Once a company’s Articles and Memorandum are registered, they bind the company and its members as if each member had signed them. However, the company’s articles, while binding, do not hold the same weight as statutory law.
Only shareholders/members, in their capacity as members, can enforce the Articles' provisions. For example, in the case of Wood v. Odessa Waterworks Co., the court ruled that the directors could only pay dividends in cash, as specified in the Articles.
The articles of association create a contract among the members of the company. However, these rights can only be enforced by or against a member of the company. In some cases, courts have extended the articles to create a contract between individual members.
Unlike the binding nature of the articles among members, neither the memorandum nor the articles create a contract between the company and any third party. The provisions of these documents do not bind the company and its members to outsiders.
This case illustrates that outsiders cannot misuse the articles to make claims against the company.
51 docs|9 tests
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1. What is the binding effect of the Memorandum and Articles of Association on the members of a company? |
2. Can a member of a company enforce the provisions of the Articles of Association against another member? |
3. Are the Memorandum and Articles of Association binding on outsiders dealing with the company? |
4. What happens if the Memorandum or Articles of Association are altered? |
5. How can a member challenge the validity of a provision in the Articles of Association? |
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