MEMORANDUM OF ASSOCIATION(MOA)

Prepared by :Norintan Wahab

UiTM Johor

• THE CONTENTS OF THE MoA• The MoA is regarded as a company’s constitution.• Under S.16(1) CA, the lodgement of the MoA for incorporation of a

company is a must.• MoA sets out the provisions which regulate the relationship of the

company and outsiders dealing with it.• It defines the objects and powers* of the company and the extent of its

liability.• ASHBURY RAILWAY CARRIAGE V. RICHE• “MoA is treated as a charter & defines the limitation of the power of the

company to be established under the Company’s Act…”

•MoA sets out the essential detail of the company and govern the fundamental basis on which the company operates.•S.18(1) provides for the required particulars which need to be inserted in the MoA:1)The name of the company;2) The objects clause;3) if a company is limited by shares, the share capital clause;4) a liability clause;5) an association clause; and6) a subscriber clause. - In the event of a private company the restriction under S.15 CA must also be included.

• Among the important clauses in the MoA are :A) The Objectives Clause

• It refer to the purpose of which the company is formed to achieve OR the kind of activities in which the company can carry on.

• The objectives of the company can be limited (specific) OR it can be wide (general)

• Example of the specific objectives :• Where in the MoA, it stated that the purpose of the company is for

investment only• Example of the general objectives :• Where it stated in the MoA, the purpose of the company is for

investment, construction, trading etc.

• B) The power Clause

• It refer to the legal ability or authority given to the company to achieve the objectives of the company.

• S.19 provides that the power of a company shall include :– 1) Power to make donations for patriotic or for charitable purpose;– 2) Power to do transaction or lawful business in aid of Malaysia in

the prosecution of any war which Malaysia engaged.

• ALTERATION OF THE MoA

• MoA maybe changed, altered or added. This is provided under S.21(1) CA.

• However, any alteration of MoA must be in accordance with the CA. • If the Act permits the alteration of such clause, only then the said

clause can be altered.• Among the clause that can be altered as provided under the Act

• 1) S.23 : Allow the change of name of the company• 2) S.25 : Allow the company to be changed from limited to unlimited

company and vice versa• 3) S.26 : Allow the company to changed from private to public company

and vice versa• 4) S.28 : Allow the company to alter its objectives clause• 5) S.62 : Allow the company to alter its share capital• 6) S.64 : Allow the company to reduce its share capital.

• PROCESS OF ALTERATION OF THE OBJECTS CLAUSE IN MoA

• The process is govern under S.28 CA• The process are :• 1) S.28(1) – Alteration can only be made with special resolution which

can only be obtained through a meeting and require 3/4 votes.• 2) S.28(2) & (3) – All members, trustee for the company’s debenture

holders OR all the debenture holders MUST be given 21 days WRITTEN NOTICE with regard to the resolution to amend

• 3) S.28 (8) – A grace period of 21 days is given after obtaining the resolution to alter in order to give certain person to objects the said alteration (if any).

• The person who can objects are S. 28(5) & (6):– A member or members holding at least 10% of the company’s

issued share cpital or any class of the company’s issued share.– At least 10% of the company’s members– A debenture holder or holders holding at least 10% of the

company’s debenture.

• When there is an objection with regards to the alteration of the objects clause, the said alteration will not have effect unless the court confirms the said alteration.

• S. 28(7)(a) - The court will look into the rights and interest of the members and creditors of the company before confirming to the alteration of its object clause.

• 4) S.28 (9) – After expiry of the said grace period, the resolution to alter the objects clause MUST be lodge with the Registra within 14 days.

• 5) S.28 (10) – The alteration ONLY TAKES EFFECTS when the resolution has been lodge.

• 6) S.28 (4) – A certificate will be issued by the Registrar certifying that all the requirements with regards to the alteration has been fulfilled.

ARTICLES OF ASSOCIATION• THE CONTENTS OF THE AoA• It governs the internal arrangement of the company• It determine how the objectives as stated in the MoA shall be achieved• It determines how the power given under the MoA can be exercised• GUINESS V. LAND CORPORATION OF IRELAND• The judge made a distinction between the MoA and AoA;• “The MoA contained the fundamental condition upon which the

company is allowed to be incorporated. It is a condition introduce for the benefit of the creditors and outsiders as well as shareholders. The AoA is an internal regulation of the company.”

