Constitution
A company's constitution is the set of rules by which the company must operate. It is commonly separated into two parts, its memorandum and its articles of association.
A memorandum is the document which defines what the company is. That is to say it will state what the company's name is, it will state the country in which the company is registered and will set out the purpose for which the company is in business and what it is empowered to do. This is more commonly known as the objects clause and historically companies would often have a very rigidly-defined object (eg to carry on with the business of manufacture of machine parts) reflecting the fact that historically companies would only ever carry out one type of business. Such restrictive definitions are entirely unsuitable for modern companies which can be involved in a variety of business undertakings and need to have the flexibility to operate in new fields if they so desire. As a result the objects clause of modern companies tend to be very widely drafted and generally empower the company to carry on any commercial activity whatsoever.
The memorandum of association will also state that the liability of the members is limited and set out what the annual share capital of the company is (this being the amount of share capital that the company is authorised to issue).
The articles give detailed instructions as to how the company is to work, setting out the internal management structure.
Typically the articles will deal with such things as the issue and allotment of shares, the calling of shareholders meetings and the shareholders right to vote, the regulation of board meetings and the transfer of shares.
The Companies Act 1985 produced a specimen set of articles known as Table A, setting out the most common provisions necessary for the smooth running of a company. In order to avoid printing out all these provisions every time a company is incorporated it is has become commonplace for companies to simply incorporate the whole of Table A into their articles of association and then disapply those parts of Table A which are unsuitable to that particular company.
It should be borne in mind that the articles of association are effectively a contractual document between the company and its members and as such only deals with the rights of members in relation to the company. This means that any regulation of the relationship between the members and the directors or the directors and the company will need to be dealt with under a separate document which is commonly known as a shareholders agreement.
It is not only the company's constitution which regulates the operation of that company, statute and common law will also have an impact on how the company can operate.
Memorandum
A memorandum is the document which defines what the company is. That is to say it will state what the company's name is, it will state the country in which the company is registered and will set out the purpose for which the company is in business and what it is empowered to do. This is more commonly known as the objects clause and historically companies would often have a very rigidly-defined object (eg to carry on with the business of manufacture of machine parts) reflecting the fact that historically companies would only ever carry out one type of business. Such restrictive definitions are entirely unsuitable for modern companies which can be involved in a variety of business undertakings and need to have the flexibility to operate in new fields if they so desire. As a result the objects clause of modern companies tend to be very widely drafted and generally empower the company to carry on any commercial activity whatsoever.
The memorandum of association will also state that the liability of the members is limited and set out what the annual share capital of the company is (this being the amount of share capital that the company is authorised to issue).
Articles of association
The articles give detailed instructions as to how the company is to work, setting out the internal management structure.
Typically the articles will deal with such things as the issue and allotment of shares, the calling of shareholders meetings and the shareholders right to vote, the regulation of board meetings and the transfer of shares.
The Companies Act 1985 produced a specimen set of articles known as Table A, setting out the most common provisions necessary for the smooth running of a company. In order to avoid printing out all these provisions every time a company is incorporated it is has become commonplace for companies to simply incorporate the whole of Table A into their articles of association and then disapply those parts of Table A which are unsuitable to that particular company.
It should be borne in mind that the articles of association are effectively a contractual document between the company and its members and as such only deals with the rights of members in relation to the company. This means that any regulation of the relationship between the members and the directors or the directors and the company will need to be dealt with under a separate document which is commonly known as a shareholders agreement.
It is not only the company's constitution which regulates the operation of that company, statute and common law will also have an impact on how the company can operate.
