2. INTRODUCTION TO ARTICLES OF
ASSOCIATION
Contain the rules relating to the management of
internal affairs of a company & are basically for
the benefit of the shareholders
Play a part subsidiary to the memorandum of
association(MOA)
Cannot extend the objects as defined in the
memorandum
3. FORMALITIES
Articles of association shall be:
Printed
Divided into paragraphs numbered consecutively
Signed by each signatory of the memorandum in
the presence of atleast one attesting witness
4. Also articles should not contain anything which is
against:
LAW OF THE LAND
THE COMPANIES ACT
THE PUBLIC POLICY
ULTRAVIRES THE MEMORANDUM
Any such clauses shall be inoperative and void.
5. CONTENTS OF ARTICLES
Articles usually deal with the rules & bye-
laws on matters like:
1.Extent to which “TABLE A” is applicable
2.Different classes of shares & their rights
3.Procedure of issuing share certificates & share
warrants
4.Alteration of share capital
5.Borrowing powers of directors
6.Voting rights of members
6. 7.Payment of dividends & creation of reserves
8.Use of common seal of the company
9.Board meetings & proceedings thereof
10.Rules as to resolutions
11.Arbitration provision, if any
12.Winding up, ETC..
7. ALTERATION OF ARTICLES
A company has a statutory right to alter is
AOA.
Statutory power & cannot be negatived in any
way
Done by passing a SPECIAL RESOLUTION
Copy must be filed with Registrar within 30
days of passing the said resolution
Copy of altered articles also be filed with
Registrar within 3 months of passing the
resolution
8. Limitations Regarding Alteration of
Articles
The alteration must not be inconsistent with the
provisions of the companies act or any other
statue
- The alteration cannot be made so as to
increase the liability of any member
without his written consent
- However, the articles may impose on company
conditions stricter than those provided under
the law
9. The articles must not be inconsistent with the conditions
contained in the memorandum
The alteration must not be inconsistent with the alteration
ordered by the company law board
- Permission of company law board is required to
make alterations to articles of association
10. Approval of Central Government is also required in
certain cases
- Conversion of public company into a private
company
- Appointment or re-appointment of a director
- Increase in remuneration of a director
11. 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 a bona fide for the benefit of the
company as a whole
12. BINDING FORCE OF
MEMORANDUM AND ARTICLES
Company is bound to its members
Each member is bound to the company
Each member is bound to other members in exceptional case
only
Neither the company nor the members are bound to outsiders
13. DOCTRINE OF CONSTRUCTIVE
NOTICE
A person is expected to inspect the basic public document of the
company (memorandum and articles) available at roc office before
any transaction with the company
He should have knowledge what action is not authorized to
director or the agent of the company
Even if he has not inspected these documents he would be
assumed to have done so
Doctrine of constructive notice is not feasible for practical
businesspersons
14. DOCTRINE OF INDOOR
MANAGEMENT
The Doctrine of Indoor Management lays down that persons
dealing with a company having satisfied themselves that the
proposed transaction is not in its nature inconsistent with the
memorandum and articles, are not bound to inquire the regularity
of any internal proceeding. In other words, while persons
contracting with a company are presumed to know the provisions
of the contents of the memorandum and articles, they are entitled
to assume that the provisions of the articles, they are entitled to
assume that the officers of the company have observed the
provisions of the articles. It is no part of duty of any outsider to
see that the company carries out its own internal regulations.
It is important to note that the notice of constructive notice can be
invoked by the company and it does not operate against the
company. It operates against the person who has failed to inquire
but does not operate in his favor. But the doctrine of “indoor
management” can be invoked by the person dealing with the
company and cannot be invoked by the company.
15. EXCEPTIONS TO THE DOCTRINE OF
INDOOR MANAGEMENT
Though the doctrine provides outsiders, protection while dealing
with registerd companies,court did not find it proper to apply the
doctrine in following cases and protection was denied:
Knowledge of irregularity
Sufficient ground for suspicion
Forgery
Acts outside apparent authority
Non existence of agency
Acts ultra vires the company
17. MoA
Defines the limits and
objects of the company
Subordinate to the act
only
Must be filed with
registrar by all
companies
Defines the relation
between the company
and outsiders
Internal regulations of
the company; subsidiary
to memorandum
Subordinate to the Act
and to the Memorandum
A public company limited
by shares need not file a
separate set of articles
Govern internal
relationship between the
company and members
AoA
18. MoA
Cannot be easily altered
Acts ultra vires
Memorandum are void
No remedy against
company for contracts
entered into ultra vires
the memorandum
Easily alterable by
passing a special
resolution only
Acts ultra vires Articles
are simply irregular and
not void
Outsiders can enforce
contract even if its ultra
vires articles
AoA