TOPIC: MEMORANDUM OF ASSOCIATIONS, ARTICLES OF

ASSOCIATIONS AND ITS BINDING EFFECT: AN ANALYSIS

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TABLE OF CONTENTS
INTRODUCTION
RESEARCH PROBLEM
RESEARCH OBJECTIVE
RESEARCH QUESTION
HYPOTHESIS
LITERATURE REVIEW
BINDING EFFECT OF MEMORANDUM OF ASSOCIATION
ALTERATION OF THE MEMORANDUM OF ASSOCIATION
BINDING EFFECT OF ARTICLE OF ASSOCIATION
CONCLUSION
BIBLIOGRAPHY

ABSTRACT
A key idea in corporate law that controls a company's interactions with its members and the
outside world is the binding effect of an association's articles of association and
memorandum. The relevance and ramifications of these legally binding contracts are
examined in this abstract in relation to the legal framework of a business which serves as a
framework for governance, safeguarding members’, and external stakeholders' interests, and
guaranteeing legal accountability. These contracts form the cornerstone of a business, and any
departure from their legally binding terms can result in legal ramifications. This highlights
the importance of these contracts for both corporate governance and legal compliance.
A company's memorandum of organization and articles of association, which combined
define its goals, authorities, and internal rules, constitute its constitution. Legal obligations
are placed on the company, its directors, and its members by these documents. The AOA and
MOA outline the company's internal management policies, ensuring compliance with
established guidelines and legal binding on the firm and its members. The MOA provides a
reliable source for external contracts, amendment processes, and legal enforcement ensuring
legal predictability and protection of stakeholders' interests. The memorandum and articles
also safeguard the rights and interests of the company's members, specifying entitlements to
dividends, voting rights, and shareholding classes.

INTRODUCTION:
The Memorandum of Association (MOA) and Articles of Association (AOA) are those papers
that operate as a contract and ensure that the members and the firm are tied to each other. A
company will enter several contracts throughout the course of its operation. The capacity to
sue one another for any violation of duty or trust is the key privilege granted to the
corporation and its members because of this. The firm's legal structure is transparent and
cohesive by clearly defining the rights and obligations of all parties involved, and it may be
helpful in hastening the resolution of any disputes.
The crucial document known as the Memorandum of Association is described as "the
memorandum of association of a company as originally framed or as altered from time to
time in pursuance of any previous company law of this Act" in Section 2(56) of the
Company's Act, 2013. To reduce public confusion by explicitly outlining the extent of
corporate activities taking place within the organization, the owners and promoters, together
with the operations and external affairs of the company, are all described in this document.
The shareholders and investors are also given information about the company's situation in
this document, which aids in their evaluation and decision-making process. A company will
always benefit from having a favorable and concise MOA in all the many ways that pertain to
how they function.
Another important document is the company's articles of association, which mostly address
internal matters. Regardless of their place in the firm's command structure, all members must
abide by the rules and regulations outlined in this document. This charter's need that it does
not conflict with the 2013 requirements of the MOA and Companies Act in order to be
binding and effective is one of its features. The Act's Section 2(5) addresses this document. It
is easier for the staff to work towards the primary aim and goal by adhering to the AOA rules.

BACKGROUND OF THE RESEARCH:

The Articles of Association must be drafted and filed during the incorporation process of the
company. It includes various provisions, such as the company’s name, its registered office
address, the objectives of the company, the rights and obligations of its members, the number
of directors and their powers and duties, the rules for conducting meetings, and the procedure
for issuing and transferring shares.

SIGNIFICANCE OF THE RESEARCH:

The processes for settling disputes between the firm and its shareholders or amongst the
shareholders themselves are also outlined in the articles of association. They could also
contain clauses governing the choice and dismissal of directors, the division of earnings and
losses, and the liquidation of the company.
It is significant to remember that the firm and its members are legally obligated to always
abide by the Articles of Association. Any amendments to the articles of association must be
authorized by a special resolution passed by the shareholders and submitted to the registrar of
corporations.

STATEMENT OF PROBLEM:
The power to alter the Memorandum of Association and Articles of Association and execute
and effectuate as per the needs of the company.

SCOPE AND LIMITATION:

The MoA places restrictions on the AoA's reach since such rules and regulations must be in
keeping with the goals stated in the MoA. The AoA must not go beyond the boundaries of the
MoA and must not include any clauses that are ultra vires (beyond the company's authority as
set out in the MoA).
The Supreme Court of India ruled in the landmark case of Shyam Chand v. Calcutta Stock
Exchange that an organization's AoA cannot contain any clauses that go beyond the bounds of
the MoA.
The scope of the AoA is limited by the MoA, as the rules and regulations contained in the
AoA must be consistent with the objectives outlined in the MoA.

