Brief notes on on Articles of Association of a company, its content and alteration

‘Articles’ means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law of this act. The articles of association are the rules and regulations of a company framed for the purpose of internal management of its affairs. It deals with the rights of the member of the company inter-se. The articles are framed for carrying out the aims and object of the Memorandum of association. The articles of association of a company are sub -ordinate to and are controlled by the memorandum of association. Lord Cairns observed in this regard, “The memorandum is as it were the area beyond which the action of the company cannot go; inside that area the shareholder may make such regulation for their own government as they think fit.”

It is not obligatory to register articles in the case of a public company limited by shares. In such a case model articles contained in ‘Table A’ of schedule I will apply. However, a private company, a company limited by guaranteed and an unlimited company must register their articles along with the memorandum. (section26)

In the case of an unlimited company, the articles shall state the number of the members, with which the company is to be registered, and if it has a share capital, the amount of share capital with which it is to be registered. [section 27(1)]

In the case of a company limited by guarantee, the articles shall state the number of members with which the company is to be registered.

In the case of a private company, articles must contain provisions which

(a) Restrict the right to transfer its shares;

(b) Limit the number of its member to fifty excluding past and the present employees of the company;

(c) Prohibit any invitation to the public to subscribe for any share in or debenture of the company.

The articles must be printed and divided into paragraph, numbered consecutively. The articles must be signed by each subscriber of the memorandum in the presence of at least one witness who will attest the signature and likewise add his address, description and occupation, if any.

Contents of articles:

The articles usually contain the following matter:

1. Exclusion wholly or in part of Table A.

2. Adoption of preliminary contracts.

3. Number and value of shares.

4. Allotment of shares.

5. Calls on shares.

6. Lien on shares.

7. Transfer and Transmission of shares.

8. Forfeiture of share.

9. Alteration of capital.

10. Share certificates.

11. Conversion of share into stock.

12. Voting rights and proxies.

13. Meeting.

14. Directors their appointment etc.

15. Borrowing powers.

16. Dividends and reserves.

17. Accounts and audit.

18. Winding up.

Alteration of Articles:

Companies have wide powers to alter their articles. Any restriction on the exercise of their powers will be invalid. Articles of association may be altered by a company by passing a special resolution to that effect. The altered articles will bind the members in the same way as did the original articles. The company must file with the registrar a copy of the special resolution within one month from the date of its passing.

Limitations:

The right of alteration of articles is subject to the following conditions:

1. The alteration must not be inconsistent with or go beyond the provisions of the memorandum.

2. The alteration must not provide for anything which is opposed to the provisions of the act; for example, articles cannot authorize a company to purchase its own shares.

3. The alteration of articles must be made in good faith for the benefit of the company as a whole.

4. The alteration of articles must not constitute a fraud on minority.

5. No member of a company will be bound by any alteration made in the memorandum or the articles after he become a member which requires him to take or subscribe for more shares or in any way increases his liability to contribute to the share capital of or otherwise to pay money to the company, unless he agrees in writing before or after the alteration is made.

6. No alteration can be made in the articles which has the effect of converting the public company into a private company unless such alteration has been approved by the central government.

7. An alteration in the articles which causes a breach of contract with an outsider will be inoperative.

8. The alteration must not sanction anything which is illegal.