COMPANY LAW

MEMORANDUM OF
ASSOCIATION AND ARTICLES
OF ASSOCIATION

TOPICS

The Memorandum of Association

The Articles of Association

MEMORANDUM OF ASSOCIATION
Bowen LJ in Guinness v Land Corporation of
Ireland (1882)
The memorandum contains the fundamental conditions
upon which alone the company is allowed to be
incorporated. They are conditions introduced for the
benefit of the creditors, and the outside public, as well
as of the shareholders. (The articles of association are
the internal regulations of the company).

MEMORANDUM OF ASSOCIATION
Therefore it defines the essential components of
the companys structure
Statutory requirements s 18(1):

The name of the company

The objects of the company
A share capital clause
A liability clause
An association clause
A subscriber clause

MEMORANDUM OF ASSOCIATION
A third party who deals with the company may refer to the
companys Memorandum which is deposited with SSM. (refer to
the preceding lectures)
Thus the Memorandum is a public document and today can be
viewed electronically via the e-info portal of the SSM website.
HTTP://WWW.SSM.COM.MY/EN/SSM-SERVICES

AMENDING THE MEMORANDUM OF

ASSOCIATION
It is often the case that a company may wish to alter its
Memorandum of Association.
This is natural as the company evolves and needs to adapt to
change.
Amending the Memorandum is subject to specific statutory
provisions.

AMENDING THE MEMORANDUM OF

ASSOCIATION
S 23- the companys name
S 25- unlimited to limited
S 26- public to private
S 28- object clauses
S 62- share capital
S 64- reduce the share capital

AMENDING THE MEMORANDUM OF

ASSOCIATION
Generally amendments can be made by way of a special
resolution except those that deal with matters involving shares.
Changes to the provisions of the Memorandum of Association
must also be notified to the Companies Registry.

AMENDING THE MEMORANDUM OF

ASSOCIATION
The changes to the Memorandum of Association
cannot be made in breach of other company law
rules and there are protections against such
changes where they increase the liability of
individual shareholders, vary the rights of any
class of shareholders or otherwise prejudice
minority shareholders.

AMENDING THE MEMORANDUM OF

ASSOCIATION
Special Resolutions require the votes of 75% of
members present in person or by proxy, who are entitled
to vote and do vote.

The meeting at which the resolution is proposed must

have had at least 21 days notice, unless a shorter period
was agreed by majority in number of members holding at
least 95% of the shares.
Certain matters can only be decided by special resolution
and the articles cannot provide to the contrary.

THE OBJECTS CLAUSE

The object clause of the Memorandum of the company

contains the object for which the company is formed. An act of
the company must not be beyond the objects clause,
otherwise it will be ultra vires and, therefore, void and cannot
be ratified even if all the members wish to ratify it.

THE OBJECTS CLAUSE

ultra vires (uhl-trah veye-rehz) adj. Latin for "beyond powers," in the
law of corporations, referring to acts of a corporation and/or its
officers outside the powers and/or authority allowed a corporation by
law.

THE OBJECTS CLAUSE

The doctrine of ultra vires has been developed to

protect the investors and creditors of the company.
This doctrine prevents a company to employ the
money of the investors for a purpose other than those
stated in the objects clause of its memorandum. Thus,
the investors and the company may be assured by this
rule that their investment will not be employed for the
objects or activities which they did not have in
contemplation at the time of investing their money in
the company.

THE OBJECTS CLAUSE - UK

Ashbury Railway Carriage and Iron Company Ltd v. Riche, (1875)
The objects of the company as stated in the objects clause of its
memorandum, were to make and sell, or lend on hire railway carriages
and wagons, and all kinds of railway plaint, fittings, machinery and rolling
stock to carry on the business of mechanical engineers and general
contractors to purchase and sell as merchants timber, coal, metal or other
materials; and to buy and sell any materials on commissions or as
agents. The directors of the company entered into a contract with Riche
for financing a construction of a railway line in Belgium. The contract was
ratified by all the members of the company, but later on it was repudiated
by the company. Riche sued the company for breach of contract.

Issue: whether the contract was valid and if not, whether it could be
ratified by the members of the company?

THE OBJECTS CLAUSE - UK

The House of Lords held unanimously that:
(a) The contract was beyond the objects as defined in the objects
clause of its memorandum and, therefore it was void, and

(b) The company had no capacity to ratify the contract.

THE OBJECTS CLAUSE - UK

Following the Ashburys case, the shortcomings or
disadvantages of this rule became apparent. The doctrine
creates hardships both for the management and outsiders
dealing with the company.
An outsider dealing with the company is, in law, presumed
to have knowledge of the provisions of the memorandum
and articles of the company. A contract made by an
outsider with the company in respect of anything which is
not covered under the objects clause in its memorandum is
ultra vires and therefore void.

AVOIDING ULTRA VIRES - UK

Owing to the difficulties of the ultra vires rule, businesses
attempted to evade the ultra vires rule. One approach was to
make the objects clause wide enough to cover various
situations. All sorts of objects, which a company may wish to
adopt, are stated in the objects clause.

