Importance of the Memorandum as the Company's Charter

The memorandum matters for two connected reasons, and a good exam answer on "importance of the memorandum" should touch both. First, it defines the field within which the company is permitted to operate. Because the memorandum states the company's objects, it tells shareholders exactly what kind of business their money is being invested in, and it tells creditors and other outsiders what kind of undertakings the company can validly enter into. A company cannot simply drift from the business its members subscribed capital for into an entirely different line of activity without first amending this very document through the procedure the law lays down — a principle examined more closely under the doctrine of ultra vires later in this chapter.

Second, the memorandum matters because it is a public document. Once filed with the Registrar of Companies at incorporation, the memorandum (like the articles) becomes part of the public record the Registrar maintains, and any person is entitled to inspect it and obtain a copy on payment of the prescribed fee. This public availability gives rise to a distinct legal principle known as the doctrine of constructive notice: the law presumes that anyone dealing with a company has read, and knows the contents of, its memorandum and articles, whether or not that person has actually done so. A person cannot later claim to have been misled by an act that fell outside the objects stated in the memorandum, because that person is deemed, in the eyes of the law, to have had notice of those objects before ever entering into the dealing. Constructive notice therefore works mainly as a protective shield for the company and its honest members — it prevents an outsider from holding the company to a bargain that the company's own charter never authorised, and it reinforces, from t …