Articles of Association (AoA)

Articles of Association

Registration of Articles

  • In terms of section 26 of the act, it is mandatory also to produce to the registrar, at the time of company registration, the articles of association, in the case of :
  • Private Limited company by shares
  • Company limited by guarantee, public or private limited
  • Unlimited company, public or private limited

Articles of a Public Company

In the case of a public limited company, if the articles are not registered, the provisions in Table ‘A’ of Schedule I to the act will automatically apply to such a company (section 28). It is, however, customary for a public limited company always to formulate its own articles and register it along with its memorandum. This exclusion clause is necessary because if the articles of a public limited company do not exclude or modify the regulations.

Articles of Private, Guarantee and unlimited companies

In the case of a private limited company having share capital, it is mandatory to incorporate in the articles the provisions as contained in section 3(1) namely that :

(a) The right of transfer of shares in the company shall be restricted in the manner prescribed in the articles.

(b) The number of members in the company shall not exceed 50 in the manner prescribed in the act, namely that the said 50 members shall not include those members who are in employment of the company. A private limited company shall have a minimum paid-up capital of Rs.1 lakh.

Contents of Articles

While the memorandum contains the basic structure of the company like name, location of registered office, objects, nature of liability and capital which are of interest to the outsiders dealing with the company. The Articles of Association, on the other hand, provides the regulations which define the matters for the internal working of the company such as :

  • Share capital and division thereof into various shares
  • Procedure for the conduct of general meetings of members
  • The right of members
  • Rights of members at general meetings
  • Constitution of the board of directors
  • Procedure for conduct of board meetings
  • Procedure for transfer and transmission of shares
  • Keeping of accounts and audit
  • Powers of the board
  • Appointment of directors
  • Appointment of secretary
  • Removal of directors
  • Payment of dividend
  • Capitalization of reserves
  • Common seal
  • Borrowing powers of the board

Articles, A contract between the company and members

Pursuant to section 36 of the act, the memorandum and articles, when registered with the ROC, create a binding contract between the company and members thereof existing from time to time. If the said documents have been respectively signed by each member and both the parties are bound to observe all the provisions  contained therein.

Rights on individual member

The individual rights which a member has against a company are the several rights provided under the various sections of the act like the right to get certificates for shares after allotment or transfer.

Rights of the company against members

Just like members are empowered to sue the company for enforcement of their rights, the company can also enforces its right against a member

Members can enforce rights qua member

As mentioned earlier, a right, which a member like other members enjoys, can be enforced against the company. If there is a provision in the articles that a person mentioned may be employed as a solicitor.

Articles do not bind members inter se

The Articles do not bind members to each other. Where the Articles of Association of a trade association, an company registration provide that the rules of the association are binding on the members.

Rights of qualified minority of members

While an individual member can initiate action against the company for violation of the rights concerned on every shareholder in the act.

Amendment of articles

The provisions of the articles of association of a company after registration can be passed by the company in general meeting except that a modification to the articles to change a public limited company into a private limited company requires the prior approval of the government.

Alteration to articles when improper

Alteration to articles have been struck down in the following cases :

(a) When the alteration would constitute a fraud on the minority whereby the majority may require a shareholder to sell his shares to any other member or to prevent transfer.

(b) The alteration to Articles cannot be contract to law

(c) The alteration must be for the interest of the company as a whole and for the benefit of the shareholders as a whole

(d) An alteration which would make the capital of a company to a fixed amount was not considered in order as it would be contrary to statutory position.

(e) Articles can be altered retrospectively, that the alteration may be general in nature like the insertion of a lien clause, but the alteration could not take away the right enjoyed shareholder or benefit of a director before the date of operation.

Alteration in breach of contract

Rights to alter articles cannot, however, be taken away by contracts

In Southern Foundries (1926) Ltd.v. Shirlaw (1940) A.C. 701, it was held that a company cannot be precluded from altering its Articles thereby giving itself power to act upon the provision of the altered articles.

Alteration bind members as original article

There is an unfettered right to alter articles and as altered they bind the members just in the same way as the original articles.

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