Learning Outcome

Understand the effect and implications of

Memorandum and Articles of Association

Understand the doctrine of ultra vires and
Sec 20 CA
Understand the duties of promoters of
companies

Memorandum of Association
(a) Memorandum and Articles of Association Sec

16(1)
(b) A memorandum of association is the
companys constitution. It contains the
companys name, registered office, object, and
liability of members, share capital and
particulars of subscribers Sec 18
(c) The memorandum of association of the
company can be altered by the members of
the company by special resolution S 21 CA

Memorandum of
Association the Object
Clause
The
objects clause which defines what the
company can do in terms of its business
activities is contained in the Memorandum of
Association can be altered by special
resolution S 28 CA

Traditionally, anything which a company

does which is not allowed in the

Memorandum is ultra vires the company
and void.

The Ultra Vires Doctrine

Under the traditional common law, the

objects clause is important and relevant in

determining whether the company has
acted ultra vires thereby rendering an act
void ab initio.

The term ultra vires simply means beyond

the powers or lack of power in respect of

an act carried out by the company.

Meaning of Ultra Vires

Prior to loans been granted to companies,
lenders often require and examination or
inspection of the Memorandum in order to
check the capacity of the company to
grant loans.
However, the application of the ultra vires
principle is of limited relevance today.

Sec 20 CA
This is because Sec 20(1) of the CA

provides that
if the company entered into any act or
conveyance or transfer of property without
having the capacity or power to do so in
the Memorandum, the said act or
conveyance or transfer shall not be invalid
or illegal by reason only of the lack of
power or capacity.

Sec 20 CA
Sec 20(1) includes
the entering into of an agreement by the

company and including any act done on

behalf of a company by an officer or agent
of the company

Sec 20 CA
Section 20(1) provides that the company

cannot now claim that the contract is ultra

vires or beyond the powers of the
company when the ultra vires contract is
fully performed.
Therefore as can be seen, an ultra vires
transaction made by a company is no
longer a complete nullity, incapable of
being recognized as a transaction at all.

Powers of company Sec

19 CA
The powers of a company shall include

those powers set forth in the Third

Schedule of the Act unless they are
expressly excluded or modified by the
memorandum or articles of the company.

Articles of Association
An Articles of Association constitutes the

regulations by which the internal affairs of

the company are governed.
Articles my adopt all or any of the

regulations contained in Table A of the

Fourth Schedule Companies Act 1965 Sec 30 CA. Table A is a model Articles for
a company limited by shares.

Articles of Association
Articles may be amended (by alteration

and / or addition) by a special resolution

passed by the company subject to the
Companies Act 1965 and to any
conditions in its Memorandum - Sec 31
CA

Articles of Association
Generally most Articles deal with matters

such as
1.
2.

the registered office

the exclusion, wholly or in part, Table

A
3. the execution or adoption of preincorporation contract or preliminary
agreement, if any;

Articles of Association
4.

classes of shares and variation of

class rights
5. lien on shares
6. calls on shares and forfeiture for non
payment of calls
7. transfer of shares
8. transmission of shares
9. alteration of share capital

Articles of Association
10. Reduction of share capital
11. General Meetings of members
12. Directors
13. Accounts and audits
14. Dividends and reserve funds
15. Notices to members and
16. Winding up

Effects of Alterations
The Articles may be altered at any time

the company cannot deprive itself of this

power
S. 31(1) - a company may by special

resolution alter or add to its articles

As. 31(1) alteration or additions to the
articles are subject to the CA and to any
conditions provided in the memorandum

Effect of Alterations
Sec 31(2) - Alteration of the articles is

effective immediately on and from the date

of the special resolution or such date as is
specified in the resolution

Sec 31(2) - The alteration is valid as if

originally contained in the articles and is

subject in like manner to alteration by
special resolution

Effect of Memorandum and

Articles
Sec 33 (1) Provisions in the

memorandum and articles of a company

when registered become a statutory
contract of a special nature:
1.

binding between the company and the

members qua members; and
2. binding between the members inter
se.

Effect of M & A and AA

Once registered, the Memorandum and

Articles bind the company and the members

The Memorandum and Articles are a

contract under seal binding both the

members and the company.

The Articles of Association represent the

contract (terms) binding both the company

and its shareholders (members)

Promoters
Promoters are any persons who

undertake to incorporate a company and

takes all necessary action to get it going is
known as promoter

Sec 4 (1) - promoter or a corporation

who was a party to the preparation of the

prospectus or of any relevant portion
thereof, but does not include a person
acting in the professional capacity

Duties of Promoter
A promoter owes fiduciary duties to the

company duties of disclosure,

accounting
Must disclose all secret profits he makes
Profit made from promotion must be
disclosed to an independent board of
directors
A method of disclosing a profit is by
means of a prospectus

Payments to Promoter
Art 73 Table A .. The directors must

pay all expenses incurred in promoting

and registering the company . .
Payments commission, shares, option to
subscribe for shares
Amounts or benefits received by promoter
must be disclosed in the prospectus
issued within 2 years 5 th Schedule, CA

Questions and Answers

Constitution of a
company
Palmville Berhad entered into a joint venture

agreement with Armada Berhad to develop a piece

of land and took financing from the bank. However
the M & A of Palmville did not authorize this
transaction. The transactions were however
approved by way of board resolution. Half way
through the project, Palmville decided to stop the
project. Can Armada sue for breach of contract since
there was no authority in the M & A and can the bank
recover the loan?
Answer
Notwithstanding the lack of power and capacity that
was absent in the M & A, the transaction was saved
by Section 20 of the CA.

Constitution of a
company
if the company entered into any act or

conveyance or transfer of property without

having the capacity or power to do so in the
Memorandum, the said act or conveyance or
transfer shall not be invalid or illegal by
reason only of the lack of power or capacity.
Section 20(1) provides that the company
cannot now claim that the contract is ultra
vires or beyond the powers of the company
when the ultra vires contract is fully
performed

Constitution of Company
What are the duties of a promoter?
Answer
A promoter owes fiduciary duties to the

company duties of disclosure, accounting

Must disclose all secret profits he makes
Profit made from promotion must be
disclosed to an independent board of
directors
A method of disclosing a profit is by means
of a prospectus

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Chapter 3
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