A company’s objects are its aims and purposes. If a company enters into a contract which is outside its objects, that contract is said to be ultra vires. However, the rights of third parties to the contract are protected.
The objects are the ‘aims’ and ‘purposes’ of a company. Under previous company’s legislation they were held in a specific clause within the memorandum of association. This clause set out everything the company could do, including being a ‘general commercial company’ which meant it could pretty much do anything.
The 2015 Act changed matters. The objects can now be found in the articles but most articles will not mention any objects. This is because under the Act a company’s objects are completely unrestricted (i.e. it can carry out any lawful activity). Only where the company wishes to restrict its activities is there an inclusion of those restrictions in the articles.
Alteration of the objects
As a company’s objects are located in its articles, it may alter its objects special resolution for any reason. The procedure is the same as for any other type of alteration.
Contractual capacity and ultra vires
Companies may only act in accordance with their objects. If the directors permit an act which is restricted the company’s objects then the act is ultra vires. Ultra vires is where a company exceeds its objects and acts outside its capacity.
Ultra vires is where a company exceeds its objects and acts outside its capacity.
Companies which have unrestricted objects are highly unlikely to act ultra vires since their constitution permits them to do anything. Where a company has restrictions placed on its objects, and it breaches these restrictions, then it would be acting ultra vires.’
Transactions with directors
The Companies Act 2015 also applies when the company enters into a contract with one of its directors, or its holding company or any person connected with such a director. Contracts made between the company and these parties are voidable the company if the director acts outside their capacity.
Whether or not the contract is avoided, the party and any authorising director are liable to repay any profit they made or make good any losses that result from such a contract.
The constitution/Articles of association as a contract
The articles constitute a contract between:
Company and members
Members and the company
Members and members
The articles do not constitute a contract between the company and third parties, or members in a capacity other than as members (the Eley case).
Effect of the companies’ constitution
A company’s constitution binds: Members to company Company to members Members to members
The company’s constitution does not bind the company to third parties.
This principle applies only to rights and obligations which affect members in their capacity as members.
Hickman v Kent or Romney Marsh Sheep breeders Association 1915
The facts: The claimant (H) was in dispute with the company which had threatened to expel him from membership. The articles provided that disputes between the company and its members should be submitted to arbitration. H, in breach of that article, began an action in court against the company.
Decision: The proceedings would be stayed since the dispute (which related to matters affecting H as a member) must, in conformity with the articles, be submitted to arbitration.
The principle that only rights and obligations of members are covered applies when an outsider, who is also a member, seeks to rely on the articles in support of a claim made as an outsider.
Eley v Positive Government Security Life Assurance Co
The facts: E, a solicitor, drafted the original articles and included a provision that the company must always employ him as its solicitor. E became a member of the company some months after its incorporation. He later sued the company for breach of contract in not employing him as its solicitor.
Decision: E could not rely on the article since it was a contract between the company and its members and he was not asserting any claim as a member.
Constitution as a contract between members
The Companies Act gives to the constitution contractual effect between
(a) The company and
(b) Its members individually. It can also impose a contract on the members in their dealings with each other.
Articles and resolutions are usually drafted so that each stage is dealing between the company and the members, so that:
(a) A member who intends to transfer their shares must, if the articles so require, give notice of their intention to the company.
(b) The company must then give notice to other members that they have an option to take up their shares.
Company name and registered office
Except in certain circumstances a company’s name must end with the words limited (Ltd), public limited company (plc).
A company’s name is its identity. There are a number of rules which restrict the choice of name that a company may adopt.
Statutory rules on the choice of company name
The choice of name of a limited company must conform to the following rules.
1. The name must end with the word(s):
Public limited company (abbreviated plc) if it is a public company
Limited (or Ltd) if it is a private limited company, unless permitted to omit ‘limited’ from its name
2. The name must not be the same as any other company name appearing in the Registrar’s Index of Company Names,
Where a company has a name which is the same or too similar to another, the Registrar may direct the company to change its name.
3. No company may have a name the use of which would be a criminal offence or which is considered offensive or ‘sensitive’ (as defined the Registrar).
4. Official approval is required for a name which in the Registrar’s opinion suggests a
connection with the government or a local authority or which is subject to control.
