CHAPTER TWO: The Constitution of a Company

2.1 Introduction

(a) Every organisation must have a set of rules which set out its
objects, rights and obligations of members;
(b) In the case of a registered company, there are two documents
which form the constitution of the company namely MOA and
AOA;
(c) MOA sets out the company’s broad framework-it gives each
company’s distinctive characteristics such as name, address,
first directors and members, business identity etc
(d) AOA are rules of the companies internal management

2.2 The Memorandum of Association

a. This document must be sent to the registrar of companies for

registration
b. The format depends on whether the company is limited by
shares, by guarantee or unlimited
c. MOA for a company limited by shares must comply with
Table B (one size fits all)
d. MOA for a company limited by guarantee must comply with
Table C (one size fits all)

General contents of a Memo (section 6 of the Act)

i. name of the company
ii. restrictions, if any, imposed on the company’s business
iii. company’s authorised capital
iv. number of shares into which the capital is divided
v. classes of shares
vi. rights and privileges of members and conditions for each
class
vii. whether the company is private or public limited
viii. that liability of members is limited
ix. full name, address and occupation of each subscriber
x. the subscribers should express their wish to be formed
into a company and the number of shares indicated
opposite their names

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 18
Lecturer in Law Courses
 Additional contents for a company limited by guarantee
i. maximum number of membership if any
ii. that its income will be used solely towards its objects (i.e.
non profit making/ charitable purposes)
iii. guarantee as to contribution of each member upon
winding up
iv. state what organisation will take over its assets upon
winding up (charitable organisation)

The company name (section 19)

 Where the company has limited liability the word ‘limited’
must appear at the end of the name.
 The name must be used for all business purposes including
correspondence
 The registrar may refuse a name if resembling another
company’s, misleading or undesirable
 The name may not contain protected/restricted names e.g.
national, Malawi
 It is an offence in the law of tort called ‘passing off’ where one
uses another company’s name. An injunction will be granted to
restrain such wrongful use!

The registered office and postal address

 It is usual to include the registered office (physical) and postal
address of the company in the MOA
 It is important for general communication and in particular
service of summons and other legal documents
 The name of the company must appear in easily legible Roman
letters at the company’s registered office
 The company may change any of the 2 addresses by notifying
the registrar in 21 days

The authorised business [s. 22 (1)]

The business/objects clause of the MOA will set out the parameters of
the company’s activities so that if it does anything outside those limits
it would be exceeding its powers. It will be acting ultra vires which is
illegal or voidable at the option of members or debenture-holders who
can sue for an injunction. Acting intra vires means acting within the
company’s powers which is legal. Void means of no effect. Void ab
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 19
Lecturer in Law Courses
 initio means of no effect from the beginning and voidable means the
innocent/injured party has the option to choose whether to regard the
contract as having come to an end or not.

How has the Companies Act affected the application of the doctrine of
Ultra Vires?

Prior to the passing of the Companies Act, it was the practice of every
company to list down all the objects it wished to carry on. In Ashbury
Carriage Co. Ltd vs. Riche, a company was formed with the objects
of making, selling and mending railway carriages (trams/rail cars).
The company purported to build a railway line. Held, ultra vires and
void.

The company bought a concession for the construction of a railway system in Belgium
and entered into an agreement to finance Riche to construct a railway line. The objects
clause in the memorandum of the company stated that it was established to manufacture
and sell railway carriages and other railway equipment and to buy and sell timber and
coal. Riche began work on the contract and sums of money were paid over by the
company in connection with the contract. The company later ran into difficulties, and the
shareholders wanted the directors to take over the contract in a personal capacity, and to
indemnify them against any loss. The directors then repudiated the contract on behalf of
the company, and Riche sued the company for breach of contract. Held: The financing of
the concession was ultra vires and void as it was not within the objects of the company -
the company could use its money to make things for railways, but not to make railways
as such. The contract with Riche was therefore void, and the directors were entitled to
repudiate it.

But now with the coming into force of the Companies Act 1984,
things have become easier for newly formed companies because all
they have to state in their MOA is whether or not there is any
restriction on the company’s business.

[See later- Royal British Bank vs. Turquand and S. 22 (1) and S.
22(2)]

Alteration of MOA
Conditions for alteration
 By a special resolution passed in a general meeting
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 20
Lecturer in Law Courses
  The alteration is not binding if it imposes shares on a member-
need for consent
 The alteration must be legal e.g. not against a court order
 The alteration must be bona fide- not oppressive or ill-founded
Various procedures are laid down in the Act for alteration of the
MOA. Below is the procedure followed if a company desires to
change its name;

Procedure in changing company name (section 19)

A company’s name may be altered in three circumstances namely
i. By the company itself by passing a special resolution in a
general meeting. The change must then be approved by the
Registrar in writing and his decision is final and one cannot
appeal to the court. The company has a duty to send to the
Registrar within 21 days after the date of the resolution, the
company’s certificate of incorporation and a copy of the said
resolution for registration. The registrar then issues a new
certificate of incorporation bearing the new name.
ii. As a result of a ministerial order. This is where the minister
is of the opinion that the name of the company is misleading
or undesirable. In such a case, the minister may direct such a
company to change its name and the company shall do so
within 6 weeks.
iii. Through a court order.

2.3 The Articles of Association

(a) These are rules for internal management of a company.

