Insider rights as property rights: a historical analysis of the bindingness of the registered company constitution

Abstract This paper reassesses the genealogy of the registered company constitution, focusing on the enforceability against the company of individual shareholder rights in the articles of association. Orthodox accounts posit that the statutory covenant, now found in the Companies Act 2006, s 33(1), has since 1856 been the sole source of the constitution’s bindingness as between the shareholders and the company. But adherents to the orthodox account have been unable to agree on the precise legal effect of the statutory covenant, especially in respect of which rights in the articles can be enforced by shareholders against the company. This paper proposes an alternative account, whereby the statutory covenant’s only effect was deeming assignees and allottees of shares to have covenanted, upon joining the company, to observe the articles. Ordinary privity of contract rendered the articles binding between the original parties to the constitution – ie the company and the subscribers. Furthermore, ordinary privity of estate determined that allottees and assignees of shares could enforce insider rights, but not outsider rights, against the company. This recognition that the benefit of certain articles should be given proprietary status was crucial in shaping the proprietary nature of shares.