Lecture 4: Company Law –Members and Directors All sections referred to are with reference to the Companies Act, unless otherwise stated. MEMBERS - Every company shall keep a register of members. - The first members, known as subscribers, must be named in the memorandum of association. - Subsequent persons whose names appear in the register of members become members of the company. - In the case of a company limited by guarantee, there are no shareholders, yet there can be members. - In the case of a company limited by shares, “member” = shareholders whose names appear on the register of members. Thus if X buys over shares in Z company from Y, but does not register his name in Z company’s register of members, X will not be considered a member of the Z company. He will just be a shareholder. As the law confers rights and imposes liabilities only on the member and not on the shareholder, in such circumstances, X’s interests may be adversely affected. - People who buy scripless shares in the market become members without having to take the trouble to register in the company’s register of members. NUMBER OF MEMBERS- Every company must have at least one member. - There is no maximum number of members, unlike in the case of partnerships, which generally must not have more than 20 members. - If there are more than 50 members, the company cannot be registered as a private company. MEMBERS AND MANAGEMENT- Directors have the power to manage the company. (Refer to subsection Directors & Management) - Directors’ scope of authority to undertake specific acts must not be confused with the corporate capacity of a company. Corporate capacity is reflected in the general rule that a company has full capacity to undertake any business and enter into any transaction. Directors’ authority to undertake acts is usually stated in the company’s article of association. Directors’ authority cannot exceed the corporate capacity of a company. However, directors’ authority need not equate to the corporate capacity of the company. E.g. a company has the legal capacity to sell its entire business but the articles of association require this to be done with the approval of the members in general meeting, i.e. the directors’ authority to sell is conditional upon obtaining approval from the members in general meeting. - Generally, members cannot tell the directors what to do. - Members also do not have the right to manage the company, however, the Companies Act does and the articles of association may provide that members must approve certain decisions. - Members’ approval is needed when the company:The company wants to issue shares The company wants to dispose of the whole or a substantial part of its undertakings or property Memorandum or articles of association are to be amended - If members are unhappy over management decisions, they may embark on certain courses of action.