Key Changes of Abolition of Memorandum of Association and Matters Relating to Company Articles

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The company articles are mandatory legal documents to register a company. Under the old Companies Ordinance, Cap.32, the company articles consisted two documents, namely the memorandum of association and the articles of association . The memorandum contained basic information of the company and stated business objectives of the company, while the articles of association set out the rules for internal management that governs company. Amendments and updates of the Companies Ordinance have been made frequently in order to modernize the law in enhancing corporate governance, and also to provide Hong Kong a distinctive business environment, benchmarking Hong Kong as a global business and financial hub . As a result, a new Companies Ordinance…show more content…
Rapid growth of business and commercial activities had a significant impact on the object clause that diminished the importance of the clause. Shareholders of companies became less concerned with how the assets and resources were spent within the scope of intended business objects, as long as the companies involved in business that generated profits and provided positive dividend, raising the companies’ share values. In fact, the object clause could result in limiting companies’ authority to participate in business pursuits to generate profits. Moreover, the ultra vires doctrine at the same time had placed creditors at high risks. In case when creditors provided goods or financial services to a company in which the purpose was not included in the company’s object clause, while at a later time if the company encounter into winding up liquidation, the creditors could be refused to claim from the company as such transaction would said to be ultra vires and void and left with bad debts . As a result, companies tried to draft as many objects into the memorandum in order to broaden its powers and allowed the companies to undertake a large variety of business activities. In particular, the House of Lords of a UK company law case Cotman v Brougham [1918] AC 514 held that “a person who deals with a company is entitled to assume that a company can do everything which it is expressly authorized to do by its
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