288 Chapter 10Companies (1): Characteristics and formation
The constitution does not make any contract with outsiders.Shareholder agreements
As we have seen, a company must have articles of association and these will be binding
upon all company members. In addition, some or all of a company’s members might enter
into a shareholder agreement. Such an agreement would not be a part of a company’s con-
stitution. A shareholder agreement would form a binding contract between those who enter
into it, but would not need to be registered with the Registrar of Companies. Outsiders
could not therefore discover what had been agreed. Caution has to be exercised because
new members of a company would not be bound by a pre-existing shareholder agreement
unless they agreed to be bound by it. Furthermore, if the agreement did not set out the way
in which it could be altered, then only a unanimous agreement of all contracting parties
could alter the agreement. A company can itself be a party to a shareholder agreement.
However, in RussellvNorthern Bank Development Corporation Ltd (1992)the House of
Lords held that any agreement by a company that it would not use its statutory power to
alter its articles would be unenforceable.Off the shelf companies
An alternative to the promoters themselves forming a company is for them to buy an ‘off
the shelf ’ company. Some businesses form companies in large numbers, in the hope that
customers will wish to buy the companies. A person who forms such a company registers
himself as the company’s first director and takes one share. Then, when a customer wishes
to buy an off the shelf company, the share is transferred to the customer. The original
director resigns, having appointed the customer the new director, and notifies Companies
House of this change. Before the 2006 Act came into force, the risk involved in this could be
substantial, because a company’s articles must be suitable for that particular company.
Many businesses, in too much of a hurry to become incorporated, adopted unsuitable
articles, either by buying an off the shelf company or by adopting the old Table A model
articles without considering their effect. Of course, it is always possible to alter these arti-
cles while the promoters or the creators of the company hold all the shares in it. However,
all too often the members were in too much haste to set the company up to realise the
importance of ensuring that the articles suited their needs. Promoters of off the shelf com-
panies are now likely to use the new model default articles. These are far more likely to
be suitable for the company than the old Table A articles. However, the purchasers of the
company should still ensure that the articles are tailored to their needs.is formed Contracts made before the company
A company does not come into existence until the registrar issues its certificate of incor-
poration. It follows that until the certificate is issued the company has no capacity to make
contracts.
However, those who wish to form the company, the promoters, might want to make con-
tracts on the company’s behalf in advance of incorporation. For example, if a shop intended
to begin trading as a company on 1 October then the promoters would need to buy stock in
advance of that date.
Section 51(1) of the Act provides that: