case study of company law
I. Sarah’s business act and Richforth Ltd. constitution A company is a legal entity that is separate and distinct from its members and shareholders. When a company is legally formed, it has become ‘incorporated’ (Wild and Weinstein, 2009). As a legal person, a company must act in compliance with existing laws and in accordance with the terms of its constitution. Section 33 (1) of the CA 2006 provides: “The provisions of a company's constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions.” Company’s directors have to therefore conform to the same constitutional provisions, and even more so when directors hold certain specific duties which is why they require formal appointment and official notification to Companies House. The first general duty of directors as it is formulated in the section 171 of the CA 2006 is the ‘duty to act within powers.’ That is, a director has an obligation act in accordance to the company’s constitution (a) and must only exercise powers for their proper purposes (b). A company’s constitution includes its articles of association (the articles), decisions taken in accordance with the articles and resolutions and agreements affecting the constitution including special resolutions passed by the company and any other decisions that have been agreed to or which otherwise bind shareholders or class of them as specified in section 29 of the CA 2006. Richforth Ltd. has adopted no constitutional restrictions on its range of activities, which theoretically enables it to perform an unlimited range of lawful activities. A company’s constitution can establish the scope of its activities but will also, inevitably, define the powers – general or specific – that are to be conferred by the company to its directors, as set out by the articles. The articles of Richforth Ltd. lay down a specific clause which limits...
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