Page 87 - DCOM106_COMPANY_LAW

Company Law

Notes The plaintiffs contracted with a director of the defendant company, and gave him a cheque under
the contract. The director could have been authorised under the company’s articles, but was not
in fact so authorised. The plaintiff had not seen the articles. The director misappropriated the
cheque and the plaintiff sued the company. Is the company liable?

6.9 Legal Effect of Memorandum and Articles

The legal effect of articles may be summed up as follows:

1. The articles constitute a contract between the company and its members.
2. The articles bind the members to the company.
3. The articles bind the company to members as members.

4. The articles bind members to members.
5. The articles do not bind the company to outsiders.
6. The articles do not bind the company to any member in a capacity other than that of a
member.
Self Assessment

State whether statement is true or false:
9. Every member is bound to the company by whatever is contained in the memorandum
and articles.

10. The members of a company can restrain a company from spending money on ultra vires
transactions.
11. The company is not bound to the individual members as to their non-corporate or
individual rights.
12. The members of a company are bound to each other in relation to their rights as such
members.
13. The memorandum or articles do not confer any contractual rights to an outsider against
the company, even though his name is mentioned in the articles.

Case Study Limited Liability Partnership

f she weren’t a shade confused, she wouldn’t be Wafers! Her uncle, a star CFO, was her
inspiration and she wished to be like him - jet setting, globe trotting and
Iknowledgeable. At the campus interview her senior had picked a job for 9 lakh and
gosh he wasn’t even a rank holder. Wafers knew that the industry offered fat pay packs but
her heart actually lay in consulting. She wanted to join one of the Big Four firms with the
long-term goal of becoming the next CFO.
K. Prahalad. Her professor had once told the class, “In life, you should do what the heart
tells you.” He was talking about careers! China said, “For chartered accountants there are
a plethora of opportunities in the new international trading regime.” Wafers agreed. She
recalled reading in the ICAI website that “Opportunities would emerge at three
Contd...

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