The Companies Act 1985: interpritation

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Title: The Companies Act 1985 s. 14(1) states: Subject to the provisions of this Act, the memorandum and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles. In Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1Ch 881 at 897 Astbury J said of this provision: “The wording of [this subsection] is difficult to construe or understand.” Consider the differences in the interpretation of this provision. What are the main alterations to this provision which have been made by s.33(1) Companies Act 2006? ANSWER Introduction All practitioners and students of company law will be familiar with section 14 of the Companies Act 1985 and its somewhat convoluted implications.

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The section provides that, on registration the memorandum and articles of a company together bind the company and all of its members to a contract incorporating their terms just as if the documents had been signed by each member and included undertakings on the part of each member to respect and adhere to the provisions of the memorandum and articles. Section 14 has long been known as imposing a corporate or statutory contract on the company and its members. In recent times steps have been taken to replace the Companies Act 1985. The Companies Act 2006 received the Royal Assent on 8 November 2006. Margaret Hodge, Minister for Industry and the Regions, has welcomed the new Act as predicted to “bring major benefits to business by modernising and simplifying company law” and set out an implementation timetable which pledges to commence all parts of the Act by October 2008.[1] That said, it is anticipated that most parts of the Act will actually be brought into force by October 2007.[2] Consisting of 1300 sections the 2006 Companies Act is the largest piece of legislation ever brought onto the statute book. Among its many changes is a re-writing of the section 14 corporate contract. The new version, which is contained in section 33(1) of the 2006 Act, has been simplified and re-worded. The contrast between the two provisions is analysed in the following commentary after an examination of the old law and the jurisprudence relating to it. Section 14 of the Companies Act 1985 Section 14 of the Companies Act, the text of which is set out in the title above, has effect, as stated, that the memorandum and articles of association constitute a contract between the company and each member and between the members themselves. However, it is long established principle that the memorandum and articles do not have the capacity to constitute a contract with outsiders unless an express agreement exists to the contrary or a provision of the constitutional documents is found to constitute an implied term of a contract between a third party and the company..

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