AVOIDING ULTRA VIRES -UK

Bell Houses Ltd., v. City Wall Properties Ltd.
(1966)
A company was authorized by the objects clause
of its memorandum to carry on any other trade or
business, which could, in the opinion of the
directors be advantageously carried on by the
company in connection with its general business.
This clause was held valid.

ULTRA VIRES POSITION IN THE

UK TODAY
Its importance has been diminished as a result of
the Companies Act 2006 s 31, which allows for
unlimited objects for which a company may be
run. Furthermore, any limits a company does
have in its objects clause has no effect
whatsoever for people outside a company (s 39
CA 2006), except as a general issue of authority
of the company's agents.

ULTRA VIRES MALAYSIA

Section 20 Companies Act 1965: the doctrine has been

modified and thus it states that the fact that the company did
not have the capacity to enter into a particular transaction is
irrelevant as against third parties. Hence an ultra vires
transaction may be valid.

ULTRA VIRES MALAYSIA

However, by section 20(2), the companys lack of

capacity or power may be asserted or relied upon:
in proceedings against the company by any member,
or debenture holder who is secured by a floating
charge over the companys property, to restrain the
company from doing an ultra vires act or transaction;
in proceedings by the company or by any member of
the company against the present or former officers of
the company;
in any petition by the Minister to wind up the company.

ULTRA VIRES MALAYSIA

In Malaysia, although ultra vires transactions which have

been completed cannot be invalidated, the officers are
not free to ignore the objects clause of the company.
Thus, an injunction can be brought to prevent an
uncompleted ultra vires transaction. Further, the officers
who were responsible for the ultra vires transaction may
be made liable to the company. This could involve issues
of breaches of directors duties. This may be relevant if
the borrowing transaction materially affects the
companys ability to pay creditors. Finally, it is even
possible to have the company wound up on grounds of
serious ultra vires transaction.

THE ARTICLES OF
ASSOCIATION
An official document giving details of the structure and running of
a company, for example the powers of directors, the rights of
shareholders, the way in which the accounts will be approved,
etc or
A set of regulations for the internal management of a company.

THE ARTICLES OF
ASSOCIATION
If we recall, the incorporation of a company requires the submission of:
An original copy of the Memorandum and Articles of Association stamped at
RM100.00.
The first directors and secretaries shall be named in the Memorandum and
Articles of Association.
The subscribers to the companys shares shall sign the Memorandum and
Articles of Association in front of a witness.

THE ARTICLES OF
ASSOCIATION
So a company must have an AA. A company has the
following options:
- adopt Table A, Fourth Schedule of the CA 1965;
- do not create an AA. Then the Table A, Fourth Schedule of the CA 1965 becomes
the default AA;
- creates its own AA, yet does not exclude the application of Table A, Fourth
Schedule of the CA 1965, thus Table A will be applicable in the event of any
lacuna.

- See Section 30 of CA 1965

THE ARTICLES OF
ASSOCIATION
For incorporation of a private company, the Articles of
Association shall contain the following stipulations:
a. Restriction on the right to transfer the companys shares;
b. Limitation on the number of members to not exceed fifty;
c. Prohibition on any invitation to the public to subscribe the
shares/debentures of the company; and

d. Prohibition on public invitation to the public to deposit

money with the company.

THE ARTICLES OF
ASSOCIATION
For listing, companies are required with Chapter 7 of the Bursa
Malaysias Listing Requirements. Understandably, as a listed
company, there are greater controls on the structure of the AA
particularly those that relate to capital, borrowing and lending,
voting etc.

THE ARTICLES OF
ASSOCIATION
If there is a conflict between the MA and MA, then the provisions of the
MA shall prevail.
If there is a conflict between the AA and any statutory provision, then the
question of which one prevails will depend on the words used in the
context of the issue.

Amending The Articles of Association

S 31(1) the company is free to alter its articles by
special resolution.
Lindley MR in Allen v Gold Reefs of West Africa
Ltd [1900]: a member must vote bona fide for the
benefit of the company as a whole
Latham CJ in Peters American Delicacy Co Ltd v
Heath (1939) : The Court will not interfere unless
the decision is one that no reasonable person could
make.

AMENDING THE ARTICLES OF

ASSOCIATION
Evershed MR in Greenhalgh v Ardene Cinemas Ltd [1951] Ch 286:
the majority may not oppress or treat the minority unfairly.
Sometimes a company may impose other requirements in its MA that
also must be complied with before the AA can be altered. (see s 31(1)

CA 1965)

Legal effects of the MA and the AA

It is a binding contract between the company and
its members;

Hickman v Kent Sheep Breeders Association (1876)

Eley v Positive Government Security Life Assurance Co
(1875)

It is also a contract between individual members in

their capacity as members.

Wong Kim Fatt v Leong & Co Sdn Bhd (1976)

Rayfield v Hands (1958)