Topic 2
Constitution of a company
2.1 Formation of a company
Question 1
What are the documents required under the Companies Ordinance for incorporation
of a company limited by shares? Explain the significance and legal status of these
documents.
(Adapted from PC-Law Exam, Dec 2009, Q2)
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Question 2
Tom and Carol have incorporated a new company in Hong Kong. They wish to know
what requirements are imposed by the Companies Ordinance for the keeping of
registers by the company.
Required:
Advise Tom and Carol.
(Adapted from PC-Law Exam, Dec 2012, Q3)
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Question 3
Kramer Ltd is a company that was incorporated on 15 April 2014. The company
adopted the Model Articles for private companies limited by shares.
Adam, Barry and Chris are the three directors and shareholders of the company.
The company was formed for the purpose of operating a restaurant business. In
March 2014, before the company was incorporated, Adam entered into a contract for
the purchase of a number of boxes of wine from WineCo. Adam signed the contract
in his own name and on behalf of Kramer Ltd.
Payment for the wines was due on 30 April 2014, but Kramer Ltd has not made the
payment.
Required:
Which party, if any, is liable to WineCo for payment of the purchase price for the
wines? Explain your answer.
(Adapted from PC-Law Exam, Dec 2014, Q1a)
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2.2 Legal effect of articles and their alteration
Question 4
Horace is an experienced qualified accountant and one of the four shareholders in
ABC Limited, a company set up a year ago which provides cleaning services to
offices, shopping centers and housing estates. There are four directors. Clause 7 of
the company’s articles provides:
“7. Horace shall be employed as the company’s accountant and shall not be
removed from office except for misconduct.”
Horace has since worked as the accountant of the company. Due to his negligence
however, there were some major errors in the books of the company. However the
auditor is of the opinion, which is supported by expert evidence, that Horace has not
engaged in any misconduct.
The Board of Directors then removed Horace from his position as the company’s
accountant upon discovery of the major errors in the books of the company.
Required:
Advise Horace whether he can sue ABC Limited for removing him as the company’s
accountant.
(Adapted from PCLL Conversion Exam, Jun 2011, Q2)
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Question 5
The directors of K Ltd know that one of the shareholders, Ella, might soon acquire a
competing business. They are worried that Ella might have an unfair advantage over
the company as she has access to company information as a shareholder. The
board propose to add the following new clause to the articles of association:
“In every case where a shareholder who carries on any business which is in direct
competition with the Company, the Directors may at any time give to such
shareholder notice requiring him or her to transfer all such shares to such person or
persons as the Board of Directors shall nominate at a fair price to be determined by
an independent accountant.”
Required:
Advise Ella whether she can challenge the proposed clause in court.
(Adapted from HKICS Corporate Law Exam, Jun 2010, Q3)
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2.3 Object clauses
Question 6
The Boating Association Co Ltd is a company limited by shares. The objects of the
company, as stated in the articles of association, are to promote sailing and rowing
sports and activities in Hong Kong.
Recently, the directors of the company have proposed to modify the company’s
objects to include the promotion of motorised boating activities as well as non-
motorised boating.
A general meeting was convened to pass the required resolution for the alteration to
the objects in the company’s articles.
A number of the members who had opposed the resolution have now come to you
for advice in relation to the above matters.
Required:
Advise the members as to all of the following:
(a) Is it compulsory for a company to state its objects in its articles? What is the
effect of an objects clause in the articles?
(b) What are the statutory requirements for an alteration to the objects clause in a
company’s articles?
(c) Assume that the resolution was validly passed, are there any other grounds
available for the members to challenge the alteration to the objects clause?
Explain your answer. (Note: You are not required to discuss the concept of
unfair prejudice under s.724 of the Companies Ordinance.)
(Adapted from PC-Law Exam, Jun 2012, Q1)
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Question 7
Summer Healthy Limited is a private company incorporated in Hong Kong with an
objects clause in its articles of association to manufacture healthy foods. Recently,
due to the company’s poor performance, the board of directors of the company
resolved to expand the company’s business to manufacture skin care products. The
board also, on behalf of the company, entered into a contract to buy new machinery
for the new business.
Required:
Explain the validity of the contract and the proper procedures as to how the company
may expand its business.
(Adapted from PC-Law Exam, Jun 2015, Q5)
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2.4 Registration of non-Hong Kong companies
Question 8
When is a company incorporated outside Hong Kong required to register under the
Companies Ordinance? Explain your answer.
(Adapted from PC-Law Exam, Dec 2014, Q3)
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Question 9
Pebbles Pty Ltd is a company incorporated in Australia. It has set up a
representative office in Hong Kong. The company has appointed agents who
operate from that office on behalf of the company. The agents have authority to
enter into contracts on behalf of the company.
Bruce is the manager of Pebbles Pty Ltd responsible for setting up that Hong Kong
representative office. Bruce wishes to know whether his company needs to comply
with any requirements under the Companies Ordinance.
Required:
Advise Bruce as to the relevant requirements (if any) under the Companies
Ordinance. Explain your answer.
(Adapted from PC-Law Exam, Sept 2010, Q4)
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