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Effects of Memorandum and Articles when registered

The effect of the Memorandum of Association and therefore   the Articles of Association when registered is that“Subject  to the provisions of this Act, the Memorandum and Articles shall, when registered, bind the corporate and therefore the members thereof to an equivalent extent as if they respectively had been signed by the corporate and by each member, and contained covenants on its and his part to watch all the provisions of the Memorandum and of the Articles.”

Thus, the Articles bind the corporate to its members, the members to the corporate and therefore the members to every other. They constitute a contract between a corporation and its members in respect of their rights and liabilities as members. A member may sue the corporate , even as the corporate may sue the members to enforce and restrain any breach of the articles, reading this article with capitotal india will help you to understand better.

  1. they bind each member to the corporate ,
  2. they bind the corporate to the members,
  3. but they are doing not bind either the corporate or the members to the outsiders.

1. Bind Each Member to the corporate

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

2. Bind the corporate to every Member?

Articles of the corporate bind the corporate and therefore the members. Under the terms of the articles, a corporation is sure to suits the provisions thereof.

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

3. Bind Each Member to Other Members.

There is no contract between the members on the idea of those documents. Even the Articles have effect of the binding every member to other member. But the members cannot sue one another . Usually, one member can sue other members through the medium of the corporate .

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

4. Where the corporate isn't Bound By Articles

In the case of Eley V. Positive etc. Company, the Articles include a clause providing that A should be used life long as a solicitor of the corporate and he shouldn't be removed apart from misconduct. A accordingly took office as solicitor of the corporate and through his employment he also became a shareholder of the corporate .

Sometime after, the corporate dispensed together with his services. He however remained as a shareholder and he sued the corporate for breach of contract. 

5. Binding between members:

The contractual force given to the articles is restricted to the matters arising out of company’s relationship of the members as members and doesn't extend beyond the corporate relationship. The articles constitute a contract between each member and therefore the company. The articles don't regulate their rights inter se.

Such rights can only be enforced by or against a member through the corporate . However, this is often not without exception. Courts have extended the articles to constitute a contract between individual members qua members without joining the corporate as a celebration to the action. The case of Rayfield v Hands (1960) may be a pointer to the difficulty .

Rayfield was a shareholder during a company. He was required to tell the administrators within the event of his intention to transfer the shares. the administrators were required to require the shares at a good value. Rayfield informed the administrators in accordance with the articles. the administrators contended that they weren't sure to take and buy Rayfield’s shares and therefore the articles could impose no such obligation on them.

The court put aside this argument by treating the administrators as members and compelled them to require Rayfield’s shares at a good value. The court also held that it had been not necessary for Rayfield to hitch the corporate for bringing a suit against the administrators .

6. No binding in reference to the outsiders:

The memorandum and articles don't constitute a contract between the corporate and therefore the third party. Neither the corporate nor the members of the corporate is sure to the outsiders to offer effect to the provisions of the memorandum and therefore the articles. For example:

In Browne v La Trinidad, the articles of the corporate contained a clause to the effect that Browne should be a director and will not be removable. He was, however, removed and had brought an action to restrain the corporate from excluding him.

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