RESEARCH OBJECTIVE:
1. To understand the components and impact of these papers on a company's
functioning and operations.
2. To find out to what degree the terms of these papers are legally obligatory on the
involved participants.
3. To determine which group members are subject to the established rules and what
sanctions apply in the event of non-performance.

RESEARCH QUESTION:
1. Are there any restrictions or exceptions to the Memorandum of Association and Articles of
Association's binding nature?
2. What are the court's rulings and conclusions on disregarding the terms of these important
documents?

HYPOTHESIS:
These documents are legally binding on all parties involved, and their significance can be
seen as early as the company's incorporation.
RESEARCH METHODOLOGY:
This research paper deals with qualitative research and a secondary mode of methodology.
Qualitative research helps researchers understand non-numerical information and facts,
synthesizing hypotheses in data, but not as reliable as quantitative research. It also explores
human behaviour motivations, understanding factors influencing people's actions and
propensities towards a particular thing.
Secondary sources of methodology is a research method that uses data collected by someone
else. It includes research summaries that are published in books, periodicals, and newspapers.
Typically, they give broad summaries of the findings and little information on the process.

1. MEMORANDUM OF ASSOCIATION
When a number of people come together for achieving a specific purpose or
goal then a company is formed. Generally the specific purpose or goal of the
company is very commercial in nature and is to earn the profits. While
incorporating a company an application has to be filed with the Registrar of
Companies (ROC) and this application is supposed to be submitted with some
documents which also includes Memorandum of association.

The memorandum of association acts as the foundation of every company.1

The definition of the memorandum of association states that all rights and powers must be
stated in this open document and that no one may deviate from the terms of the agreement or
fail to follow the guidelines laid out in the memorandum of association. Anyone who does so
may be deemed ultra vires of the company and their rights may be promptly terminated. This
is the clear-cut definition of a memorandum of association for any kind of business. It is
entirely protected by the law. Every document is rigorously checked and examined by the
company law MOA
Memorandum of Association plays an important role in the formation and constitution of a
company. It typically includes:
Name Clause: The company's complete and official name, which will be used for legal
identification, must be stated in the Memorandum of Agreement. The Name Clause gives
identification to a company and allows it to enter contracts and can hold any company liable
in case of any breach of a contract and acts as evidence that the specific corporation is the one
who has committed any type of legal obligation; they are unable to shift the responsibility by
arguing that another company should bear the responsibility because they are not named. A
firm is not permitted to use a name if it is already registered under that name or if it is the
same as a registered trademark. If a business joins and registers under a certain name with the
Registrar of Companies and the MOA, it is required to use that name exclusively for
marketing, advertising, and contracting purposes. According to legal regulations, the name
must conclude with words such as "Limited" or "Ltd" for a limited business, or "Public
Limited Company" or "PLC" for a public limited company.
Salomon & Co. Ltd. v. Salomon (1897)2: This case introduced the concept of corporate
personality, which makes it crucial in company law even if it has nothing to do with the name
clause. The House of Lords maintained the company's independent legal character after Mr.
Salomon registered it under his name, highlighting the significance of the name clause in
establishing a separate legal entity.
In the case, Raja Tea Co. Pvt. Ltd. v. Indian Tea Association (1999)3 the plaintiff company in
this case requested an injunction against the defendant company on the grounds that the
defendant's name was confusingly similar and that it was meant to be mistaken for the
plaintiff's. The case serves as a reminder of the significance of the name clause and the
possibility of disputes involving company names.

1
Vedantu
2
Salomon v A Salomon and Co Ltd [1897] AC 22
3
Raja Tea Co. Pvt. Ltd. v. Indian Tea Association (1999)
The case, Asha Products (Pvt) Ltd v. Cadbury Schweppes Pvt Ltd (2004)4 talks about the
problem in this case concerning the plaintiff's company's misleading resemblance to the
defendant's company's name. The court stressed the value of the name clause and the
necessity of safeguarding businesses' unique identities to prevent confusion in the
marketplace.

