CCLW 4004 - Business Associations And Commercial Practice - Law Assessment Answer

Assessment Task:

CORPORATE CONSTITUTION 
• Memorandum of association 
• The name and objects of the company, the way in which the members’ liabilities were limited, the liability of members to contribute to the assets of the company, etc. 
• S 98 of Cap.622: deemed as being provisions in the articles.

OBJECTS CLAUSE 
• Common law 
• The objects clause provides contemplated business activities of a company. 
• A company does not enjoy full legal capacity. 
• The capacity of a company is defined by the objects clause in the company’s constitution. 
• What are the purposes of the object clause? 
OBJECTS CLAUSE 
• Common law 
• Ultra vires doctrine 
• Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653 
• The company’s memorandum of an association authorised/did not authorise the provision of finance. 
• A company’s contract to provide finance to another party for the construction of a railway was therefore effective/ineffective. 
• The act done by the company authorised/unauthorised by its constitution was ultra vires and ______. 
• The act could/could not be ratified by the members. 

NATURE OF THE ARTICLES 
• Rayfield v Hands [1960] Ch 1 
• A member who intended to transfer shares should inform the directors, who will take the shares equally between them at a fair value. 
• The directors were also members. 
• Ng Kin Kenneth v HK Football Association Ltd [1994] 1 HKC 734 
• “All members should refer all differences and questions coming within the provisions of the Laws of the Game and the Rules of the Association to the Council. The membership of the association shall constitute an agreement to refer to all such differences and questions in accordance with the Rules of the Association and shall be enforceable as an agreement under the Arbitration Ordinance.” 

MODEL ARTICLES 
• Companies (Model Articles) Notice (Cap. 622H) 
• Schedules 1-3 
• Adoption: ss 79, 78(2) of Cap.622 
• Deemed adoption: s 80 of Cap. 622 

REMEDIES UNDER THE ARTICLES 
• Not all contractual remedies are available 
• Often restricted to injunctive and declaratory relief 
• Shareholders are generally not permitted to elevate their claims to the same level of the claim by a creditor. 
• The interests of different stakeholders need to be balanced. 
• Rectification is unavailable – the correct way to remedy is to amend in accordance with the machinery provided in the articles. 
• This rule does not prevent a member from seeking damages against another member. 

SHAREHOLDERS’ AGREEMENTS 
• Entered into by some or all of the shareholders in relation to the operation of the company 
• Can be entered into at any time 
• The company itself can become a party 
• Most often used for small private companies 
• Advantages 
• Private 
• Place the company under obligations not provided in the articles 
• Full range of contractual remedies 
• Effective for minority protection 
• Ratchet clauses available 
• Disadvantages 
• Does not bind subsequent members 
• Asking new members to execute an accession agreement can be cumbersome 

SHAREHOLDERS’ AGREEMENTS 
• Relationship with articles 
• To avoid confusion, the members’ agreement should distinctly state that: 
• “In the event of any conflict between the provisions of the members’ agreement and the terms of the articles of association, the provisions of the members’ agreement shall prevail or clauses to the same effect.” 
• In the case of inconsistencies...
ASSIGNMENT QUESTION 
• Discuss the relationship between articles of association and shareholders’ agreement.

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