Legal effects of Memorandum and Articles when registered

Legal effects of Memorandum and Articles when registered

The effect of the Memorandum of Association and the Articles of Association when registered is that

  1. they bind each member to the company,
  2. they bind the company to the members,
  3. they bind members inter se i.e., bind each member to other members,
  4. but they do not bind either the company or the members to the outsiders.
Legal effects of Memorandum of Association and Articles of Association

Legal effects of Memorandum of Association and Articles of Association

1. Bind Each Member to the Company

It is presumed that each member has signed both the Memorandum and the Articles of the company. These documents are treated as contracts entered into between the company and outsiders. So these documents bind the members to the company.

2. Bind The Company to Each Member

Articles of the company bind the company and the members. Under the terms of the articles, a company is bound to comply with the provisions thereof.

A member is entitled to enforce compliance by the company with a clause in the Articles conferring on him a right to a share certificate. Now it is settled that a member can enforce or protect the rights given to him as a member of the company.

3. Bind Each Member to Other Members [Members inter se] .

There is no contract between the members on the basis of these documents. Even then the Articles have the effect of binding every member’ to other members. But the members cannot sue each other. Usually, one member can sue other members through the medium of the company.

E.g. If a member does a wrong thing against the interest of the company, another member can sue him only through the company.

4. Where the Company is not Bound By Articles

In the case of Eley V. Positive etc. Company, the Articles include a clause providing that A should be employed life long as a solicitor of the company and he should not be removed except for misconduct. A accordingly took office as solicitor of the company and during his employment he also became a shareholder of the company.

Sometime after, the company dispensed with his services. He however remained as a shareholder and he sued the company for breach of contract. The Court of Appeal held that no action would lie.