Liability Clause: Information regarding the members of the company's liability is contained
in the memorandum. This paragraph specifies that each shareholder's responsibility in a
business limited by shares is capped by the quantity of unpaid shares. When a business is
limited by guarantee, it means that its members pledge to pay a certain sum if the business is
wound up. The type of liability incurred and placed on the company's investors and
shareholders is covered under the MOA's Liability Cause. The amount they owe the company
is restricted to the amount they have invested in the business and its operations if they have
limited liability. Either the amount guaranteed or the nominal value of the shares restricts the
responsibility. No shareholder may be required to pay more than what is reasonable or more
than what was previously decided upon and agreed upon. When there is limitless liability, the
members are personally liable and will have to cover the cost out of their own pockets.
Foss v. Harbottle5: This decision, which is frequently referenced in common law
jurisdictions, addresses the notion of majority rule as well as shareholders' authority to file
derivative lawsuits on the company's behalf. It mentions the corporate veil idea, which is
pertinent to the topic of liability.
Lee v. Lee’s Air Farming Ltd 6 This New Zealand case examined the conditions that could
lead to a shareholder being regarded as an employee of the business and the resulting legal
ramifications. It is important to comprehend how shareholders and the company interact.

Object Clause: The object Clause is one that lays down the reasons why the company was
incorporated in the first place and what is the main objective of the company. After looking
through this, the investors and the shareholders decide whether the company is operating in a
manner that is in accordance with their needs. The goals or aims for which the company was
founded are described in this section. It restricts the company's authority and specifies the
range of its operations. Anything that is not specifically stated in the object clauses is illegal
since it is deemed to be ultra vires, or outside the company's authority. To avoid limitations,
businesses typically give broad, generic targets, but they can also express more detailed
goals. If a business enters into a deal with another business or party and later decides to
violate the terms of the contract or their MOA, legal action may be taken against the business.
Any activity that contradicts their goals will be deemed ultra vires and subject to legal
challenge. The purpose clause is crucial because it establishes the framework for the business
and decides whether or not it is worthwhile to invest in its operations in order to turn a profit.

4
Asha Products (Pvt) Ltd v. Cadbury Schweppes Pvt Ltd (2004)
5
Foss v. Harbottle (1843)
6
Lee v. Lee’s Air Farming Ltd
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875)7: This case, often cited in the
United Kingdom, established the principle that a company can only engage in activities that
are expressly or impliedly authorized by its objects clause. Any activity outside the scope of
the objects clause is considered ultra vires.

Bell Houses Ltd. v. City Wall Properties Ltd. (1966)8: This UK case is an example of how
the court may interpret and construe the objects clause to determine whether a company's
actions are within its authorized scope.

Capital Clause: This section outlines the company's authorized share capital or the highest
value of shares it may issue. Companies can issue shares up to this nominal amount. The
company's articles control and demand approval for any changes to the share capital. It
describes the share structure and total share capital of the company, and how many shares of
each kind are issued in relation to the total capital. The shares could be stock or preference
shares. It focuses on the capital that two or more shareholders of a single firm have invested.
We are required to provide information in the memorandum of association about the shares
held by the various shareholders, how they formed the regulations, etc. If a business enters
into a contract with another business or party, that business may be sued if it chooses to
violate the terms of the agreement or the clauses stated in the memo of agreement. Any
activity that contradicts their goals will be deemed ultra vires and subject to legal challenge.
The purpose clause is crucial because it establishes the framework around which the business
is constructed and evaluates whether or not the business's operations are profitable enough to
warrant investment.

Association Clause: The Memorandum's last clause only declares that its signatories intend
to establish a corporation and consent to become its members. This provision, which is
common to most memorandum of agreement, is rather straightforward and serves to
formalize the company's establishment as well as the subscribers' consent to become
members of the business. This provision basically attests to the original subscribers' or
shareholders' intents to form and join the corporation as members. By agreeing to sign the
Memorandum of Association, the subscribers are indicating that they will take part in the
business as shareholders and that they will follow the policies and procedures of the firm as
stated in the Articles of Association. The association clause, which serves to formalize the
company's formation and the founding members' commitment to it, is an essential component
of the memorandum of association. The subscribers become members of the company upon
registration of the Memorandum of Agreement with the relevant authorities, and they are
endowed with the rights and obligations outlined in the company's charter.
While the Memorandum of Association is an important document during the establishment of
the firm, it should be noted that it is quite rigid and provides basic information. Any
modifications to these core elements usually call for a more involved procedure, and they
must abide by the articles of organization and applicable company legislation.

7
Ashbury Railways Carriage and Iron Co. Ltd. v. Riche 1875
8
Bell Houses Ltd v City Wall Properties Ltd. (1966)
The Memorandum of Association and the Articles of Association together comprise the
company's constitution, which establishes the legal parameters for its management, activities,
and interactions with both its members and the outside world.

