Introduction
This essay critically evaluates the contractual effect of a company’s constitution in three jurisdictions: Lesotho, South Africa, and the United Kingdom (UK). A company’s constitution, often embodied in its articles of association and memorandum, serves as a foundational document governing internal relations between the company and its members. The analysis focuses on the enforceability of the constitution as a contract, the capacity and extent of members’ power to enforce its provisions, and the nature of contractual provisions within the constitution. By comparing these aspects across the selected jurisdictions, this essay aims to highlight similarities, differences, and the underlying legal principles, while recognising the limitations of a broad comparative approach within a confined scope.
Effect of the Company’s Constitution
In the UK, Section 33 of the Companies Act 2006 explicitly states that a company’s constitution binds the company and its members as if it were a covenant signed by each party. This statutory provision establishes the constitution as a contract, enforceable between members and the company, though not directly with third parties (Eley v Positive Government Security Life Assurance Co Ltd, 1876). In South Africa, the Companies Act 71 of 2008 (Section 15(6)) similarly recognises the memorandum of incorporation (MOI) as a binding agreement between the company, shareholders, and directors, reflecting a contractual effect akin to the UK model. However, in Lesotho, the legal framework is less explicit. Governed by the Companies Act of 2011, the constitution’s contractual effect is implied rather than statutorily defined, creating uncertainty about enforceability in practice. This discrepancy underscores differing legislative approaches to codifying the constitution’s legal status across jurisdictions.
Capacity of a Member to Enforce the Constitution
Members in the UK have the capacity to enforce constitutional provisions against the company or other members, as affirmed in cases like Pender v Lushington (1877), which upheld voting rights enshrined in the articles. In South Africa, shareholders can similarly enforce the MOI under the Companies Act 2008, though disputes often require alignment with broader statutory duties. In Lesotho, the capacity to enforce is less clear due to limited case law and statutory guidance. Arguably, the lack of explicit provisions may hinder members’ ability to seek redress, reflecting a gap in legal protection compared to the UK and South Africa. This raises questions about the practical utility of the constitution as a protective mechanism for shareholders in less developed legal systems.
Extent of a Member’s Power to Enforce the Constitution
The extent of enforcement powers in the UK is limited to rights explicitly conferred by the constitution as a member, not in other capacities such as directors (Hickman v Kent or Romney Marsh Sheep-Breeders’ Association, 1915). South African law mirrors this principle, restricting enforcement to shareholder-specific rights under the MOI. In Lesotho, the scope remains undefined due to the absence of authoritative precedents, though it is reasonable to infer that enforcement might be similarly restricted. This limitation across jurisdictions highlights a key tension: while the constitution is contractually binding, its enforceability is not absolute, often necessitating judicial interpretation.
Contractual Provisions in the Constitution
Typically, provisions in a company’s constitution include rules on share transfers, voting rights, and dividend distributions. In the UK, these are enforceable as contractual terms under Section 33 of the Companies Act 2006. South Africa’s MOI similarly embeds such provisions, with legal backing for enforcement. In Lesotho, while the Companies Act 2011 allows for such provisions, their contractual weight remains uncertain without clear judicial or statutory support. Indeed, the enforceability of these provisions often depends on the specific wording and context, illustrating the need for precision in drafting constitutional documents.
Conclusion
In summary, the contractual effect of a company’s constitution varies significantly across the UK, South Africa, and Lesotho. The UK and South Africa benefit from explicit statutory frameworks that define the constitution as a binding contract, whereas Lesotho’s legal system lacks clarity, potentially undermining member protection. While members in all jurisdictions have some capacity to enforce constitutional provisions, the extent of this power is often limited to specific rights and subject to judicial interpretation. Furthermore, the enforceability of contractual provisions reinforces the importance of precise drafting. This comparison reveals the need for harmonised legal standards, particularly in jurisdictions like Lesotho, to enhance certainty and protect stakeholder interests. Future research could address the practical implications of these differences through case-specific analyses.
References
- Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88.
- Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881.
- Pender v Lushington (1877) 6 Ch D 70.
- Companies Act 2006 (UK), Section 33. Available at: Legislation.gov.uk.
- Companies Act 71 of 2008 (South Africa), Section 15(6). Available at: Gov.za.
- Companies Act of 2011 (Lesotho). [Note: Specific online source unavailable; reference based on general knowledge of statutory framework.]
