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No 4 - Memorudum

No 4 - Memorudum

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Published by: roukaiya_peerkhan on Feb 05, 2012
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The constitution of the company (Memorandum of association and the articles of association)
 The constitution of the company is its governance system, the rules and principles prescribing how itis to run. In fact, the constitution includes amongst others; Memorandum and Articles of association,resolutions and other legal rules found in statutes and case law.
Memorandum of Association
Before incorporation companies are required to submit a memorandum of association to theregistrar of companies, which must be signed by at least two subscribers from amongst thecompany’s first shareholders. The memorandum relates to the company’s external affairs and represents the company to theoutside world. All companies are required to submit a memorandum of association to the registrar of companies, and it must be signed by two subscribers from amongst the company’s firstshareholders.Although the memorandum of association may contain a number of additional clauses there are acertain number of clauses that must be set out in any memorandum. These compulsory clauses areas follows:
(i) Name clause
Except in relation to specifically exempted companies such as those involved in charitable work,companies are required to indicate that they are operating on the basis of limited liability. Thusprivate companies are required to end their names either with the word ‘limited’ or the abbreviation‘ltd’; and public companies must end their names with the words ‘public limited Company’ or theabbreviation ‘plc’ (CA 1985 ss.25, 27 & 30).Although there is no longer an official Business Names Registry, the Registrar of companiesmaintains a register of business names, and will refuse to register any company with a name that isthe same as one already on that index (CA 85 s.26(c)). This control is less rigorous than that exercised under the previous legislation and has led to anincrease in the use of the tort of ‘passing off’, as a means of protection the goodwill attached toparticular business names.
Name of the company and law of passing off 
– A passing off may be brought against anyperson who misrepresents to the public that goods or services it, the misrepresentation person, isproviding, are associated with the claimant trader, thereby causing damage to the claimant trader. The claimant must demonstrate that it has goodwill that has been damaged by themisrepresentation.NB; Merely calling a company a name can never amount to passing-off.Certain categories of names are,
subject to the decision of the Secretary of State
,unacceptable
 per se
, as follows:(i) Names which in the opinion of the secretary of state constitute a criminal offence (s.26 (1)(e).(ii) Names which in the opinion of the secretary of state are offensive (s.26 (1)(e).(iii) Names, which are likely to give the impression that the company is connected with eithergovernment or local government Authorities (s.26 (2)(a).(iv) Names which include a word or expression specified under the Company and Business NamesRegulations 1981 (s.26 (2)(b).
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 The name of a company can always be changed by a special resolution of the company so long as itcontinues to comply with the above requirements (s.28 (1)).
Change of name
Under S28 of CA 85, the secretary of state has power to require a company to alter its name underthe following circumstances:(i)Where it is the same as a name already on the Registrar’s index of the company’s names(ii)Where it is “too likea name that is on the index.Moreover the name can always be changed by a special resolution of the company so long as itcontinues to comply with the above requirements, that is s28 of CA 85.
T
he role of the company names adjudicators under the Companies Act2006.
Under ss.69–74 of CA 2006 a new procedure has been introduced to cover situations where acompany has been registered with a name(i) that it is the same as a name associated with the applicant in which he has goodwill, or(ii) that it is sufficiently similar to such a name that its use in the United Kingdom would be likely tomislead by suggesting a connection between the company and the applicant (s.69).Section 69 can be used not just by other companies but by any person to object to a companynames adjudicator if a company’s name is similar to a name in which the applicant has goodwill. There is list of circumstances raising a presumption that a name was adopted legitimately, howevereven then, if the objector can show that the name was registered either, to obtain money fromthem, or to prevent them from using the name, then they will be entitled to an order to require thecompany to change its name.Under s.70 the Secretary of State is given the power to appoint company names adjudicators andtheir staff and to finance their activities, with one person being appointed Chief Adjudicator.Section 71 provides the Secretary of State with power to make rules for the proceedings before acompany names adjudicator.Section 72 provides that the decision of an adjudicator and the reasons for it, are to be publishedwithin 90 days of the decision.Section 73 provides that if an objection is upheld, then the adjudicator is to direct the company withthe offending name to change its name to one that does not similarly offend. A deadline must be setfor the change. If the offending name is not changed, then
the adjudicator will decide
a new namefor the company.Under s.74 either party may appeal to a court against the decision of the company namesadjudicator. The court can either uphold or reverse the adjudicator’s decision, and may make anyorder that the adjudicator might have made.
(ii) Registered office clause
 This is the company’s legal address. It is the place where legal documents such as writs orsummonses can be served on the company. It is also the place where statutory documents andregisters, such as the register of members, are required to be kept available for inspection. Thememorandum does not state the actual address of the registered office, but only the country withinwhich the company is registered, whether Scotland or England and Wales. The precise location of the registered office however, has to be stated on all business correspondence (s.351).
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(iii) Objects clause
 This clause sets out the purposes for which the company was established and, strictly speaking, anyactivity beyond those stated objects is
ultra vires,
and used to be void. The word ‘ultra vires” means“beyond the powers”
Case: Ashbury Railway Carriage v riche
Facts: The objects clause of the company set out the purpose of the company as the making andselling of railway carriages. The company entered a contract to purchase a concession forconstructing a railway.Held: The contract was “ultra Vires” and beyond the capacity of the company.However, as a consequence of the amendment to s. 35 of the CA 1985, introduced by the CA 1989,
ultra vires
has been reduced essentially to a matter of internal regulation and outsiders are notaffected by it. Companies can alter their objects clauses by passing a special resolution, and in anyevent can register as ‘general commercial companies’ which allows them to pursue any businessthey wish to.
(iv) Limited liability clause
 This simply states, and makes outsiders aware of the fact, that the liability of the members of thecompany is limited.
(v) Authorized capital clause -
Statement of capital and initial shareholdings
 This states the maximum amount of share capital that a company is authorized to issue. Theauthorized capital must be divided into shares of a fixed monetary value and it follows, therefore,that United Kingdom company law does not recognize no-fixed- value shares, as do other jurisdictions. As companies do not have to issue shares to the full extent of their authorized capital,it is imperative to distinguish authorized capital from issued capital, which is the amount of sharesactually issued. The current minimum value of issued capital in relation to a public limited companyis £50.000.
(vi) Association clause
 This merely states that the subscribers wish to form a company. In addition the memorandums of public companies are required to state that they are public companies.
The impact of the Companies Act 2006 upon the Memorandum of Association forcompanies incorporated prior to 1 October 2009
With effect from 1 October 2009, the Memorandum of Association became a short document,essentially showing the intent to form a company, the identity of the initial subscribers, and therespective share capital subscribed by them. For companies incorporated prior to 1 October 2009,s28 of the Companies Act 2006 (CA 2006) operated to move the other provisions (including anyobjects clauses) from the Memorandum of Association into the Articles of Association (Articles). The objects clause moved to the Articles and s31 CA 2006 provides that unless a company’s Articlesexpressly restrict objects, a company’s objects are unrestricted. In respect of companiesincorporated before 1 October 2009, if they are to have unrestricted objects, company secretary’sshould consider proposing an amendment to the Articles (inclusive of objects as of 1 October 2009)to remove any restrictive objects clause.
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