Page 85 - DCOM106_COMPANY_LAW

Company Law

Notes Self Assessment

5. Signature of memorandum and articles should be done by how many number of persons
in case of public company.
(a) 7 (b) 5

(c) 4 (d) None of the above
6. Signature of memorandum and articles should be done by how many number of persons
in case of private company.

(a) 3 (b) 4
(c) 2 (d) None of the above
7. Address of the registered office is situated in

(a) MOA (b) AOA
(c) Prospectus (d) None of these
8. Alteration of articles must be done only by passing
(a) Special resolution (b) Ordinary resolution
(c) Both (d) None of the above

6.8 Articles and Memorandum: Their Relation and Distinction

Section 36 provides that the memorandum and articles, when registered, bind the company and
its members to the same extent as if they had been signed and sealed by each member and
contained convenants on the part of each member to observe and be bound by all the provisions
of the memorandum and articles. Thus, the company is bound to the members; the members are
bound to the company; and the members are bound to the other members by whatever is
contained in these documents. But neither a company nor its members are bound to outsiders.
These relationships are discussed herein below:

6.8.1 Members bound to Company

Each member must observe the provisions of the articles and memorandum. For instance, a
company has a right of lien on members’ shares, or to forfeit the shares on non-payment of calls.
Every member is bound by whatever is contained in the memorandum and articles.

Example: The articles of a company contained a clause that on the bankruptcy of a
member, his shares should be sold to other person and at a price fixed by the Directors. ‘B’, a
shareholder was adjudicated bankrupt. His trustee in bankruptcy claimed that he was not bound
by these provisions and should be at liberty to sell the shares at the true value. Held, that the
trustee was bound by the articles, as shares were purchased by ‘B’ in terms of the articles.
[Borland Trustees v. Steel bros. Co. Ltd. (1901) 1 Ch. 279].
Each member is not only bound by the covenants of memorandum and articles as originally
framed but as altered form time to time in accordance with the provisions of the Companies Act.
The articles of associations are the regulations of the company binding on the company and on
its shareholders. Further, the shareholders cannot among themselves enter into an agreement
which is contrary to or inconsistent with the articles of association of the company.

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