Question

Josie is a major shareholder in OldSkool Pty Ltd and has noted that the company maintains the old-fashioned ‘memorandum of association’ which has been prepared for OldSkool Pty Ltd. The memorandum contains an objects clause which limits the objects of the company to the development, manufacture and sale of commercial computing devices. With the changing times where more people are working from home, Josie believes that the devices will soon be able to be used on a wide scale domestic basis by businesses looking to automate their computing needs and equip their workers to adjust to the home working environment. The company may therefore expand into a number of related areas including remote office management development and mobile applications. Josie has spotted an opportunity that may allow the company to enter into a contract with likeminded companies for the development of state of the art remote office management software. She is however concerned that the narrowness of the ‘memorandum’ may hamper the company’s ability to move into the emerging lucrative area and also the development and commercial exploitation of the new opportunity. Josie has read that there is no legal reason to have a memorandum or articles, even if they are now called a corporate constitution. When Josie discussed this with the company’s other shareholders, they told her that they had been advised by the lawyers that this was the standard form for their companies, and that there was no cause for concern. Josie is not convinced.

LAW6000 Assessment 2 Case study

REQUIRED: Advise Josie of the company’s position regarding any new contracts that it may enter in connection with the development of remote office management software and also explain how the replaceable rules may be of use to the company in the future.

Answer 1

Josie as a shareholder is thinking about the benefit of the company and that's why she is thinking that the company should not loss the opportunity to enhance their business. But the company has its memorandum of association, which prohibits it from development, manufacture and sale of commercial computing devices. It is a corporate constitution and it cannot violate its memorandum of constitution. Memorandum of association is a type of document, which is legally enforceable and defines the extent of liability the company may have towards its shareholders. This document states the objectives and scope of operation of the company and it is framed at the time of registration of the company. If anyone violates the clauses of this document, the directors will be held personally liable for this. The directors cannot act in their own path and have to abide by the laws stated in the memorandum of association. Hence, Josie has to understand that the company cannot enter into the new contract for the development of remote office management software unless there is an amendment being made in the memorandum of association. For making this amendment a special resolution has to be passed by the stakeholders to the office where the company is registered.

Replaceable rules may be of use to the company in the future if it does not want to follow any memorandum of association. It may follow some replaceable rules and also can exclude such rules also and follow only the rules made under the memorandum of association. This issue of the company's engagement in the development, manufacture and sale of commercial computing devices can be included in the company's rules as replaceable law. But it should earlier have been mentioned in the memorandum that such laws are allowed to be followed by the company. So, replaceable law can be of use in the future.