Legal Effect/Importance of MOA and AOA
Sec. 10 of the Companies Act, 2013
Company Law Notes CBCS Pattern
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 to 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.