Companies Act - Effect of Memorandum and Articles (Section 10)

Introduction

Memorandum and Article are extremely crucial documents. These documents are submitted when company is registered. Once registration is done and new company formed, the persons named in MoA or AoA and Company enters into legal relationship.

MoA and AoA gives rise to Contract between members and company.

Let's have look at Section in bit detail. Will be good if you scroll down to end, read summary, then read again from beginning. :)

Section 10- Effect of memorandum and Articles

Relationship Between Company and Members

Clause 1 states that MoA and AoA are like as if they both are signed by Company and Members. Legal relationship arises between members and company. The clauses or covenant (Meaning terms) contained in MoA and AoA become binding on members and company

If some money needs to paid by member to company if mentioned in MoA or AoA, such money is like Company's debt on member. He has to pay it.

There are important case laws related to this. You can find those in here.(Bradford Banking Vs Henry Briggs)


Can member sue a company ? Of Course. He can sue the company for below reason
  • To enforce his individual rights
  • To contest election for directorship
  • To get back his wrongfully forfeited shares
  • To receive share certificate.
 One leading case in this aspect is Pender Vs Lushington.

Relationship between members


As Memorandum and Articles creates contract between members/shareholder and Company, does it also creates a contract between Members ?

So if Ratan Tata ji is member of Tata Motors and your name is also there in register of members. Are you in Contract with Ratan Tata? In Woods Vs Odessa Water Works, court held that there is contract among members too.

Relationship between Company and Outsiders

Why would outsider should have any say in company matters? Of course No. So there is NO relationship as such between company and outsiders. Outsiders is not party to Articles.


That's about effect of Memorandum and Articles. Let us summarize one more time

Company can sue members for any debt
Members can sue company for their right
There exists a contract between members
Outsiders and Company have no contract owing to memorandum and articles.












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