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When assessing a corporate borrower's creditworthiness and legal capacity, why are the Memorandum of Association (Mo

Q: Answer-When assessing a corporate borrower's creditworthiness and legal capacity, why are the Memorandum of...

Memorandum of Association MoA Contains the Object Clause, which defines the scope of activities the company can legally undertake. The lender must verify that borrowing money falls within the express or implied powers of the company. Any borrowing outside the MoA is ultra vires beyond powers and void ab initio, meaning the loan cannot be legally recovered or enforced against the company. Articles of Association AoA Sets out the internal restrictions and procedures, such as the maximum borrowing limits assigned to the Board of Directors without seeking shareholder approval e.g., under Section 1801c of the Indian Companies Act, 2013. It also specifies who is authorized to sign loan documents, affix the common seal, and execute binding contracts on behalf of the corporate borrower.

A and Articles of Association (Ao
A critical documents for a lending institution to examine regarding borrowing capacity?

A The MoA specifies the maximum interest rate the company is legally allowed to pay, while the AoA sets the credit rating requirements.

B The MoA establishes whether the company has the legal power to borrow funds, while the AoA details board authorization limits and procedures for executing debt agreements.

C The MoA guarantees automatic repayment from shareholders, while the AoA waives the requirement for board resolutions.

D The MoA outlines daily operational expenditures, while the AoA regulates tax exemptions under the Companies Act.

E The MoA transfers voting power directly to the lending bank, while the AoA grants the bank a permanent seat on the board of directors.

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When assessing a corporate borrower's creditworthiness and legal capacity, why are the Memorandum of Association (Mo

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RBI Grade B 2026 Phase 1 Memory Based Paper