Articles of Association

Articles of Association - Contains the bye-laws or rules and regulations regarding the internal management of the company. - In it are found rules for the conduct of the corporate affairs Relationship between Articles & Memorandum of Association Articles constitute a contract between the company & its members

Registration of Articles It is compulsory to get the articles of association registered, along with the memorandum of association in case of - an unlimited company - a company limited by guarantee and - a private company limited by shares (sec 26) It is legally compulsory for a company to have its own AOA

Statutory Requirements Form and signature

According sec. 30 the AOA of every company shall be - printed - divided into paragraphs numbered consecutively, and - signed by each subscriber of the memorandum of association in the presence of atleast one witness.

Contents of Articles of Association

The matters with which the articles of association of a company usually deal with are:

Applicability of Table A Share capital and its subdivision The provisions and procedures Alteration of capital and reduction of capital. General meetings Board of Directors Borrowing powers. Accounts & Audit Dividends and reserves; Capitalization of profits Common seal Winding up Indemnity

Alteration of Articles of Association Sec. 31 of the Companies Act, 1956, provides that a company may by passing a special resolution, alter regulations contained in its Articles any time subject to 1) the provisions of the Act and 2) conditions contained in the Memorandum of Association [Section 31(1)]. A copy of every special resolution altering the Articles shall be filed in Form no 23, with the Registrar within 30 days its passing and attached to every copy of the Articles issued thereafter.

Limitations to alteration
The fundamental right of a company to alter its articles is subject to the following limitations: 1) The alteration must not exceed the powers given by the Memorandum of Association of the company or conflict with the provisions thereof.

2) It must not be inconsistent with any provisions of the

Companies Act or any other statute. 3) It must not be illegal or against public policies

4) The alteration must be bona fide for the benefit of the

company as a whole.

Limitations to alteration

(Cont..)

5) It should not be a fraud on minority, or inflict a hardship on minority without any corresponding benefits to the company as a whole.

6) The alternation must not be inconsistent with an order of the court. Any subsequent alteration thereof which of inconsistent with such an order can be made by the company only with the leave of the court.

Limitations to alteration

(Cont..)

7) If a public company is converted into a private company, then the approval of the Central Government is necessary. Printed copies of altered articles should be filed with the Registrar within one month of the date of Central Governments approval. [Section 31 (2A)]. 8) An alteration that has the effect of increasing the liability of a member to contribute to the company is not binding on a present member unless he has agreed thereto in writing .

Limitations to alteration

(Cont..)

9) A reserve liability once created cannot be undone but may be cancelled on a reduction of capital. (Midland Rly. Carriage Wagon Co., Section 99). 10) An assumption by the Board of Directors of a company of any power to expel a member by amending its Articles is illegal or void. Effect of altered articles: Any alternation so made in the Articles shall be as valid as if originally contained in the Articles [Sec. 31(2)] .

Binding effect of Memorandum and Articles

Members bound to the company - The M/A and A/A constitute a binding contract as between the members and company. Each member must observe the provisions of the articles and memorandum as if each member had signed the same. Company bound to members - A company is bound to members by whatever is contained in its memorandum and articles of association. An individual member can make the company fulfil its obligation to him, such as to send the notice for the meetings, to allow him to cast his vote in the meeting. If the company violates the provisions of its memorandum and articles, a member can bring action against the company.

Doctrine of Constructive Notice

Section 610 provides that the memorandum and articles when registered with Registrar of Companies become

public documents and then they can be inspected by

any one on payment of a nominal fee. Therefore, any person who contemplates entering into a contract with the company has the means of ascertaining the powers of the company and is thus, presumed to have read these documents and understood them in their true perspective. This is known as doctrine of constructive notice

Doctrine of Indoor Management

- Exception to the doctrine of constructive notice. - Allows all those who deal with the company to assume

that the provisions of the articles have been observed.

Exceptions to the Doctrine of Indoor Management

The doctrine of indoor management is subject to the

following limitations :
- Knowledge of irregularity - No knowledge of the articles

- Negligence
- Forgery - Illegal Transactions