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Law Notes Company Law Notes

The Constitution Of The Company Notes

Updated The Constitution Of The Company Notes

Company Law Notes

Company Law

Approximately 805 pages

Company law notes fully updated for recent exams in the UK. These notes cover all the major LLB company law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Canada, Hong Kong or Malaysia (University of London). These notes were formed directly from a reading of the cases and main texts and are vigorous, concise and very well written.

Everything is conveniently split up by topic as you can see by the list o...

The following is a more accessible plain text extract of the PDF sample above, taken from our Company Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:


The Constitution and Rights attaching to shares and the ‘S33 contract’ 35

Gower, pp58-69: The Company Constitution 35

The Significance of the Constitution 35

What Constitutes the Constitution? 35

Legal Status of the Constitution 35

Cases 37

Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 881 37

Towcester Racecourse Co Ltd v The Racecourse Association Ltd [2003] 1 BCLC 260 37

AG Belize v Belize Telecom Ltd and anor [2009] 2 All ER 1127 38

Pender v Lushington (1877) 6 Ch D 70 38

MacDougall v Gardiner (1875) 1 Ch D 13 38

R Drury, A Shareholder’s Right to Enforce the Company Contract [1986] CLJ 219 38

Introduction 38

The use of contractual techniques 39

The company as a long term relationship 39

The Extent of a Shareholder’s Right to Enforce the Company Contract 39

Summary 41

Alternation of the Constitution 41

Gower pp69-70: Altering the Contract 41

Gower pp 636-645: Review of Shareholders’ Decisions 41

The Starting Point 41

Resolutions where the company’s interests are centre stage 42

Resolutions more generally 42

Resolutions to expropriate members’ shares 42

Other resolutions 42

The future 43

Voting at Class Meetings 43

Cases 43

Citco Banking Corp NV v Pusser’s Ltd [2007] BCLC 483 43

Re Charterhouse Capital Ltd [2015] EWCA Civ 536 (paras [89] to [108]) 43

Constable v Executive Connections Ltd [2005] 2 BCLC 483 44

Shuttleworth v Cox Bros (Maidenhead) [1927] 2 KB 9 44

Greenlagh v Aderne Cinemas Ltd [1915] Ch 286 44

Gambotto v WPC Ltd (1995) CLR 432 45

Brown v British Abrasive Wheel Co [1919] 1 Ch 290 46

Allen v Goold Reefs of W Africa Ltd [1900] 1 Ch 656 46

B Hannigan, Altering the AoA to Provide for Compulsory Transfers [2007] JBL 471 47

Shareholder Agreements 50

Gower pp70-71: Shareholder Agreements 50

Gower pp655-659: Shareholder Agreements 50

Prior Contracts 50

Binding only on the Shareholders 50

Conclusion 51

Cases 51

Russell v Northern Bank Development Cor Ltd [1992] BCLC 1016 51

E Ferran, The Decision of the House of Lords in Russell v Northern Bank [1994] CLJ 343 51

Alternations Involving Class Rights 52

Gower pp645-653: Class Rights 52

The Procedure for Varying Class Rights 52

What Constitutes a Variation 52

The definition of class rights 53

Other cases 53

The Constitution and Rights attaching to shares and the ‘S33 contract’

Gower, pp58-69: The Company Constitution

The Significance of the Constitution

S18 CA 2006: Constitution (especially AoA) gives companies great freedom to regulate their internal affairs; may deal with any matter not regulated by law in AoA too. Main issues: balance of powers between board and shareholders, and composition, power and structure of the board of directors. Note that such matters are more closely regulated in other jurisdictions eg Germany and the US, although the US approach is to provide a prescriptive set of default rules which still may ultimately be modified inter partes. However, the US approach is post-incorporation modification rather than ab initio freedom to decide; UK approach is to put ultimate control into the hands of shareholders.

What Constitutes the Constitution?

Constitution = AoA but also includes Part 3 Chapter 3 resolutions (S17 CA), primarily special resolutions of shareholders but also resolutions binding on all members of a class. No longer included MoA.

Common law tends to classify rule-books of organisations as contractual in nation. Here, this is codified by S33 CA – ‘the provisions of the company’s constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe it’.

This is quite a peculiar contract:

  1. Parties to the contract: the company and each of its members – this is useful in protecting a right to pre-emption eg Borland’s Trustees v Steel [1901] or enforcing a duty to buy the shares of a retiring member (less common) eg Rayfield v Hands [1960]

  2. The contract as a public document: S9, S14 CA – company constitution must be made publically available on the register. Those who deal with the company have a legitimate expectation to know how it functions. Hence, the standard contractual remedy of rectification is not allowed for a company’s constitution – Scott v Frank F Scott (London) Ltd [1940]. Similarly, there can be no implication of terms based on extrinsic factors where these would not have been obvious to a third party – Bratton Seymour Service Co Ltd v Oxborough [1992]. In that case, Lord Steyn went even further and said that misrepresentation, duress, mistake or undue influence could not be pleaded either. This means that it is what was registered which counts, allowing third parties to rely on the register. SS26, 27 – issue: it is possible to amend a constitution informally though agreement by shareholders; while failure to update the register is a criminal offence, non-compliance does not seem to affect the validity of the new constitution

  3. Limitations to the provisions which can be enforced – only rights as a member: only parties to a contract can enforce rights under that contract, and S6(2) C(RTP)A 1999 specifically excludes company constitutions. Qua Member rule per Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] where rights given to an outsider in that capacity happens to subsequently become a member, those rights cannot be enforced. Same for contract between members inter se – London Sack & Bag Co v Dixon & Lugton [1943]. Hence, a promoted who becomes a member cannot enforce a constitutional term saying he will be compensated for expenses incurred – Re English & Colonial Produce Co [1906]. Hence, directors should be careful to enter into service contracts, which can in turn incorporate terms form the corporate constitution. However, this can lead to strange results – Hickman was about an arbitration clause in the constitution; so was Beattie v Beattie Ltd [1938] but that was director qua director therefore the clause from the...

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