The Constitution of the Company

The Consititution of the Company 

A company's consitution largely sets out the rules under which it is to be run. It is similar to the consitution of a country, whereby powers, rights and obligations are stipulated. 

The Evolution of the Corporate Constitution

The form and content of the corporate constitution has altered significantly with the passing of the Companies Act 2006. Prior to the Act, a company's constitution was comprised mainly of two documents. These were: the memorandum of association and the articles of association. Section 17 of the Companies Act 2006 now provides that the company's consitution must include:

1. The company's articles; 

2. Resolution and agreements affecting the company's constitution. 

As a consequence, the memorandum does not form a principal component of the constitution. Section 17 only provides the documents that a constitution can 'include', and so it is clearly not an exhaustive list. 

It is important to be aware of the legislative changes to the comapany's constitution because an essay question might require you to discuss the changes. 

The Memorandum of Association

Before the passing of the 2006 Act, the memorandum was of great importance to the company's constitution. 

The Company Law Review Steering Group proposed that the memorandum and articles of association should be merged to form one document. However, the government rejected this and retained both the memorandum and the articles. Section 7(1) of the Companies Act 2006 provides that all companies must have a memorandum. However, whilst the memorandum is still required, the content and form of the memorandum has been reduced significantly. Section 8 of the Companies Act 2006 provides that the memorandum must state that the subscribers: wish to form a company under the Act, and agree to become members of the company. 

Under the 2006 Act, it can therefore be seen that the memorandum simply provides a historical snapshot of the company before it was set up. Companies set up under previous Companies Acts will still have the old-style memorandum. In this case, the articles will still be viewed as forming part of the company's articles, except those provisions that section 8 of the CA 2006 states must be in the company's memorandum (CA 2006, section 28). 

The Articles of Association

With the emasculation of the memorandum, the articles now form the principal constitutional document. The articles tend to regulate the internal workings of the company. They cover things like: the balance of power between members and directors, the conduct of general meetings, and certain issues pertaining to shares and the distribution of assets. 

If a company has chosen to limit its objects, this will also be included in the articles. 

Every company must have a set of artciles (CA 2006, section 18(1)). 

Drafting articles is often a complicated and technical task, and so most company promoters lack the knowledge necessary to produce this document. The Companies (Model Articles) Regulations 2008 provide model articles for private limited companies (schedule 1 and 2) and for public companies (schedule 3). 

Unlimited companies are…