, since the rights to externals are extensive and irrespective to the membership rights of the firm . For this purpose the plaintiff member Eley was denied the enforcement right to remain firm’s solicitor for lifetime, otherwise only terminated on the grounds of misconducts in Eley v Positive Government Life Assurance Co Ltd (1876) Ex D 88 .

As suggested by the Company Law Review; the company’s contract constitutes the rights and obligations to the shareholders for implementation of structural considerations to assure reinvestments in the company shares, in solution to governing rights and compulsory documentation of the articles and memorandum . Subsequently, this fulfills the legal obligation legitimate to the constitution and Company Act 2006.The prospective amendments and alterations to the article are subject to the implied terms of dispute in a normal manner of company meeting, such as implied in the Swabey v Port Darwin Gold Mining Co. (1889) Meg 385. In the notion of understanding the ownership and share entitlement, in Pennell Securities Ltd v Venida Investments Ltd (1974) the proposition for limiting the rights issues through principle of nine-for-one basis, the injunctions were issued by the court.

The inconsistencies in regard to the power sharing and rights entitled to the shareholders restricts the directors through contract in Russell v Northern Bank Development Ltd (1992) All ER 161 for sustaining the share entitlement to initial five shareholders only in order to restrict company capital and associated rights. Since the virtue of provision stated in the article imposed restriction on company’s capital structure, the court claimed the contract as unenforceable for the certainties of breach of agreement. Since only the provision for statuary power was restricted as per the article, shareholders decided onto increasing the share capital through voting . It is evident that the breach of company contract as per article and memorandum consists of overlapping and complex resolutions for imposition of statuary rights.

Terms Of Contract And Special Resolutions

In order to undertake the special resolution, the amendments to the article are made through a formal channel in compliance with the Companies Act of 2006. This requires the companies to examine and equalize the provisions for entering into a new legal contract. Despite enactment of the Companies Act of 2006 on contrary to Companies Act of 1985; the criterion for right to the companies for making amendment to the article remains somewhat unaddressed. Consequently, this leads to the lack of comprehensive assistance to protect rights of the membership . In addition, the scope for amendment to the company article entitles for the best interest of the company especially for accommodating the special resolutions for the implementation of high hopes with consent of shareholder majority .

In Allen v Gold Reefsof West Africa Ltd [1900] 1 Ch CH 656 , the introduction of the law stating the need to exercise of the power of the company may amend or alter the article in the best pursuit. Consequently, this creates tranquility for the shareholders for mutual consent in contrast to the enforceable actions by the court in company contract. However, the implication may arise for the impediment of the statuary powers within the company may not lead in best interest. In addition, these amendments may also impact the rights to the shareholders for voting to appoint the company directors. Subsequently the change in the voting rights may also impact the capital structure and criterion for repayment of the loans for special resolutions . For instance, in Snelling v John G Snelling Ltd (1973) QB 87 , the court denied the injunction of repayment of the loan to one of the shareholder, when initially decided the repayment of the loan would be limited to the restricted conditions.

Nevertheless, the appropriation for alteration and amendment to the article is subject to validates special resolutions and voting right as per the terms of arrangement among the shareholders to enforce legal principles as per Company Act 2006.In Greenwell v Porter (1902) 1 Ch 530 the injunction by the court restricted defendant company from obliging to the voting agreement according to which the elections for two directors were secured and voting rights were entitled respectively. Similarly, in Shuttleworth v Cix Brother & Co (Maidenhead) (1927) 1 Ch 154, the detriment of the minority director was apparent for the allegation imposed on one of the director for misconduct without the presence of evidence or reasonable grounds . The injucment of alteration to the company’s article in this case remains invalid without reasonable proof to prove bad faith and motives leading to danger to company. Subsequently, the inconsistencies caused and efficacy to alteration is subject to understanding extrinsic circumstances and extraordinary cases.

The disadvantage for terms of agreement is also subsequent to establishing entirely different rules than articles of association and memorandum; in this regard Luxmore L J refused the rectification of article in Scott v Frank F Scott (London) Ltd (1940) Ch 794 to sustain equity to Company Act 2006. Similarly, the court is entitled to permit rectification to the articles of association in case the alterations intended are only known to particular shareholders of the firm. For instance, the court denied the injunction of the article amendment in Bratton Seymour Service Co. Ltd v. Oxborough (1992) BCLC 693, where the court of appeal denied the appeal for the payment of amenity for swimming pool, garden and tennis courtexpense to the flat owners. In this regard, Steyn L J suggested that the amendment to article is not subject to seek rectification for misinterpretation, duress, mistake, or majority influence .


The inconsistencies and lack of guidance essential for business contract are prone to extraordinary circumstances for to device separate criterion for ordinary and special commercial contracts. This denotes of the fact that the scope for commercial and business contracts is yet to be comprehended for including absurd situations and consequences. The implication to the court for limited role to intervene also leaves to scope of company contract inconsistent to the decisions to make relevant conclusions in regard to the complex business resolutionsand increasing challenges of privatization.

The recent enactment of the law by Privy Council gave the right to the court in Attorney General for reasonably provide substantial efficacy in Belize & Ors v Belize Telecom Ltd & Anor (2009) UKPC 10 . Similarly, it also imposed creation of contract for commercial means in Cream Holdings Ltd v Davenport (2010) EWHC 3096 for restriction upon transfer of shares prohibiting the valuation of shares held in the company. The intervention on part of the courts allows administering the policy reasoning to the contractual formulation in business and commercial settings. However, the application of terms of agreement is subjected to the disputes raised from misinterpretation and lack of adherence to the potential consequences for disagreement, having a retrospective impact over relationships with shareholders and members of the company.

Reference List

  • Case Comment (2009). “Attorney General of Belize v Belize Telecom Ltd: Privy Council implies terms into articles of association”; Co. L.N. 8
  • Dignam & Lowry (2009).Company Law (OUP Fifth Edition).
  • P.L. Davies (2003). Gower and Davies: Principles of Modern Company Law, 7th edn (Sweet & Maxwell: London).
  • Ryan, Chris (2008). “The statutory contract under s 33 of the Companies Act 2006: the legal consequences for banks Pt II” 7 JIBFL 360. Ford, HAJ et al., (2005). Ford’s Principles of Corporations Law, 12th edn (Butterworths: Sydney).
  • Scanlan, G., & Ryan C., (2007). ‘The accrual of claims for breach of contract under s. 14 Companies Act 1985 and s. 33 Companies Act 2006: the continuing obligation’. Comp. Law., 28(12): 367.