• Any conflicts between the MoA and the AoA, the MoA will prevail.• S.29(2) CA – The AoA shall be printed, divided into numbered

paragraphs and signed by each subscriber in the presence of at least 1 witness.

• S.30(1) CA – The Articles may adopt all or any of the regulations contained in Table A of 4th Schedule of the CA.

• S.31(2) CA – If an AoA is not lodge to the ROC, then Table A 4th Schedule shall be the company’s AoA.

• S.34 CA – AoA can be inspected by public at the ROC upon payment of fees.

• ALTERATION OF THE AoA• S.31(1) CA – A company may, by SPECIAL RESOLUTION add, vary,

amend or alter its AoA.• Unlike the MoA, the company may freely alter the AoA wothout having to

refer to the relevant provision in the CA. However the alteration of AoA must be one that :

• 1) Bona fide for the benefit of the company

• ALLEN V. GOLD REEFS OF WEST AFRICA LTD• “The power conferred on companies to alter the regulations contained in

their articles…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…”

• It is for the members to decide what are the interest of the company.• the rule is subject to the principle that the majority may not oppress or

threat the minority unfairly.

• GREENHALGH V. ARDERNE CINEMAS LTD• “Bona fide for the benefit of the company means that the shareholder

must proceed upon what, in his honest opinion, is for the benefit of the company as a whole… and the company as a whole does not mean the company as commercial entity, distinct from the corporators…but it means the corporators as general body…”

• If it is proven that the resolution to alter the AoA was passed mala fide or which is oppressive, a relief may be obtained under S.181 CA.

• Example where the alteration of AoA was held to be invalid is in the case of:

• DAFEN TINPLATE CO LTD V. LLANELLY STEEL CO• The company altered the AoA to give power to the majority

shareholders to allow the director to sell any shares owned by any member to any person whom the director chooses. The selling price of the said share was to be determined by the director.

• The purpose of the alteration is to compel the sell of the share of any member who has formed a business which is in competing with the company business.

• HELD : the alteration is void as it is made NOT bona fide for the benefit of the company as a whole…

• RESTRICTION ON THE COMPANY’S ABILITY TO ALTER ITS ARTICLE

• 1) The power to alter may be restricted by the provision of the MoA. Thus if the MoA restricts the alteration of a specified articles, these articles are unalterable.

• 2) S.15 (1) CA – Where the company is a Private Ltd Company, there are three restriction upon which the article cannot be altered.

• Restriction on transfer of shares• Limitation on numbers of members in the company• Prohibition on invitation for the public to subscribe share

• 3) S.65 CA – Where the capital of the company is divided into 2 different classes of shares, and if there is provision in the MoA and AoA which authorized the alteration of the class right, therefore it can be restrained under this section.

EFFECT OF MoA & AoA

• S.33(1) CA provides that MoA & AoA constitute a contract between the company and its members & also between the members inter se

• Due to this there are 3 contractual relation which need to be considered

1. Contractual Effect between the Company & its Members.

• S. 33(1) CA – provides that MoA & AoA are contract between the company and its members.

• HICKMAN v. KENT @ ROMNEY MARSH SHEEP BREEDERS’ ASSOCIATION

• Facts : The company’s article provide that any dispute arose between the company and its members, the matter should be brought to arbitration. A dispute arose between Hickman and the company. Hickman brought the matter to the court.

• Held: Since the company’s article has stated that any dispute shall be referred to the arbitration, then Hikman’s claim failed. The articles were a contract between the company and its members. Therefore, the provision for arbitration was a binding agreement between the company and its members.

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• MoA & AoA do not create contractual relationship between the company and outsider.

• ELEY V. POSITIVE GOV. SECURITY LIFE ASSURANCE CO.

• Facts : Eley was a solicitors of the company without any employment contract. He drafted the company’s article which provide that he shall be the permanent solicitors of the company and can only be dismissed by misconduct. He also received some share for the work done in the company.

• Later on he has been dismissed. He brought an action against the company for breach of agreement with him by dishonor of the article.

