An important document in company formation is the memorandum of association (UK) or articles/certificate of incorporation (USA). This document sets forth the objects of the company and its capital structure; as such, it represents a legally binding declaration of intent to which the members of the company must adhere.

Below is an extract from the articles of incorporation of a US company. Read through the text quickly and tick the issues it addresses.

1 appointing members of the board of directors □

2 changing corporation bylaws □

3 procedures for holding a vote of the shareholders □

4 stipulations for keeping corporation records

The power to alter, amend or repeal the bylaws or to adopt new bylaws shall be vested in the Board of Directors; provided, however, that any bylaw or amendment thereto as adopted by the Board of Directors may be altered, amended or repealed by a vote of the shareholders entitled to vote for the election of directors, or a new bylaw in lieu thereof may be adopted by 5 vote of such shareholders. No bylaw which has been altered, amended or adopted by such a vote of the shareholders may be altered, amended or repealed by vote of the directors until two years shall have expired since such action by vote of such shareholders. [...]

The Corporation shall keep as permanent records minutes of all meetings of its shareholders and directors, a record of all action taken by the shareholders or the io directors without a meeting, and a record of all actions taken by a committee of the directors in place of the Board of Directors on behalf of the Corporation. The Corporation shall also maintain appropriate accounting records. The Corporation, or its agent, shall maintain a record of its shareholders in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order, by class of shares, showing is the number and class of shares held by each.

Read the text again and decide whether these statements are true or false.

1 The board of directors only has the power to change the bylaws if the shareholders in turn have the power to amend any changes made by the board of directors.

2 The board of directors is proscribed at all times from changing any bylaw which has been altered by a vote of the shareholders.

3 Records must only be kept of decisions reached by shareholders and directors in the course of a meeting.

4 Records of the shareholders must list the number of shares they own.

9 For each of these words or phrases, find the italicised word(s) in the text that most closely matches its meaning.

1 passed 3 instead 5 cancelled 7 given to

2 who have the right to 4 on condition 6 revised

Language use: Shall and may

10 Read through the text on page 23 again, noting how shall and may are used.

1 Which of these words most closely matches the meaning of shall in each case?

a) will b) must

2 What do you notice about the use of shall in line 7?

3 Which of these words most closely matches the meaning of may in the text? a) can b) could

In-legal documents, the verb shall is used to indicate obligation, to express a promise or to make a declaration to which the parties involved are legally bound. This use differs from that in everyday speech, where it is most often used to make offers (Shall I open the window?) or to refer to the future (/ shall miss you), although this latter use is less frequent in modern English.

In legal texts, shall usually expresses the meaning of 'must' (obligation):

Every notice of the meeting of the shareholders shall state the place, date and hour.

or 'will' (in the sense of a promise):

The board of directors shall have the power to enact bylaws.

Shall can also be used in legal texts to refer to a future action or state:

... until two years shall have expired since such action by vote of such shareholders.

In everyday speech, this future meaning is commonly expressed using only the present perfect (... until two years have expired ...).

Another verb commonly found in legal documents is may, which generally expresses permission, in the sense of 'can' (this use is less common in everyday English):

... any bylaw or amendment thereto as adopted by the Board of Directors may be altered, amended or repealed by a vote of the shareholders.

In everyday English, may is sometimes used as a substitute for might, indicating probability (He may want to see the document).

14 Which types of companies are there in your jurisdiction? Choose one and describe it as you would for a client from another country. In your description, refer to some of the features given in the UK company table on page 23. Tell your client which documents must be filed to complete the formation process. Wherever relevant, compare and contrast your company type with a UK business entity.