(b) S.11 of the Companies Act says that the AOA are
‘Regulations for the conduct of the companies’ affairs.’
e.g. 1. Allotment of shares
2. Company’s management
3. Membership
4. Meetings
5. Powers of directors
6. Appointment of directors/remuneration

Relationship between MOA and AOA

The MOA takes precedence over the AOA. Therefore, where there is
a conflict between the two, the MOA is followed. However, since the
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 21
Lecturer in Law Courses
 two documents are contemporaneous (formed at the same time), the
AOA are used to explain or clarify any ambiguity in the MOA.

Re Duncan Gilmour and Co. Ltd [1952]

Memo provided that preference shareholders had priority in the
distribution of the company’s assets on winding up.

Articles provided that preference shareholders had no priority but that

distribution of surplus would depend on whether a member’s shares
were fully paid up or not, regardless of whether one was a preference
or an ordinary shareholder.

Held: the memo would take precedence therefore preference

shareholders were entitled to preference in the distribution of the
company’s assets.

Effect of the MOA and AOA

According to section 17 of the Companies Act, MOA and AOA create
a contract under seal between the company and its members (and
not outsiders). This means both the company and members have
individual rights and obligations such that failure to comply with the
MOA or AOA amounts to breach of contract entitling the innocent
party to sue.

(a) Hickman vs. Kent [1915]

Articles required arbitration in disputes. There was a dispute between
the plaintiff member and the company. The plaintiff member ignored
the articles and decided to sue the company.
Held: the company would be allowed to compel the plaintiff to refer
the dispute to arbitration before suing.

(b) Rayfield vs. Hands [1958]

Articles required the company to buy a member’s shares at a fair price
if he intended to transfer them. The company refused to buy the
shares.
Held: the company had to buy the shares.

MOA and AOA bind members and not outsiders

Ely vs. Positive Government Security Life Association Company
Limited [1876]
COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 22
Lecturer in Law Courses
 Articles provided that the plaintiff should be the lawyer for the
company. The Plaintiff lawyer was not a member of the company.
The defendant company terminated his contract and he sought to rely
on the articles.
Held: he could not because he was not a member.

Alteration of AOA
4 Conditions
(i) Only by a special resolution
(ii) Legal alterations only i.e. not in conflict with laws
(iii) The alteration must be in tandem (agreement) with the MOA
[why?]
(iv) At common law an alteration will be void if ill-founded (not bona
fide)

Brown vs. British Abrasive Wheel Company Limited [1919]

The defendant company needed more capital. The majority (98%)
were willing to provide the capital if the minority (2%) shares were
sold to them. The minority refused to sell. The majority sought to alter
the AOA to provide for compulsory acquisition.
Held: the alteration was invalid since it would merely benefit the
majority and was not directly concerned with the provision of the
capital which the company needed.

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 23
Lecturer in Law Courses
 CHAPTER TWO: The Constitution of a Company
(A selection of non-factual past questions)
-----------------------------------------------------------------------------------
1. Mention the basic constitutional document of a company limited by
shares and state its usual contents (2 marks- Dec 2000, Dec 2009)
2. What is the relationship between a Memorandum of Association and
Articles of Association? (3 marks- June 2001, June 2003, June 2004
& June 2008)
3. What is the relationship between Memorandum of Association and
Articles of Association in case of a conflict between the two? (4
marks- Dec 2000, June 2001 & June 2008)
4. What is the contractual effect of the Memorandum of Association and
Articles of Association (3 marks- June 2001)
5. State the effect of the Articles of Association upon the company, its
members and outsiders (9 marks- June 2000, June 2004, Dec 2006 &
June 2007)
6. Explain the significance of the following in the formation of a
company;
(a) Memorandum of Association (5 marks- Dec 2002, Dec 2003, June
2005 & June 2007)
(b) Articles of Association (5 marks- Dec 2002, Dec 2003, June 2005
& June 2007)
7. Define the following;
i. Memorandum of Association (1 mark- June 2003)
ii. Articles of Association (1 mark- June 2003)
8. Outline the information required to be contained in the Memorandum
of Association (7 marks-June 2000, Dec 2002, June 2003, June 2004,
Dec 2006 & June 2007)
9. State six compulsory clauses that should be contained in a
memorandum of association of a company limited by shares (6 marks-
June 2009)
10.What conditions, if any, should be followed if a company wishes to
alter its Articles of Association or what is the legal position with
regard to the alteration of the altered Articles of Association. (8 marks
Dec 2005)
11.How would a company, registered under the Companies Act, change
its name? (6 marks- June 2009)
12.State what you understand by the doctrine of ultra vires in Company
Law. (5marks – Dec 2002 & Dec 2006).

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 24
Lecturer in Law Courses
13.How has the Companies Act affected the application of the doctrine of
ultra vires? (5marks – Dec 2002 & Dec 2006).
14.How has section 6 of the Companies Act relaxed the application of the
doctrine of ultra vires? (5 marks- Dec 2000)
15.How far is the doctrine still important? (4 marks- Dec 2000)

16.Timber Industries Ltd is proposing to alter its articles of association.

The effect will be to render Timber Industries Ltd incapable of
performing its part of the contract entered into between itself and
Kachimera who, upon learning of this move, intends to restrain
Timber Industries Ltd from effecting the alteration by an injunction.

Required

Advise Kachimera if, under the Companies Act, he can restrain

Timber Industries Ltd from altering its articles of association. (5
marks- Dec 2005

COMPANY LAW for PAEC students BYALLAN HANS MUHOME LLB (HONS) MW 25
Lecturer in Law Courses