A company will also be governed by its own Memorandum and Articles of Association. Now we'll have brief discussion about these two concepts which are considered to be the life of a company.
This is the most important document in the company as it set out the constitution of a company and it is the foundation on which the structure of the company is based. In other words it may say that the identity of the company is based on this. It prescribes the name of the company, its registered office, objects and capital. It also defines the extent of its powers concerning to the matters relating to its function or otherwise. The memorandum is in fact a charter of the company.
A company can exercise only such powers which are either expressly stated in the memorandum or as may be implied there from including matters incidental to the powers so conferred. A company must act within and not outside the scope of its memorandum. Any transaction which is outside the ambit of the powers of the company shall be ultra virus and void.
The articles of association of a company are the internal regulations which govern the management of the internal affairs of the company. As it meant for internal affairs, the members have full control and
may by resolution alter them as they think fit so long as they do not exceed the limits defined by the memorandum. In other words Articles of Association form the basis of a covenant /contract that regulates the company's internal procedure and set out the rights of the shareholders as conferred by their ownership.
Contractual effect of Memorandum and Articles of Association
Memorandum and Articles of the company when registered, have binding forces as they bind the company and its members to the same extent as if they have been signed by the company and its each member. In other words, the memorandum and Articles of the company when registered,
bind the members to the company and the company to its members, but onin the capacity of members of the company and not in any other capacity
such as directors etc. This clause is incorporated in Sec.14 (1) of the
Company Law 1985. i.e. Sec.14 (1) of the Company law 1985 says that "Subject to the provisions of this Act, the memorandum and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe all the provisions of