Memorandum of association

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                Business law

Problem no: 68

Directors of company borrowed money from a bank on the security of a mill situated in Rangoon. The directors had already exceeded the limit (of an amount equal of half the paid-up capital) imposed on their power to borrow by the articles. There was a provision in the articles that the company in a general meeting might by a special vote enlarge the director’s power to borrow. The bank sought to enforce the security relying on this clause. Holding that they were entitled to assume that the director’s power to borrow had been so extended. The company resists the banks claim. Decide.

Law

Memorandum of association

One of the first steps in the formation of a company is to prepares a document called the Memorandum of association .The Memorandum of association of a company contains the fundamental conditions upon which alone the company has been incorporated. According to section 2(28) of the Company ACT 1956,” Memorandum” means “Memorandum of association of a company as originally framed or altered from time to time in pursuance of any provision of company law or of its act”. It contains the objects for which the company is formed and therefore identifies the possible scope of its operation beyond which its action cannot go.

Ultra Vires

Any transaction, which is outside the scope of the powers specified in the objects clause and are not reasonable incidentally or necessary to the attainment of objects is ultra-vires the company and therefore void. No rights and liabilities on the part of the company arise out of such transactions and it is a nullity even if every member agrees to it.

Section 13(1)(d) of the companies ACT 1956 requires the company to divide its objectives into two parts:

  1. Main objects and objects incidental or ancillary thereto; and
  2. Other objects

Any act beyond the objects stated in the memorandum is ultra vires the company and thus is void.

Articles of Association

According to section 2(2) of the companies Act, 1956 ‘articles’ mean the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies’ laws or of the present Act, i.e., the Act of 1956.

 The articles regulate the internal management of the company. They define the powers of its officers. They also establish a contract between the company and the members and between the members inter se.

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CASE ANALYSIS

MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION

         The memorandum of association of a company is a fundamental document of the company it contains the fundamental conditions upon which alone the company is allowed to be incorporated it is the charter of the company and defines its raison d’etre (i.e. reason for existence). It also regulates the external affairs of the company in relation to outsiders .its purpose is to enable shareholders and those who deal with the company to know what its permitted range of enterprise is .it not only shows the object of the ...

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