5. A name which suggests some professional expertise such as ‘optician’ will only be permitted if the appropriate representative association has been consulted and raises no objection. The general purpose of the rule is to prevent a company misleading the public
Criteria for determining offensive or undesirable names (Sec 11 of the Company Rules)
The Registrar is required to apply the following criteria in determining whether a particular name is offensive or undesirable or contrary to the public interest.
• The name includes “co-operative”, “society” or “trade union “or any variant or synonym of those words;
• The name suggests an association with, or the patronage of, the State or any of its agencies, unless there are circumstances that justify its use;
• The name suggests an association with, or the patronage of, a foreign government or an embassy, high commission or consulate representing such a government in Kenya;
• The name suggests an association with, or the patronage of, a county government;
• The name comprises an acronym that will render its use vague or uncertain;
• The name includes the name of a registered trade mark unless a document signed the owner of the trade mark and indicating consent to its use is provided;
• The name is such that the Registrar believes on reasonable grounds that there is reasonable possibility that it could offend members of a particular community or ethnic or racial group.
Omission of the word ‘limited’
A private company which is a charity or a company limited shares or guarantee may omit the word ‘limited’ from its name if the following conditions are satisfied.
a) The objects of the company must be the promotion of either commerce, art, science, education, religion, charity or any profession (or anything incidental or conducive to such objects).
b) The articles must require that the profits or other income of the company are to be applied to promoting its objects and no dividends or return of capital may be paid to its members.
c) Also, on liquidation the assets (otherwise distributable to members) are to be transferred to another body with similar objects. The articles must not then be altered so that the company’s status to omit ‘Limited’ is lost.
Change of name
A company may decide to change its name by:
(a) Passing a special resolution
(b) resolution of the directors acting in accordance with a direction the Registrar under section 60;
(c) Any other means provided for in the articles (in other words the company can specify its own procedure for changing its name)
Where a special resolution has been passed, the Registrar should be notified and a copy of the resolution sent.
If the change was made any other procedure covered (c), the Registrar should be notified and a statement provided which states that the change has been made in accordance with the articles.
The change is effective from when a new incorporation certificate is issued, although the company is still treated as the same legal entity as before. The same limitations as above apply to adoption of a name change of name as incorporation of a new company.
Effects of change of name
• A change of a company’s name has effect from the date on which the certificate of change of name is issued.
• The change does not affect any rights or obligations of the company or invalidate any legal proceedings or against it.
• Any legal proceedings that might have been continued or commenced against it its former name may be continued or started against it its new name.
This is making false representation likely to induce a person to believe that the goods or services are those of another
A person who considers that their rights have been infringed under passing off can apply for an injunction to restrain a company from using a name (even if the name has been duly registered). It can do this if the name suggests that the latter company is carrying on the business of the complainant or is otherwise connected with it.
A company can be prevented an injunction issued the court in a passing-off action from using its registered name, if in doing so it causes its goods to be confused with those of the claimant.
Ewing v Buttercup Margarine Co Ltd 1917
The facts: The claimant had since 1904 run a chain of 150 shops in Scotland and the north of England through which he sold margarine and tea. He traded as ‘The Buttercup Dairy Co’. The defendant was a registered company formed in 1916 with the name above. It sold margarine as a
wholesaler in the London area. The defendant contended that there was unlikely to be confusion between the goods sold the two concerns.
Decision: An injunction would be granted to restrain the defendants from the use of its name since the claimant had the established connection under the Buttercup name. He planned to open shops in the south of England and if the defendants sold margarine retail, there could be confusion between the two businesses.
If, however, the two companies’ businesses are different, confusion is unlikely to occur, and hence the courts will refuse to grant an injunction. The complaint will also not succeed if the claimant lays claim to the exclusive use of a word which has a general use.
Publication of the company’s name
The company’s name must appear legibly and conspicuously:
(a) Outside the registered office and all places of business
(b) On all business letters, order forms, notices and official publications
(c) On all receipts and invoices issued on the company’s behalf
(d) On all bills of exchange, letters of credit, promissory notes, cheques and orders for money or goods purporting to be signed by, or on behalf, of the company
(e) On its website
The Companies Act 2015 provides that a company must at all times have a registered office to which all communications and notices can be sent. Its location in Kenya determines its domicile.
A company may change its registered office (but not its domicile), but for a period of 14 days after notice is served any person may validly present documents to the previous address.