MEMORANDUM AND ARTICLES OF ASSOCIATION

Each company is required, on formation, to adopt and lodge with the ROC a memorandum of association (MOA). The MOA is the document by which the original incorporators signal their intention to form a company. Section 18 provides for the requirements of the contents of MOA. The Articles of Association (AOA) is basically a set of regulations for management of the company. It contains rules governing matters such as appointment, removal and powers of officers, meeting procedures and so on. It is open to the members of a company to decide the precise form of the rules to be adopted by the company so as to meet the companys particular requirements. The CA, 1965 provides a set of model rules, in the form of Table A in the Fourth Schedule, which a company may adopt as its AOA, but it is not obliged to do so. Some companies may use a combination of Table A articles and specific articles designed to meet the particular requirements of the company. Section 30(2) : If a company does not register its AOA upon incorporation, the provisions of Table A applies to that company as if the company had registered Table A as the companys AOA. Amendment or Alteration of MOA/AOA The MOA may only be altered to the extent and in the manner as provided by the CA, 1965. Section 21 (1A) provides that subject to Section 33 and Section 181, if a provision of the memorandum of a company could lawfully have been contained in the Articles of the company, the company may, by special resolution, alter the Memorandum (a) by altering; or (b) by deleting the provision, unless the Memorandum prohibits the alteration or deletion of that provision. The AOA may be amended (by deleting/altering) by a special resolution passed by the company subject to the CA, 1965 and to any conditions in its Memorandum. Once registered, the MOA and the AOA bind the company and the members to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of the member to observe all the provisions of the MOA and the AOA. Lim Beng Hui & Ors. v. Ling Beng Sung (1990) The MOA and the AOA constitute a contract between the members inter se. The contract is deemed to contain covenants that each member will observe all the provisions of the MOA and AOA.

The MOA and AOA however, do not operate as a contract between a member and outsiders.

Eley v. Positive Government Security Life Assurance Co Ltd (1875) The companys AOA stated that Mr. Eley should be the companys solicitor. When the company ceased to employ him as its solicitors, Mr. Eley sued the company. The court held that this was not a right given to him as a member and he could not rely on the Articles as a contract for professional services. The Ultra Vires Doctrine The MOA must state the objects of the company. The purpose of the objects clause is to define and limit the activities which the company is permitted to undertake. Anything exceeding these limits is ultra vires the company and may be void. In order to authorize acts which otherwise would be ultra vires, a company may by a special resolutions alter the provisions of its memorandum with respect to the objects of the company : Section 28(1).

SHARES AND SHAREHOLDING

Sources of Company Finance The principal sources of finance for companies limited by shares include : Share capital A companys share capital is made up of the money or assets contributed to the company by people proposing to become members of the company. The amount contributed becomes the property of the company and the contributor is issued with shares in the company. Debt finance Debt finance is money lent to the company, in the expectation that the company will pay interest throughout the term of the loan and repay the principal (the original amount loaned) by the end of the term. The lender may be an outsider, such as a bank. Examples of debt finance are term loans and overdraft facilities. Trade finance Trade credit is a term used to describe the situation where a company has received goods or services in advance of paying for them, or has received payment in advance of delivering goods or services. Retained earnings Earnings from previous periods that have not been distributed to the companys members and is an important source of working capital for many companies.

The nature of Share Capital The companys share capital is the amount of money or assets contributed to the company by its members when they subscribe for shares in the company. A companys power to issue shares is contained in Section 18. Section 18(1) makes it compulsory for companies to have a capital clause in the memorandum stating the amount of capital the company proposes to register and its division into fixed amounts. This is called the companys authorized capital. A share in a limited company is a claim against the company to which the rights set out in the Companies Act 1965 and the companys MOA and AOA attach. Generally, those rights will be : Distribution rights : rights to receive dividends during the companys life and, depending on the terms of issue of the particular share, rights to repayment of the principal and to share in any surplus assets of the company on a winding up; and

Control rights : rights to exercise some control over the management of the companys affairs, generally taking the form of a right to vote on particular decisions affecting the company.

The legal nature of a share is set out in Section 98 which provides that a share is a movable property transferable in accordance with the terms of the articles of the company.

Borlands Trustee v. Steel Bros & Co Ltd (1901) A share was described as the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place and of interest in the second. A share also consists of mutual covenants entered into by all the shareholders inter se in accordance with the contract contained in the AOA. Shareholders rights Typically, the rights that attach to shares may include : Voting rights Shareholders are members of the company and will generally have the right to vote at general meetings of the company. The shares of a public company carry one vote per share. Distribution rights This is a shareholders entitlement to receive money or other assets from the company. Distributions by companies to their shareholders can be in the form of : - Dividends, which are payments out of the companys profits; - A return of capital, which is the return to the shareholder of the amount originally subscribed for the share. Rights to receive information The Companies Act gives members some rights to receive to obtain information about the company. This promotes transparency in the companys affairs which helps to prevent the companys managers from acting to the detriment of the shareholders. Class rights

Classes of shares Companies can issue shares of different types, with different rights attaching to each type of the shares. Companies issue shares of different classes to accommodate the different needs and preferences of different types of investors. Many companies elect to issue shares of 2 classes ordinary shares and preference shares. Typically, where this distinction exists, the ordinary shares will have these rights :

The right to share equally in any dividends (if they are declared) with all the ordinary shareholders, after all other claimants have been paid; The right to vote at a general meeting of the company; The right to be repaid their capital on a winding up after all other claimants have been repaid; and The right to share pro rata in any surplus assets on a winding up.

Preference share is defined in Section 4 as a share by whatever name called which does not entitle the holder thereof to the right to vote at a general meeting or to any right to participate beyond a specified amount in any distribution whether by way of dividend or on redemption in a winding up or otherwise. Preference shares typically have these rights : The right to receive a fixed dividend, provided there are profits available for distribution and a dividend is declared by the company; The right to be repaid the principal on a winding up in priority to ordinary shareholders; No voting rights unless dividend are in arrears, except on resolutions to reduce the companys capital or to wind up the company, or at class meetings on matters affecting their class rights; and No right to share in surplus assets on a winding up.

The rights given to preference shareholders are exhaustive. This means that, other rights must be expressly stated before the law recognizes them. Cumulative preference shares preference shares may be cumulative or noncumulative. The holder of a cumulative preference share carries forward their entitlement to a distribution from one year to the next if no dividend is declared in a particular year. The holder of non-cumulative preference share loses their entitlement to any dividend that is not declared or paid in the relevant year. Redeemable preference shares the CA also allows companies to issue redeemable preference shares if authorized by the articles. Redeemable preference shares allow for repayment of the principal at a particular time or on the occurrence of a particular event prior to winding up of the company. As such, redeemable preference shares represent an exception to the general principle that companies cannot repay share capital prior to a winding up.