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CA Foundation · Business Laws · The Companies Act, 2013

Gupta Traders Pvt Ltd was incorporated with a registered office in Pune. Sunita, a director, says that a company's memorandum and articles, once registered, bind the company and its members to each other. Which statement correctly describes the legal effect under the Companies Act, 2013?

The memorandum and articles, once registered, bind the company and its members to the same extent as if each member had signed them. The obligation runs both ways, between the company and members, and does not bind outsiders dealing with the company.

  1. AThey bind only the company to the members, not the members to the company
  2. BThey bind only the members among themselves, not the company
  3. CThey bind the company and its members as if signed by each of them, to the extent providedCorrect
  4. DThey bind outsiders who contract with the company, but not the members

Explanation

On registration, the memorandum and articles bind the company and its members as if each had signed them, with mutual obligations. So the company is bound to members and members to the company. Outsiders are not bound, so the last option is wrong, and the first two describe only one direction.

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