Legal Effect of Memorandum and articles of association (Sec. 10 of the Companies Act, 2013)
Under sec.10 of the Companies Act, 2013, the memorandum and the articles when registered, shall bind the company and its members to the same extent as if it had been signed by them and had contained a covenant on their part that the memorandum and the articles shall be observed. With respect to the above section, the importance of Memorandum of Association and articles can be summed up as follows:
Importance of MOA:
a) It is the foundation of a business. It shows the capacity to contract of a company.
b) It is constitution of a company which relates with the outside world. No company is allowed to temper with its contents without the sanction of central government or court of law.
c) Any act of the company outside the scope of activities as laid down in the memorandum is said to be ultra vires and non binding on it.
d) Every member shall be bound to comply with the provisions contained in the memorandum. In case of non-compliance, the company may sue a member.
Importance of AOA:
a) Binding on members in their relation to the company- the members are bound to the company by the provisions of the articles just as much as if they had all put their seals to them.
b) Binding on company in relation to its members- just as members are bound to the company, the company is bound to the members to observe and follow the articles.
c) Neither company, nor members bound to outsiders- articles bind the members to the company and company too the members but neither of them is bound to an outsider to give effect to the articles.
d) Binding between members inter se- the articles define rights and liabilities of the members. As between members inter se the articles constitute a contract between them and are also binding on each member as against the other or others. Such contract can be enforced only through the medium of the company.