4 - Legally Binding the Company

• Are companies legally required to have a common seal?

  No
• Who may use the common seal and its use is a matter for the company’s articles. The model articles provide that a common seal can only be used with the directors’ authority.
• A document may be validly executed if it is signed on behalf of the company by (i) two authorised signatories; or (ii) a director of the company in the presence of a witness who attests the signature (CA2006, s. 44(2)). Every director of the company is an authorised signatory, as is the company secretary if the company has one (CA2006, s. 44(3)).
• s. 17 of the CA2006 provides that a company’s constitution will include:

  • the company’s articles; and

  • resolutions and agreements affecting the company’s constitution, listed in s. 29(1).
• While all companies are still required to have a memorandum (CA2006, s. 7(1)(a)), the memorandum is no longer a key part of the company’s constitution, nor is it a document of any real import.
• The 2008 Regulations provide three sets of model articles:

  • model articles for private companies limited by shares (Schedule 1)

  • model articles for private companies limited by guarantee (Schedule 2)

  • model articles for public companies (Schedule 3).
• Rayfield v Hands [1960] demonstrated that the Articles of a company are not always worded clearly
• Implying terms into the articles does not constitute an addition to the articles because, as Lord Hoffmann stated in Attorney General of Belize v Belize Telecom Ltd, ‘the implication of the term is not an addition to the instrument. It only spells out what the instrument means’.
• A company may amend its articles either by passing a special resolution (CA2006, s. 21(1)) or if all of the members so agree (Cane v Jones [1980] 1 WLR 1451 (Ch)).
• If an amendment to the Articles is motivated by fraud or malice then it will not be bona fide.
• Section 33(1) of the CA2006 provides that ‘[t]he provisions of a 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 those provisions’. This means the constitution of a company forms a contract (often known as a ‘statutory contract’) between:

  • the company and its members; and

  • the members themselves.
• A member whose constitutional membership rights have been breached will usually be prevented from enforcing such rights if the breach constitutes an ‘internal irregularity’, which occurs where the ‘alleged wrong is a transaction which might be made binding on the corporation and on all its members by a simple majority of the members
• The terms of a shareholders’ agreement can be enforced by or against any person who is party to the agreement.
• As the company is a legal person it has the ability to enter into contracts. This is known as the company’s ‘contractual capacity’.
• A company’s contractual capacity can be limited or restricted by its constitution, and if a company exceeds its contractual capacity, then it is said to be acting ultra vires.
• The benefit of having an objects clause was that (i) it would clearly indicate to relevant persons (e.g. members, creditors) why the company was set up; and (ii) it helped ensure that the company engaged in activities in its area of expertise.
• s. 39(1) of the CA2006 provides that ‘[t]he validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company’s constitution’. A contract entered into by a company cannot be invalidated on the ground that the contract is outside the scope of the company’s contractual capacity.
• Section 43(1) of the CA2006 provides that a company contract can be made on behalf of a company by a person acting under its authority.
• Express actual authority refers to that authority that has been expressly bestowed upon an agent
• In order to establish that an agent has apparent authority, three requirements will need to be satisfied namely:

  1.        there must be a representation;

  2.        this representation must be relied upon; and

  3.        the person relying on the representation must alter their position.
• A representation can be made orally or in writing, however it is most often made by conduct
• Section 40(1) provides that ‘[i]n favour of a person dealing with a company in good faith, the power of the directors to bind the company, or authorise others to do so, is deemed to be free of any limitation under the company’s constitution
• The indoor management rule is that third parties that deal with the Company can assume that the company's internal rules have been complied with.