Lecture 2 Corporate Constitution (18 JAN 2016)

7/23/2019 Lecture 2 Corporate Constitution (18 JAN 2016)

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HE CORPORATE CONSTITUTIONHE CORPORATE CONSTITUTION

18 January 2016


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CUHK Business School

DISCUSSIONDISCUSSION

ow do companies function

nd what are their powers?


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MODEL ARTICLESMODEL ARTICLES

ompanies (Model Articles) Notice

.N. 77 of 2013 available atwww.cr.gov.h!en!companies"ordinance!docs!sub"legislation"ln77#e.pdf

mended b% L.N. 127 of 2013 availablewww.cr.gov.h!en!companies"ordinance!docs!sub"legislation"ln127#e.pdf
http://www.cr.gov.hk/en/companies_ordinance/docs/sub_legislation_ln77-e.pdfhttp://www.cr.gov.hk/en/companies_ordinance/docs/sub_legislation_ln127-e.pdfhttp://www.cr.gov.hk/en/companies_ordinance/docs/sub_legislation_ln127-e.pdfhttp://www.cr.gov.hk/en/companies_ordinance/docs/sub_legislation_ln77-e.pdf


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SIGNIFICANCESIGNIFICANCE+&ection 11'

provides companies with the rights powers and capacit% of a natural person

+(ertain $rticles

are mandatory

(ompan% name) s *1Limit on member+s

liabilit%) s *3

(apital , -nitial&hareholding on formation of compan%) s *'

Section 98providesfor a seemless transfer+ of previous /emorandum to new $rticles of $ssociation

Section 86 nforceabilit% as a statutor% contract

Sections 87 & 88$lteration of $rticles


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LIFTING THE CORPORATE VEILLIFTING THE CORPORATE VEIL+ mpowers courts to enuire wh% the compan% was formed and!or

who actuall% controls it

+ rovisions inCO(CAP 622) and!or the C(WUMP)O (CAP 32)

Liabilit%for prospectuses

4ailure toconsolidate accounts

5reach of

duties b% directors4raudulent

trading

+ $nti#evasion provisions ofInland Revenue Ordinance

+ owers under Securities & Futures Ordinance


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AT COMMON LAWAT COMMON LAW6(onduit for

fraud or dishonest%-Re Darby 85

1911:

-AG v Can !ai

"eun#( 19**:-$"SAR v %eun# at

Min#($ 1999:

6$voidance oflegal dut%

-Gil'rd Mtr v$rnenglish ($ 1933:

-a*ri un*er+radin# C v +e !e,tune H( 19*;:

+


7/13CUHK Business School

NOTE THE DIFFERENCENOTE THE DIFFERENCE

he powers of the court to lift the corporate veil is

targeted at negating attempts toEVADElegalobligations

ourts are more reluctant to interfere if the case involves

an attempt to avoidINCURRINGlegal obligations

Cina Ocean Si,,in# v Mitrans Si,,in# ($ 199':

%e. S. "en# v "elly Mac"en/ie($ 200>:


8/13CUHK Business School

CUTS BOTH WAYS GOOD &CUTS BOTH WAYS GOOD &BADBAD

oncept of the economic entit%+

-it Stne & "ni#t v ir-in#a- Cr,ratin85 1939:

$! Fd Distributrs v +.er $a-lets %ndn ru# Cuncil nglish

($ 197;:

he @ust , uitableA ground

brai-i v Westburne Galleries HL 1973:


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AMENDING ARTICLESAMENDING ARTICLES

+ Ray'ield v $ands (hB 19;0:

+ !# "in "ennet v $n# "n# Ftball AssciatinH( 199>:

+ Allen v Gld Ree's ' West A'rica (hB 1900:

+ Greenal# v Arderne Cine-as %td ng ($ 19'0:


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DISCUSSIONDISCUSSIONC

hat do we call people who set up companies and do the%have an% duties and liabilities to investors?

(

an companies enter into contracts beforeth

eir incorporation?

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PROMOTERSPROMOTERS

- Befinition at common law

underta*es t 'r- c-,any1 active r ,assive

- 4iduciar% duties

2 -ust nt ,r'it .itut disclsure

- Demedies

2 rescissin

2 accuntin# 'r ,r'its

Erlanger v New om!rero "#osp#ate Cong ($ 1*7*:

Gl$c%stein v &arnesng ($ 1900:

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PRE-INCORPORATIONPRE-INCORPORATION

CONTRACTS: s 122CONTRACTS: s 1221: =his section applies if a contract purports to have been made in the name or on behalf

of a compan% !e'orethe compan% was incorporated.

2:$!ect to an% eEpress agreement to the contrar%F

a: the contract has effectas a contract entered into b% the person purporting to act for

the compan% or as an agent for the compan%G and

b: the person is personall% liable on the contract and is entitled to enforce the contract.

3: $fter incorporation the compan% may ratify the contract to the same eEtent as ifF

a: the compan% had alread% been incorporated when the contract was entered intoG and

b: the contract had been entered into on the compan%+s behalf b% an agent acting

without the compan%+s authorit%.

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LIMITS OF s122LIMITS OF s122>:

Bespite subsection 2:b: if the contract is ratified b% the

compan% then on and after the ratification the liabilit% of

theperson mentioned in that subsection is not greater t#an

theliabilit% that the person would have incurred if the

personhad entered into the contract after the compan%+s

incorporation as an agent acting without the compan%+s

authorit%.

Wha !s h" #$s!!$% a $''$% (a)*

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Documents

Lecture 2 Corporate Constitution (18 JAN 2016)