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HE CORPORATE CONSTITUTION

18 January 2016

DISCUSSION
ow do companies function
nd what are their powers?

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MODEL ARTICLES
ompanies (Model Articles) Notice

.N. 77 of 2013 available at


www.cr.gov.hk/en/companies_ordinance/docs/sub_legislation_ln77-e.pdf

mended by L.N. 127 of 2013 available


www.cr.gov.hk/en/companies_ordinance/docs/sub_legislation_ln127-e.pdf
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SIGNIFICANCE
+Section 115
provides companies with the rights powers and capacity of a natural person
+Certain Articles
are mandatory
liability: s 83
Shareholding on formation of company: s 85

Company name: s 81
Limit on members
Capital & Initial

Section 98 provides
for a seemless transfer of previous Memorandum to new Articles of Association
Section 86 Enforceability as a statutory contract
Sections 87 & 88
Alteration of Articles

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LIFTING THE CORPORATE VEIL


+ Empowers courts to enquire why the company was
formed and/or
who actually controls it
+ Provisions in CO (CAP 622) and/or the C(WUMP)O (CAP 32)
for prospectuses
consolidate accounts
duties by directors
trading

+ Anti-evasion provisions of Inland Revenue Ordinance


+ Powers under Securities & Futures Ordinance
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Liability
Failure to
Breach of
Fraudulent

AT COMMON LAW
fraud or dishonesty
1911)
Keung (PC 1988)
Ming (CA 1999)

legal duty
Horne (English CA 1933)
Trading Co v The Neptune (HC 1986)

or sham
Harper (Australian HC 1981)
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+Conduit for
-Re Darby (KB
-AG v Chan Nai
-HKSAR v Leung Yat

+Avoidance of
-Gilford Motor v
-Bakri Bunker

+ Use as puppet
-Ascot Investments v

NOTE THE DIFFERENCE


he powers of the court to lift the corporate veil is
targeted at negating attempts to EVADE legal
obligations
ourts are more reluctant to interfere if the case involves
an attempt to avoid INCURRING legal
obligations
China Ocean Shipping v Mitrans Shipping (CA 1995)
Leow Sow Keng v Kelly MacKenzie (CA 2004)
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CUTS BOTH WAYS GOOD &


BAD

oncept of the economic entity


mith Stone & Knight v Birmingham Corporation (KB 1939)
HN Food Distributors v Tower Hamlets London Borough
CA 1976)

he Just & Equitable ground


brahimi v Westbourne Galleries (HL 1973)
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Council (English

AMENDING ARTICLES
+ Rayfield v Hands (ChD 1960)
+ Ng Kin Kenneth v Hong Kong Football Association (HC 1994)

+ Allen v Gold Reefs of West Africa (ChD 1900)


+ Greenhalgh v Arderne Cinemas Ltd (Eng CA 1950)

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DISCUSSION
W
hat do we call people who set up companies and do they
have any duties and liabilities to investors?
C
an companies enter into contracts before
th
eir incorporation?
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PROMOTERS
- Definition at common law
undertakes to form company: active or passive

- Fiduciary duties
- must not profit without disclosure

- Remedies

- rescission
- accounting for profits
Erlanger v New Sombrero Phosphate Co (Eng CA 1878)
Gluckstein v Barnes (Eng CA 1900)
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PRE-INCORPORATION
CONTRACTS: s 122
(1) This section applies if a contract purports to have been made in the name or on behalf
of a company before the company was incorporated.
(2) Subject to any express agreement to the contrary
(a) the contract has effect as a contract entered into by the person purporting to act for
the company or as an agent for the company; and
(b) the person is personally liable on the contract and is entitled to enforce the contract.
(3) After incorporation, the company may ratify the contract to the same extent as if
(a) the company had already been incorporated when the contract was entered into; and
(b) the contract had been entered into on the companys behalf by an agent acting
without the companys authority.
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LIMITS OF s122
Despite subsection (2)(b), if the contract is ratified by the

(4)

company, then on and after the ratification, the liability of


person mentioned in that subsection is not greater than
liability that the person would have incurred if the
had entered into the contract after the companys

the
the
person

incorporation as an agent acting without the companys


authority.

Wha
t is the position at common law?
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