The Blurring of Relationships and Associations in the Modern World. A cause for concern and potential disaster ?

The Blurring of Relationships and Associations in the Modern World. A cause for concern and potential disaster ?


Ever wondered why there is so much confusion and paralysis about our role and responsibilities today. Over time, it appears we know less and less of what is expected of us in a given situation. We have no overiding compass to guide our actions and therefore we aren't able to reduce the risks of adversity.

To counter such, either we are forced to spend an unproportionate amount of time analysing entities that purposively don't want to reveal themselves to us fully. These entities try and engage us with minimal self exposure and we are forced to act blindly and expose ourselves to unforeseeable consequences.

Not to long ago, I registered a company and asked a lawyer friend to draw up the legal documents required for its establishment - the memorandum and articles of association. As is customary, we briefly discussed about the company name and what it was going to do. For the Kshs 20,000 paid - he simply edited the objects of a set general standard memorandum and articles of association that he would have given to any client. None were specific to the company I was trying to establish. Now you might say I didn't get a good lawyer but I feel there is a general trend of lack of duty of care.

The rules embodied in the memorandum and articles of association govern the relationships between comapny and its stakeholders and the world at large. They are important as they are foundations/structures ( ways and methods ) that promote harmony in that business, allow for dispute resolution mechanisms and provides justice for all stakeholders.

These include the rules on

- issuing shares
- voting
- dividend rights
- restrictions on the transfer of shares
- board meetings and shareholder meetings
- and other similar issues


The memorandum of association of a company (aka the memorandum) is the document that governs the relationship between the company and the outside world. The law emposes some minimum requirements for all memoranda of associations.They are required to state the name of the company, the type of company ( e.g. whether it is public limited company or private company limited by shares), the objectives of the company, its authorised share capital, and the subscribers (the original shareholders of the company).



Objects and Purpose

Memoranda of associations are designed to communicate to the public the state of affairs of the company and its purpose of being and operating. It is supposed to aid various stakeholders of the company (creditors, suppliers, shareholders, etc.) in evaluating their risks in dealing with the company. And it should indicate the possibilities of the company to prevail over such risks at a future date.

The Articles of association of a company govern the internal working relationships between the shareholders and directors of the company.


The Problem

More and more associations are become secretive, unclear and too generalised to be of use to anyone. And whats more the law allows it. The objects of the company are supposed to state what a company is permitted to do and therefore limit its capacity to act. However since 1844, when the first limited companies were incorporated, the objects have become wider and more encompassing so as not to restrict the directors in their day to day trading. In the Companies Act 1989 the term "General Commercial Company" was introduced which meant the company could undertake "any lawful or legal trade or business."

The Companies Act 2006, further "simplifies" the company law of the United Kingdom, and in doing so will remove the requirements for an objects clause, leaving the memorandum as a simple statement of certain facts relating to the company. Any limitation on capacity will thereafter be contained in the company's articles of association and will, if breached, be a purely internal matter potentially making directors liable to shareholders for any loss caused by the breach but not invalidating the act itself.

We end up with a body of law that allows companies to conceal their behaviour and this makes it more difficult for all of us to scrutinise and thereafter engage in them.