Articles Of Association Case Study

This essay will provide an analysis on the functioning and characteristics of the articles of association to give the reason why they are a contract of special nature, by looking at both statute and caselaw judgements made in this area and their application The articles of association are rules that regulate or guide the internal affairs of the company. The articles of association are the company’s constitution, the provision of this constitution is a contract that binds the company and its members, it is also a contract between each of the members in their capacity as members. This makes the articles a statutory contract, therefore it is different from an ordinary contract but this is just the first light that shows the special nature …show more content…
Under the law a company may amend its articles by special resolution by a 75% majority of the shareholders. By s.25 of the companies act a member will not be bound by alterations made after he has joined the company in so far as they make him liable to pay extra money to the company, unless he has agreed in writing to take more shares than he was obliged to before the alteration. In Allen v Gold Reefs of West Africa Ltd Lindley MR said: ‘the power must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. Therefore, alteration of articles will be valid if passed, but must also be for the benefit of the company, for example, in Greenhalgh v Arderne Cinema Ltd it was held that discrimination between majority and minority shareholders would not be sufficient for a resolution to fail the bona fide test. Therefore, very alteration must be to the benefit of the company. This why the normal contract law principles of mispresentation and undue influence or duress which makes a contract invalid do not go with the contract in the articles if the contract is invalid then only an alteration and stop it not damages or …show more content…
Shareholders who are insiders are affected by this contract only in their capacity as shareholders, non-shareholders are outsiders and cannot be affected by the contact. For example, in the Eley case it was held that when the person seeking to enforce the articles has effectively two relationship with the company as both an outsider and a shareholder he cannot enforce the articles of the company. Thus, a director or solicitor cannot enforce the articles in his capacity as director even though he is also a shareholder in the