• Held : Eley’s action failed. The AoA of a company gave no right to a member to enforce his right in a position other than being as a member. In this case even though Eley was a member of the company but he wants to enforce his right as a solicitors of the company

• A member may restrain the company and its member from acting in breach of its article.

• SALMON V. QUIN & AXTEN LTD.

• Facts : The company’s article provide that certain contract could not be entered into by the company without the consent from Salmon & Axten.The company wants to acquire a premise. Without having Salmon’s consent, a resolution was passed to acquire the premise only with Axten’s consent. Salmon sued fro injunction to restrain the company and the directors from acting on the resolution.

• Held : The court granted the injunction because the resolution was inconsistent with the company’s article

2. Contractual Effects among the Members Inter Se

• MoA & AoA is a contract between the members inter se.• S. 31 (1) CA provides that MoA & AoA contain a covenant that each

member will observe all the provision stated in it.• Thus a member may find himself bound by the terms which he has not

consented to.• A member may enforce his right against the other member through

injunction which may be brought directly to the other member without inserting the company as a party to the suit.

• RAYFIELD V. HANDS

• Facts : The company’s article provide that a member who wanted to transfer his share had to inform the director. The director will then divide the share equally among them at a fair value.Rayfield wanted to transfer his share, but the directors refused to buy his share. He then brought an action against the directors of the company to compel them to buy his share in accordance with the article.

• Held : Rayfield’ s claim succeeded. There was a contract between Rayfield and the directors constituted by the article. The court ordered the directors to purchased Rayfield’s share in accordance with the article.

• The fairness and unfairness of the article is not relevant.

• WONG KIM FATT V. LEONG & CO. SDN. BHD.

• Facts : The company’s article allowed a member holding a majority share to compulsorily acquire the shares of the members holding a minority share. The minority shareholders contested the exercise of such power.

• Held : The court refuse to grant that the article was unenforceable. The exercise of the power was in accordance with the company’s article. The provision in the article was purely a contractual in nature.

• Relationship Between the Company & Outsider

• Outsiders are not privy to the MoA & AoA, therefore they cannot enforce any rights under the company’s MoA & AoA.

• RAFFLES HOTEL LTD V. MALAYAN BANKING BHD

• Facts : Malayan Banking was a lessor (pemegang pajakan) of the land on which Raffles Hotel stand. Raffles Hotel had a provision in its article that the lessor may appoint a director of the company. Malayan Banking appointed itself as director of the company.

• Held : The constitution could not constitute a contract between the company and an outsider. Malayan Banking was an outsider. Accordingly the appointment was invalid.

• The company may not be prevented by the outsider from altering its articles to change the effect of the contract with the outsider.

• Any changes in the constitution affecting the contractual agreement with an outsider will only be effective prospectively and not retrospectively.

• SOUTHERN FOUNDRIES LTD V. SHIRLAW

• Facts : Shirlaw was appointed as the managing director of Southern for 10 years. Souhthern, however was taken over by another company, Federated. Federated exercised its rights as Southern’s shareholders and amended the company’s article so as to confer on Federated the right to remove any of the Southern’s directors.As a result, Shirlaw was removed. He then sued Southern for breach of contract.

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• Held : The claim of Shirlaw was upheld. Although the company has the right to alter or amend provision in its article, it does not justify a breach of contract with an outsider when the contract was validly entered into before the alteration.

• RE NEW BRITISH IRON CO. ex.p BECKWITH

• Facts : The claimant had served the company as directors without any express agreement as regard to the remuneration. However, the company’s article provide that the director shall be paid $1000 per annum. The claimant claimed for arrears of the director’s fees.

• Held: They succeeded on their claim.

• SWABEY V. PORT DARWIN GOLD MINING CO.

• Facts : The company’s article provide that the director were to be paid $ 200 per annum. The company then altered its article that the directors’ remuneration was reduces to $5 per month. Due to this amendment, Swabey resigned as the director and sued for 3 months arrears at the old fees.

• Held : The directors remuneration was validly amended but only prospectively. The amendment did not affect Swabey right. Therefore, he was entitled for the arrears at the old rate.

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