Chapter 6CompaniesWhere the articles do restrict the objects, then any altera-
tions or additions:
■must be notified the Registrar who will register the
notice;
■are not effective until the notice is registered;
■have no effect on the rights and obligations of the
company or on legal proceedings by or against the
company.
However, directors must observe the company’s con-
stitution and work within any object restriction. Failure
to do so will not affect the company’s capacity or the
directors’ power to bind the company.
A company’s capacity
Section 39 provides that the acts of a company are not to
be questioned on the ground of lack of capacity because
of anything in the constitution of the company. Thus
contracts beyond the company’s powers (where the art-
icles contain restrictions) are valid and enforceable by
the company and the other party. The members have no
right to restrain acts of the directors beyond the com-
pany’s powers since, in general, companies will have
unrestricted objects. There are provisions under which
the company has civil remedies, e.g. to recoup any loss
to the company by claiming damages against the dir-
ectors involved.
Power of the directors to bind the company
For those who deal in good faith with the company the
power of the directors to bind the company or author-
ise others to do so is deemed not to be constrained by
the company’s constitution. External parties need not
enquire whether there are any limitations on the power
of the directors, nor are they affected by actual know-
ledge that the directors have no power. External parties
must, however, be dealing with the company, which
will in general require involvement with a commercial
transaction (s 40).
Constitutional limitations: directors and
their associates
Insiders, such as directors, and their associated persons,
e.g. spouse, will not have the protection of s 40 so that the
relevant transaction will be voidable and not enforceable
against the company.
Regardless of whether the company avoids the trans-
action, the insider and any authorising directors are
liable to account to the company for any gain made and
to indemnify the company for any loss or damage caused
to it.
Insiders who are not directors may be able to avoid
the above-mentioned liability if they did not know when
entering into the transaction with the company that the
directors were acting beyond their powers; and so a con-
nected person such as a spouse may not be liable.
Transactions will not be voidable if restitution of the
company’s property is not possible (as where the com-
pany’s money has been spent by a director on a cruise –
there is no restitution against the cruise company unless
it was in some way involved in the director’s breach of
duty) or the company has been indemnified or the com-
pany through its members has affirmed the transaction
(s 41).Companies that are charities
Section 42 provides that for companies that are charities
the rules relating to the capacity of a company and the
power of its directors to bind it shall not apply to an
external party unless that party did not know that the
company was a charity when the act was done or the
charity receives full consideration in regard to the act
done and the external party did not know that the act
was beyond the capacity of the company and therefore
beyond the powers of the directors to bind it.
Charitable companies cannot affirm so as to make
valid acts infringing the above rules without the prior
written consent of the Charity Commissioners.Altering the objects
Since a company that has restrictive objects will now put
them in the articles, or, if the objects were contained in
an old-style memorandum they will be deemed under
CA 2006 to have been transferred into the articles, they
can be changed as general articles can be changed, i.e. by
special resolution of the members.Limitation of liability
The source of this knowledge is the capital documents
filed on incorporation and changes notified since. The
relevant document may simply state: ‘The liability of the
members is limited’ – unless of course the company is
unlimited, when this clause is not put in.
The clause cannot be altered so as to make the com-
pany an unlimited one. However, the company may be
re-registered as unlimited under s 102. All unlimited com-
panies must be private companies and public companies157