Article of Association

 

It includes the process for appointing directors and how financial records will be handled. They define the company’s lay out and purpose how tasks are to be accomplished within the organization. It is a document that specifies the regulations for a company’s operations. These are the internal regulations that govern the management of the internal affairs of a company.

Section 2( 5) of the Companies Act, 2013  States that “Articles” means the Articles of association of a company as originally framed or as altered from time to time or applied in accordance with any previous company law or of this Act.

NATURE

  • They are subordinate and controlled by the memorandum.
  • Articles of a company are its bye-laws or rules and regulations that govern its internal affairs and the conduct of its business .
  • They are of vital importance to the company in as much as they deal with the rights of the members of the company.

EFFECT OF MEMORANDUM AND ARTICLES

According to Section 10(1) of Companies Act,2013, the memorandum and articles shall, when registered ,bind the company and the members thereof to the same extent as it they respectively had been signed by the company and by each member.

In N. C Sanyal v Calcutta Stock exchange Association Ltd[1] the Supreme Court observed that: The articles of association of a company also established a contract between the company and its members as well as between the members. This contract governs the ordinary rights and obligations incidental to the membership in the company. It is the rule book of the company’s working that regulates the management and powers of the company and its officer.

According to Section 5(6) of the Companies Act that The Articles of a company shall be in the respective forms specified in Tables F,G,H,I and J in Schedule I as may be applicable to such company CONTENTS.

ARTICLES CONTAIN THE FOLLOWING MATTERS

  • Adoption or Approval of Preliminary contracts.
  • Number and Value of shares.
  • Allotment of shares.
  • Calls on shares.
  • Transfer of shares.
  • Forfeiture, reissue, surrender of shares
  • Alteration of share capital
  • Share certificates
  • Conversion of shares into stocks.
  • Meetings and proceedings.
  • Directors( Appointment, qualification, remuneration, powers, duties, election of chairman, etc.
  • Secretary ( Appointments and Renumeration).
  • Borrowing powers.
  • Dividend and Reserves.
  • Accounts and Audit.
  • Winding up procedure .
  • Indemnification of officers out of the assets of the company.
  • Seal of the company.

ALTERATION OF A.O.A (Article of Association) Section 14 of the Companies Act, 2013  Provides that subject to the provisions of the Act and to the conditions contained in its memorandum a company may by special resolution alter its Articles. The Article of a company may be altered by a company by passing special resolution at a general body meeting of shareholders.

PROCEDURE FOR ALTERATION 

  • The proposal has to be approved by the Board of directors and the board shall decide the date and time of the general meeting and secretary will be authorised to convene the meeting.
  • The Board will approve the draft of notice, special resolution and explanatory statement.
  • The special resolution should be passed in the general meeting held on the appointed date.
  • The company has to filed the required forms under the companies Act, 2013 to the regional director concerned for the approval.
  • After the approval, printed copies of the articles as altered , should be filed by the company with the Registrar of companies within fifteen days of the date of recepit of the approval order.
  • The alteration should be noted on each copy of the Articles of Association.

THE BINDING NATURE OF THE ARTICLES CAN BE CONSIDERED UNDER THE FOLLOWING HEADS:-

  • MEMBERS BOUND TO THE COMPANY:- The Articles constitute a contract which is binding on the members in their relation to the company.  Each member, in his capacity as member, is bound to the company by the provisions of the Articles.
  • COMPANY BOUND TO ITS MEMBERS:- Just as the members are bound to the company, the company is equally bound to its members since the articles constitute a contract between the company and its members.
  • COMPANY NOT BOUND TO OUTSIDERS:– The term Outsider signifies a person who is not a member of the company even if he is a director of or solicitor to the company.The Articles bind the members to the company and vice-versa but neither the members not the comapny is bound to outsiders to give effect to the articles.

 

BINDING EFFECT OF ARTICLES BETWEEN MEMBERS INTERSE :- Between the members interse , each member is bound by the articles to the other members, Thus a shareholder may suein his own name to restarin another, or others from doing fraudulent or ultra vires acts.

MEMORANDUM OF ASSOCIATION & ARTICLES OF ASSOCIATION (M.O.A & A.O.A)

The Charter of the Company Regulations for internal management Defines the scope of the activities and the relationship between the company and outsiders Rules for carrying out the objects of the company and defines the relationship between company and its staff and between members and members interests Supreme Document Subordinate to the memorandum Must for every company Public company limited by shares need not have it Strict restrictions, alterations only with the sanction of the Central government and Tribunal It can be altered by special resolution of the company.

 

 

[1] AIR 1971 SC 422.

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