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The articles of association are the regulations for the internal arrangements and the management of the company.

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Introduction

"The articles of association are the regulations for the internal arrangements and the management of the company. The articles deal with the issue of shares, alteration of share capital, general meetings, voting rights, directors (including their appointment and powers), managing director, secretary, dividends, accounts, audit of accounts, winding up and various other matters." (Morse 1999: 60) Subject to the provisions of the Companies Act 1985, and to the conditions in the company's memorandum, a company may by special resolution alter or add to its articles. An alteration or addition so made in the articles are as valid as if originally contained in them, and are subject in like manner to alteration by special resolution : section 9 CA1985. Therefore, by section 9 of the Companies Act 1985, the power to alter a company's articles is subject to the provisions of the Act. Also by section 9 of the CA 1985 a company's power to alter its articles is subject to the conditions in the memorandum and consequently therefore an alteration of the articles must not conflict with the memorandum. Finally, "under the general law the power to alter articles must be exercised bone fide for the benefit of the company as a whole." (Morse 1999: 64) This was established by Lord Lindley M.R. in Allen v Gold Reefs of West Africa Ltd (1900) 1 Ch. 656, CA. when he said "the power conferred on companies to alter articles, must like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. ...read more.

Middle

(Morse 1999: 178) "A preference share is a share to which certain preferential rights are attached. Although there is no statutory definition to expose the specific nature of this type of share, the most common distinctive attribute attached to a preference share is the preferential payment of dividends in priority of other types of shares." (Griffin 2000: 131) The legal rights attached to a preference share holder will be determined by the construction of that part of the company's constitution which governs the particular share issue as held in Scottish Insurance Co Ltd v Wilsons & Clyde (1949) AC 462. However, if specific rights of a particular share are absent from the company's constitution then, the rights of the holders of all classes of shares are deemed to be the same. (Birch v Cropper (1989) 14 App Cas 525) Table A, regulation 2, provides: "Subject to the provisions of the Act and without predjudice to any rights attached to any existing shares, any share may be issued with such rights or restrictions as the company may by ordinary resolution determine." "Section 125 applies to alterations governing the rights attaching to any class of shares in a company whose share capital is divided into shares of different classes." (Morse 1999: 181) Section 125(7) CA 1985 provides that an alteration of a provision contained in a company's article for the variation of the rights of a class of shareholders, or the insertion of such a provision into the articles is to be construed as a variation of class rights. ...read more.

Conclusion

by paying off any paid-up share capital which is in excess of the company's wants The company must then apply to the court for an order confirming the resolution under s.136(1) CA 1985. The principle purposes of requiring confirmation by the court are to ensure that the prescribed formalities laid down in the Act have been strictly met and secondly consider the effect of the reduction upon the various classes of company shareholder. This can be illustrated by the Case Scottish Insurance Co Ltd v Wilsons & Clyde Coal Co Ltd. In this case the colliery assets of a coal mining company had been transferred to the National Coal Board under the Coal Industry Nationalisation Act 1946. The company no longer trading intended togo into liquidation but first prosed to reduce its share capital by paying off the 7% cumulative preference shares. The shareholders objected to the reduction of capital on the basis that it was unfair. The house of Lords held that the reduction of capital was not unfair as the preference shareholder had the knowledge, as stated in the company's articles, that if the company' s circumstances changed there was a risk of such a reduction in capital being confirmed by the court. "The court must also determine whether the reduction of capital would have the effect of varying the rights of a class of shareholder..." If this is the case, "then the consent of a class of shareholders must be obtained where a proposed reduction of capital would result in a variation of class rights (s.125 CA 1985)." (Griffin 2000; 164) 1 ...read more.

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