1.2- ALTERATION OF THE MEMORANDUM OF ASSOCIATION

Section 13 of The Companies Act states that the name of a company may be changed anytime
by passing a special resolution by the board of directors or by obtaining the approval of the
State Government. The decision made by the Board of Directors is present at the general
meeting; Hence, the resolution needs the support of at least 75% of the Directors. Following
this, the Central Government's consent is needed. However, if the term "private" is the only
thing that has to be added or removed, then the Central Government's consent is not
necessary. After receiving the required paperwork, the Registrar of Companies will approve
the name change. The firm cannot begin operations under its new name until this approval
has been granted.
A corporation should not be allowed to change its name when it has defaulted in filing its
Annual returns
Financial Statements
Any document due to filing with the registrar
Repayment of matured deposits or debentures

DOCTRINE OF ULTRAVIRES
The Latin phrase "ultra vires" means "beyond the powers." Such an act that is beyond the
pale is invalid. The Board of Directors (BoD) of the corporation is unable to approve it. In a
similar vein, any agreement signed by the business that deviates from its memorandum of
association will be ultra vires and unenforceable against the company. However, the
corporation is permitted to carry out any action that may be incidental to the primary goal
outlined in its memorandum of association under the law of ultra vires.

Fundamental ideas of the doctrine of ultra vires are:

All parties may raise the defense of the doctrine of ultra vires.

An ultra vires act cannot be ratified by any member of the company.

According to the doctrine of estoppel, a party who has fulfilled its entire obligation in an ultra vires
transaction cannot subsequently invoke the defense of ultra vires. The doctrine of supra vires cannot
be invoked to refute any act or omission carried out by an agent or representative of a firm while
they are doing their duties.
In the case of Brunner and Mond Co. v. Evans9 (1921), the defendant was a chemical
manufacturing corporation. The company's Memorandum of Association had a purpose
provision that allowed it to do whatever was incidental to carrying out its business.
Furthermore, the corporation was able to sponsor scientific and research advancements at any
English institution thanks to the Memorandum of Association. A legal challenge was made to
this permission. The argument for the challenge was that it wasn't included in the primary
goal listed in the association's memorandum.

Section 12 addresses the possibility of modifying the registered office provision in the event
of a move within the same town or city. The Board of Directors is required to pass a special
resolution and, in the event that it is approved, to notify the Registrar of the address change
within 30 days. The modification cannot be deemed final or approved until all requirements
have been met and the RoC has given its approval. If the company is moving within the same
state, permission from the Regional Director must be obtained within 30 days, and a copy of
the request must be sent to the RoC for validation. After the RoC gives its approval, the
alteration is finished.
Sections 12(4), 12(5), 13(4), 13(5), and 13(7) provide guidelines for changing a
Memorandum of Association's registered office clause. The firm may file an application with
the RoC to amend the registered office clause in the event that the registered office is to be
moved within the same city's local limits following the approval of a special resolution for
that purpose.
The process to be followed if a firm moves from one state to another is covered in Section 17.
It says that if the move makes sense for the reasons outlined in the Section, the Company
Law Board should also adopt it in addition to a special resolution. All stakeholders with an
interest in the company should have their objectives considered. If any of the other terms
need to be changed the Board of Directors' special resolution is sufficient to change the
clause somewhat to the company's advantage.

2. Article of Association

- An article of Association
is a 'contract of the most
sacred character' between the

