Articles of association and the binding force of the memorandum and articles - Company Law

On this page

1. Meaning and contents
2. Entrenchment
3. Memorandum and articles distinguished
4. Binding force: section 10
5. Alteration of articles: section 14
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. Section 10 makes the memorandum and articles a contract, but an unusual one. It binds the company to each member and each member to the company, and members among themselves, but only in their capacity as members. An outsider, even a director or solicitor named in the articles, cannot enforce them. That one sentence, with Eley and Hickman, answers most questions on “binding force”.

1. Meaning and contents

The articles contain the regulations for the management of the company (section 5(1)) and such matters as may be prescribed (section 5(2)). They are the company's internal rule book: share capital and calls, transfer and transmission of shares, forfeiture, general meetings and voting, appointment, powers and proceedings of directors, borrowing powers, dividends and reserves, accounts, and winding up. Section 5(6) requires the articles to be in the form in Tables F to J of Schedule I as applicable (Table F for a company limited by shares). A company may adopt the model wholly or in part (section 5(7)); if registered articles do not exclude or modify the model, its regulations apply so far as applicable (section 5(8)).

The articles are subordinate to the Act and the memorandum. Section 6 provides that the Act overrides anything in the memorandum or articles, and any provision repugnant to the Act is void to that extent.

2. Entrenchment

The 2013 Act introduced entrenchment. The articles may provide that specified provisions can be altered only if conditions more restrictive than a special resolution are met (section 5(3)), for example the consent of a particular investor or a ninety per cent majority. An entrenchment provision can be made only on formation, or by an amendment agreed to by all members of a private company or by special resolution of a public company (section 5(4)), and notice must be given to the Registrar (section 5(5)). It is the statutory answer to the problem in V.B. Rangaraj (below): shareholder agreements that matter should be written into the articles.

3. Memorandum and articles distinguished

Function. The memorandum is the charter defining the company's constitution and powers; the articles are the rules for internal management.
Relationship. The articles are subordinate to the memorandum; where they conflict, the memorandum prevails.
Relevance to outsiders. The memorandum governs the company's dealings with the outside world; the articles regulate relations between the company and its members.
Effect of going beyond. An act beyond the memorandum is ultra vires and void; an act beyond the articles but within the memorandum can be ratified by the members.
Alteration. The memorandum is altered under section 13, often with outside approval; the articles by special resolution under section 14.

4. Binding force: section 10

Under section 10(1), the memorandum and articles, when registered, bind the company and its members to the same extent as if they had been signed by the company and by each member and contained covenants on its and his part to observe all their provisions. Under section 10(2) money payable by a member to the company under them is a debt due from him to the company. The resulting “statutory contract” operates in four directions.

(a) Members bound to the company. In Hickman v. Kent or Romney Marsh Sheep-Breeders' Association (1915) the articles required disputes between the association and a member to go to arbitration. A member who sued in court was stayed: the articles bound him to the company as a member. A member is likewise bound by articles allowing forfeiture for non-payment of calls or giving the company a lien on his shares.

(b) Company bound to members. In Wood v. Odessa Waterworks Co. (1889) the articles provided for payment of dividends. The company proposed to “pay” by issuing debenture-bonds. A member obtained an injunction: the articles meant payment in cash, and a member can enforce the articles against the company in respect of his rights as member, such as dividend and voting rights.

(c) Members bound to each other. In Rayfield v. Hands (1960) the articles required directors to buy the shares of a member who wished to sell. A member enforced this against the directors, who were also members: the obligation was imposed on them as members, so the articles created a contract among members inter se.

(d) No binding force in favour of outsiders. In Eley v. Positive Government Security Life Assurance Co. (1876) the articles named Eley as the company's solicitor for life. He was dismissed and sued. He failed: the articles were a contract between the company and its members, and Eley was suing as solicitor, an outsider, even though he had later become a member. In Browne v. La Trinidad (1887) a director named in the articles could not use them to prevent his removal. An outsider's rights must rest on a separate contract with the company.

The Supreme Court has applied the same logic in reverse. In V.B. Rangaraj v. V.B. Gopalakrishnan, 1991 INSC 317, (1992) 1 SCC 160, shareholders of a family private company had agreed that shares would be transferred only within each branch of the family. The restriction was not in the articles. The Court held that it bound neither the company nor the shareholders as a restriction on transfer: a private company's restrictions on transfer must be in the articles.

5. Alteration of articles: section 14

A company may alter its articles by special resolution, subject to the Act and the memorandum (section 14(1)). The alteration, once registered, is valid as if originally in the articles (section 14(3)). Conversion of a private company into a public company, or the reverse, is done by altering the articles. Since the 2019 Amendment, conversion of a public company into a private one also needs the approval of the Central Government (formerly of the Tribunal); the altered articles must be filed with the Registrar within fifteen days (section 14(2)).

The power is wide but limited:

The alteration must not conflict with the Act or the memorandum, and must not be illegal.
It must respect any entrenchment provision (section 5(3)).
It must be made bona fide for the benefit of the company as a whole: Allen v. Gold Reefs of West Africa Ltd. (1900), where an alteration extending the company's lien to fully paid shares, which in practice affected only one member, was upheld because it was made in good faith for the company's benefit. Compare Sidebottom v. Kershaw, Leese & Co. (1920), upholding a power to expel a member who carried on a competing business, with Brown v. British Abrasive Wheel Co. (1919), striking down a power for the majority to buy out any minority shareholder, since it was for the majority's benefit, not the company's.
An alteration cannot be used to escape a contract with an outsider without paying for it. In Southern Foundries (1926) Ltd. v. Shirlaw (House of Lords, 1940) the company altered its articles to remove a managing director appointed under a separate contract for a fixed term; the alteration was valid but the company was liable in damages for breach of the contract.
Conversion of a public into a private company needs the Central Government's approval; variation of class rights needs class consent under section 48.

How this is examined

January 2026 asked “Discuss the binding force of Memorandum and Articles” for 10 marks. Begin with section 10(1) and (2), then the four directions with one case each, then the outsider rule with Eley, and finish with V.B. Rangaraj and entrenchment under section 5(3). Short notes on “alteration of articles” or the “distinction between memorandum and articles” are also set; for alteration, the bona fide test and Southern Foundries are the marks.