Articles of association

1. Articles of Association

2. Feature It is another document of paramount importance in life of a company It contains regulation on internal administration of a company affairs. The prescribe the rules and by laws for the general management of the company and for the attainment of its objectives. They are subsidiary to Memrandum

3. They accept memorandum as a charter and articles proceed to define duties and rights and powers of the governing body as between themselves and the company at large. They also describe the mode and form in which the business of co. is to be carried and mode and form in which changes in the internal regulation of the co from time to time be made. Being subordinate they cannot extend the objects as defined in the memorandum.

4. The memorandum contains the fundamental condition upon which alone the company is allowed to be incorparted . They are conditions for benefit of creditors, outside public, as well as share holders. The articles are internal regulation of a company and are of benefit to share holders.

5. Obligation to register Section 26 says a public co.limited ltd by shares may regiter articles while a co. Ltd by guarantee or unlimited co. or a private co. ltd by shares must register articles along with memorandum at the time of registration. Thus it is optional for public ltd company to register Articles whereas other must do so compulsorily. When a Public ltd. Co. does not register Articles section 28 (2 ) says that Table A, (a model set of 99 Articles ) shall automatically apply to it. Table A shall still apply automatically on all such points which the said Articles is silent , unless its regulation have expressly been excluded by the company Articles. Most companies find it best to register Articles. Co’s other than public ltd. Will have to register Articles compulsorily, because they cannot adopt Table A in its entirety.

6. Contents The extent to which Table A is applicable Different classes of shares and their rights. Procedure for making an issue of share capital and allotment. Procedure for issuing shares. Lien on shares Forfeiture of shares and procedure for re issue. Procedure for transfer and transmission of shares. Time lag in between call on shares Conversion of shares into stock Payment of commission on shares and debentures to underwriters. Rules for adoption of preliminary contracts. Reorganization and consolidation of share capital.

7. 13. Alteration of share capital 14.Borrowing power of directors 15.Procedure for convening, conducting meetings. 16.Voting right of members 17.Payment of dividend and creation of reserves 18.Appointment, powers, duties qualification and remuneration of directors. 19. Keeping book of accounts and their audit. 20.Appointment and remuneration of auditors 21.Capitalization of profits 22.Board meeting and procedure there of. 23.Rules to Resolution

8. 24. Appointment, powers, duties qualification and remuneration of Managing director,manager secretary etc. 25.Arbitration Procedure. 26.Provision of such powers which cannot be exercised without the authority of Articles ex. Issue of redeemable preference shares. 27. Use of common seal of co. 28. Winding up

9. Unlimited Co. Must state no. of members If it has share capital , amount with which it is registered. Co. Ltd By Guarantee – Must state the number of members with which it is registered.

10. Pvt Co. having share capital has four restrictions: Restriction on transfer of shares Limitation on number of member Prohibition on invitation to public. Prohibition on acceptance of deposit from public.

11. Alteration of Articles Freely altered by co. Section 31 Co. may as often as required by passing special resolution only change its Articles. A copy of spl . Resolution must be filed with 30 days of passing with ROC and applicable after registration. Power to alter Articles is a statutory power and cannot be nagatived in any way. A co.deprive itself of this right either by inserting a clause in the Articles or by contract with any one. Articles can be altered by passing a special resolution and can be altered with retrospective effect.

12. Limitations Regarding Alteration The Alteration must not be inconsistent with the provision of Companies act. The Articles must not be inconsistent with the condition contained in the Memorandum. The alteration must not be inconsistent with the alteration ordered by the company law Approval of central govt. needed in some cases.

13. The alteration must not deprive any person of his rights under a contract. The alteration must not constitute a fraud on the minority The alteration must be bonafide for the benefit of the company as a whole.

14. Binding Force of Memorandum and Articles It follows from provision of section 36 that Memorandum and Articles bind the company to its members, the members to the company the members to each other in an exceptional case, but they do not bind the company to its members or its outsiders. Legal effect of this can be understood as under: 1. Company is bound to its members: 2. Each member is bound to the company 3. Each member is bound to other members in exceptional case only. 4. Neither the company nor the members are bound to outsiders.

15. Constructive Notice of memorandum and Articles After registration memorandum and Articles become public documents and it is taken for granted that everyone who deals with the company is in the know of these docs. This is called the constructive notice of memorandum and Articles. Or the Doctrine of constructive notice. The legal effect: If a person deals with a company in a manner which is inconsistent with the provisions contained in its memorandum or Articles. He must have dealt with the company at his own risk and cost and shall have to bear the consequences there of. For example : If a BE must be signed by two directors, a person who has a bill signed by only one director cannot claim payment of such bill.

16. The doctrine of Indoor Management There is one exception to the doctrine of Constructive notice , that is the person dealing with the company not bound to enquire into the regularity of internal proceedings. They need not enquire as to whether the general meeting of the share holders or the meeting of the board of directors was convened an proper notice, or whether proper quorum was present at the meeting, or whether necessary resolution was properly passed there at. They are entitled to assume that what has been done, has been regularly done by the company and can hold the company liable even if the internal formalities are found not to have completed. This rule is known as Doctrine of Indoor management. Famous case Royal British Bank vs Turuand .

17. Exceptions Knowledge of Irregularity Negligence on part of the outsider. Forgery

18. Difference between MOA AND AOA Nature Filing with ROC. Relationship defined Alteration Ratification Remedy to outsiders