9
Brunner and Mond Co. v. Evans (1921)
company and each member,
binding the members to the
company under a statutory
covenant
- All money payable by any
member to the company under
the Memorandum or Articles
shall be a debt due from him to
the company
- Articles are taken to be
signed and agreed to be
observed by each member
- Members are bound by
the articles just as if every
one of them had contracted
to
conform to them
- A company can sue its
members for the
enforcement of its articles as
well as for
restraining their breach
- CASE LAW
Borland's Trustees v. Steel
Bros. & Co. Ltd
o The articles the company
provided that in the event of
bankruptcy of any member,
his shares would be sold at a
price affixed by the directors
o When Borland went
bankrupt, his trustee expressed
his wish to sell these shares at
their original value and
contended that he could do so
since he was not bound by
the articles
o It was held, however, that
he was bound to abide by the
company's articles since
the shares were bought as per
the provisions of the articles
5. Binding between members
- The contractual force
given to the articles is
limited to the matters arising
out of
company's relationship of the
members as members and does
not extend beyond the
company relationship
- The articles constitute a
contract between each member
and the company
- The articles do not regulate
their rights inter se. Such
rights can only be enforced by
or
against a member through the
company
- Courts have been known to
make exceptions, and extend
the articles to constitute a
contract even between
individual members
- CASE LAW
Rayfield v Hands
o Rayfield was a shareholder
in a particular company., who
was required to inform
directors if he intended to
transfer his shares, and
subsequently, the directors
were
required to buy those shares at
a fair value
o Rayfield remained in
adherence to the articles and
informed the directors. The
directors contended that they
were not bound to pay for his
shares and the articles
could not impose this
obligation on them.
o The courts, dismissed the
directors argument and
compelled them to buy
Rayfield's
shares at a fair value. The
court further held that it was
not mandatory for Rayfield
to join the company to be
allowed to bring a suit against
the company's directors
6. No binding in relation to the
outsiders
- The memorandum and
articles do not constitute a
contract between the company
and
the third party
- Neither the company nor the
members of the company is
bound to the outsiders to give
effect to the provisions of the
memorandum and the articles
- CASE LAW
Browne v La Trinidad
o The articles of the company
included a clause that implied
that Browne should be a
director that should not be
removed or removable
o He was removed regardless
and thus brought an action to
restrain the company from
removing him
o Held that since there was
no contract between Browne
and the company, being an
outsider, he cannot enforce
articles against the company
even if they talk about him
or give him any rights
o Therefore, an outsider may
not take undue advantage of
the articles to make any
claims against the company
- An article of Association
is a 'contract of the most
sacred character' between the
company and each member,
binding the members to the
company under a statutory
covenant
- All money payable by any
member to the company under
the Memorandum or Articles
shall be a debt due from him to
the company
- Articles are taken to be
signed and agreed to be
observed by each member
- Members are bound by
the articles just as if every
one of them had contracted
to
conform to them
- A company can sue its
members for the
enforcement of its articles as
well as for
restraining their breach
- CASE LAW
Borland's Trustees v. Steel
Bros. & Co. Ltd
o The articles the company
provided that in the event of
bankruptcy of any member,
his shares would be sold at a
price affixed by the directors
o When Borland went
bankrupt, his trustee expressed
his wish to sell these shares at
their original value and
contended that he could do so
since he was not bound by
the articles
o It was held, however, that
he was bound to abide by the
company's articles since
the shares were bought as per
the provisions of the articles
5. Binding between members
- The contractual force
given to the articles is
limited to the matters arising
out of
company's relationship of the
members as members and does
not extend beyond the
company relationship
- The articles constitute a
contract between each member
and the company
- The articles do not regulate
their rights inter se. Such
rights can only be enforced by
or
against a member through the
company
- Courts have been known to
make exceptions, and extend
the articles to constitute a
contract even between
individual members
- CASE LAW
Rayfield v Hands
o Rayfield was a shareholder
in a particular company., who
was required to inform
directors if he intended to
transfer his shares, and
subsequently, the directors
were
required to buy those shares at
a fair value
o Rayfield remained in
adherence to the articles and
informed the directors. The
directors contended that they
were not bound to pay for his
shares and the articles
could not impose this
obligation on them.
o The courts, dismissed the
directors argument and
compelled them to buy
Rayfield's
shares at a fair value. The
court further held that it was
not mandatory for Rayfield
to join the company to be
allowed to bring a suit against
the company's directors
6. No binding in relation to the
outsiders
- The memorandum and
articles do not constitute a
contract between the company
and
the third party
- Neither the company nor the
members of the company is
bound to the outsiders to give
effect to the provisions of the
memorandum and the articles
- CASE LAW
Browne v La Trinidad
o The articles of the company
included a clause that implied
that Browne should be a
director that should not be
removed or removable
o He was removed regardless
and thus brought an action to
restrain the company from
removing him
o Held that since there was
no contract between Browne
and the company, being an
outsider, he cannot enforce
articles against the company
even if they talk about him
or give him any rights
o Therefore, an outsider may
not take undue advantage of
the articles to make any
claims against the compan
3.Binding Effects of MOA and AOA
After the Articles and the Memorandum of a company are registered, they bind the company
and its members to the same extent as if they had been signed by each of the members of the
company. The company’s articles have a binding effect, it does not have as much force as a
statute does, and they constitute a contract between a company and its members in respect of
their rights and liabilities as members. A member may sue the company, just as the company
may sue the members to enforce and restrain any breach of the articles which are MOA and
AOA binds the company to its members, the members to the company, and the members to
each other.

CONCLUSION