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Difficulty: Very hardPublic Limited Companies: Characteristics, Stock Listing, and Securities

A newly incorporated public limited company seeking a listing on the stock exchange is finalizing its legal documents. The legal team must separate the document that regulates the company's internal management (such as calls on shares, transfer procedures, and duties of directors) from the document establishing its external legal identity and scope of powers. Which document governs these internal operations, and how is it legally altered relative to the external constitutional document?

  1. A
    The Memorandum of Association governs internal operations, and it can be altered by an ordinary resolution without court confirmation.
  2. The Articles of Association govern internal operations, and they can generally be altered by a special resolution of shareholders.Answer
  3. C
    The Memorandum of Association governs internal operations, but requires a special resolution and statutory sanction from court for any amendment.
  4. D
    The Prospectus governs internal operations, and its provisions are altered by approval of the Securities and Exchange Commission.

Answer

The Articles of Association govern internal operations, and they can generally be altered by a special resolution of shareholders.
The Articles of Association contain the internal regulations governing the administration of a public limited company, including rules on share allotments, transfer procedures, voting rights, and the powers of directors. Amendments to these internal rules generally require a special resolution passed by members in a general meeting.

Step-by-Step Solution

1
Differentiate between the constitutional documents of a Public Limited Company.
The Memorandum of Association defines the external legal relationship, statutory object clause, name, registered office, and authorized share capital. The Articles of Association define the internal regulations and governance rules.
Internal management rules such as share transfers, calls on shares, voting rights, and director duties are legally contained within the Articles of Association.
2
Determine the procedure required to amend the internal document.
Subject to statutory company law provisions, the Articles of Association are altered by passing a special resolution at a general meeting of shareholders.
Special resolutions (requiring a 75% majority of voting shareholders) are the standard legal instrument for modifying internal regulations of a public company.

Key Concept

Distinction between Memorandum of Association and Articles of Association in Public Limited Companies
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Topics

Public Limited Companies: Characteristics, Stock Listing, and Securities

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