Legal Effect
of Articles.

Company
and its
Members.

Members
Inter se.

2A

SECRETARIAL PRACTICE
deprive them of that right is invalid [Peveril Gold Mines
1898), 1. Ch. 122]. In the same way an article seeking to
take away the right of shareholders to requisition a meeting,
or to inspect the company’s books would be wholly inoperative.

The legal effect of articles of association, as a whole, requires
to be clearly understood. S. 20 (1) of the Act provides
that ‘subject to the provisions of this Act, the memorandum
and articles shall, when registered, bind the company and the
members thereof 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 the memorandum and of the articles,” and this
section as judicially interpreted is the chief source of informa-
tion on the point. The questions which require to be con-
sidered may be stated as follows: (1) What is the effect as
between the company and the members? (2) What is the
effect as between the members themselves? (3) What is the
effect as between the company and outsiders?
(1) As between the company and its members, it is clear
that the members are bound to the company, and a series of
decisions has firmly established the proposition that the
company is similarly bound to the members. It is to be
observed that the relationship of the member to the company
is more than a simple contractual relation. He is bound as
though he had covenanted with the company under seal.
The practical result is that the company can sue a member to
enforce the obligations of the member to the company under
the articles. Thus the company can sue a member for calls,
or to enforce a lien, or for many other purposes. Similarly,
a member can sue the company if the company acts in con-
travention of the articles, e.g. in forfeiting shares without
complying strictly with the relevant terms of the articles.
The rights, however, in respect of which a member can sue
the company are the rights merely with which he is endowed
as a member of the company. When, although a member,
he acquires rights in another capacity, even as a director,
other principles apply (see 3, below).
(2) As between the members themselves the position
appears to be different. It is true that in Wood v. Odessa
Waterworks Company (1888, 42 Ch. D. 636), Stirling, J.,
said that the articles of association of a company constitute
a contract not merely between the shareholders and the
company, but between each individual shareholder and
every other. But the words of the section hardly bear the
construction that each shareholder has contracted with every