Articles of Association
A document that specifies the regulations for a company’s
operation is called as articles of association.
This document contains rules , regulations and bye laws for
general administration of company.
Articles when compulsory:
Companies which must have articles of association are
1. Unlimited companies
2. Companies limited by guarantee
3. Private companies limited by shares
Forms and signatures [S.30]
Articles proposed to be registered must be printed and divided in
paragraphs. Each paragraph must contain one regulation and numbered
Each subscriber of memorandum to sign the document in the presences
of at least one attesting witness. Both of them adding their address and
Contents of articles
It prescribes such regulations for the company as the subscriber to the
memorandum deem expedient.
The act gives subscribers free hand. Any stipulations between the
company and its members.
Everything stated therein is subject to Companies Act.
Articles in relation with
Articles are subordinate to memorandum
It must not contain anything the effect of which is to alter a condition in
memorandum or contrary to its provisions.
This is because the memorandum is to state the purposes for which company is
established while the articles provide manner in which company is to be carried
and the proceedings are to be disposed.
In words of LORD CAIRNS the difference is this
The memorandum is as it were the area beyond which action of
company cannot go ; inside that area the shareholders may make such
regulations for their own government as they think fit
In words of Bowen LJ
The memorandum contains the fundamental conditions upon which
alone the company is allowed to incorporated. The condition
introduced for benefits of the creditors and the outside public as well as
The articles of associations are internal regulations of the company.
Memorandum and Articles of Association
should be registered with the Registrar of
Since Registrar of companies is a public
office once registered Articles of
Association becomes public documents
Open and accessible to all
The person will be presumed to know the
contents of documents
Constructive notice is also with special
resolution and particular of charges
According to palmer the principles applies to
those documents which affects the powers of
The court said ,” the common law doctrine of
constructive notice should apply to the form”
Constructive is more or less an unreal
People know the company through its officers and
not through its documents
The courts in India also do not seem to take the
notice so seriously
For example in dehradun , mussorie electric
tramway jagmandardas articles of company
expressly provided that the directors could
delegate all the powers except the power to
Also Calcutta high court enforced a security
which was not in accordance with the company’s
Binding force of memorandum and
articles (Section 36)
Company to members
The members are bound to the company by the articles
The members can restrain the company from committing a breach of
(Eg -The member can enforce his right to vote or his right to
Members to company
1. Members are bound to follow the provision of the articles
2. All money payable by member is a debt due from him
3. In this regard , the company can sue its member for the enforcement of its
article as well as restraining its breach
Members to members
Members are no bound to each other
No member is allowed to sue other member for any
wrong done by latter to the company
Exception- when the person against whom relief is
sought control the majority of shares and will not allow
an action to be brought against the name of the
Not to outsider
The article create no contact with any person/entity
external to the organization
A member is also an outsider if the matter in question is
not concerned with its membership rights
An outsider therefore cannot take advantage of this
documents to find a claim against the company
ALTERATION OF ARTICLES
Every company has a clear power to alter its article of association
by a special resolution. It is a statutory power given by section 31.
The power of alteration as conferred by section 31 is almost
absolute. It is subject only to two restrictions.
In the first place, the alteration must not be in contravention of
the provisions of the act. It should not be an attempt to do
something which the act forbids.
Secondly, the power of alteration of article is subject to the
conditions contained in the memorandum of association.
The provisions to sub-section 1 says that an alteration which has
the effect of converting a public company into a private company
would not have any effect unless it is approved by the central
LIMITATIONS ON POWER TO ALTER
The alteration must not exceed the powers given by
The alteration must not be inconsistent with any
provision of companies act as no company can
purchase it’s own share sec.77
The altered article must not include any thing which
The alteration must be bonafied for the benefit of the
ALTERATION IN BREACH OF
But, where apart from the articles, the company has entered
into an independent agreement, the company may repudiate
it by changing articles, but it will be answerable in damages
for the breach.
The court may even restrain an alteration where it is likely to
cause a damage which cannot be adequately compensated in
terms of money.
INCREASING LIABILITY OF
An alteration cannot require a member to purchase
more shares or increase his liability in any way except
with his consent in writing.
A person who becomes a member under the
protection of limited liability cannot be converted into
a member with unlimited liability except with his
consent in writing.
DOCTRINE OF 'INDOOR
SCOPE OF OPERATION
The doctrine of indoor management is opposed to that of
the doctrine of constructive notice. The latter seeks to
protect the company against the outsider.
Firstly , the memorandum and articles of association are public
document, open to public inspection
It has been used to cover acts done on behalf of a company by de
facto directors who have never been appointed.
The rule had its genesis in royal british bank v turquand
1.Knowledge Of Irregularity
The first and the most obvious restrictions is that the rule
has no application where the party affected by an irregularity
had actual notice of it.
Example of howard v patent ivory manufacture company
But apart from this, the principle is clear that a person who is
himself a part of the internal machinery cannot take the
advantage of irregularities.
2.Suspicion Of Irregularity
The protection of "TURQUAND RULE" is also not
available where the circumstances surrounding the
contract are suspicious and therefore invite inquiry.
Suspicion should arise ,for example,from the fact that
an officer is purporting to act in a manner which is
apparently outside the scope of his authority
"It is quite true that persons dealing with limited
liability companies are not bound to inquire into
their indoor management and will not be
affected by irregularities of which they have no
Case of madras high court .
OTENSIBLE POSITION ALLOWED TO
"Where there was a group of companies all
controlled by the same person who was in full
control of everything -it had to be supposed that he
was the chairman & managing director of each. It
seemed that he had not only actual but also
Thus the otensible position allowed to an officer is
the most crucial factor.
KNOWLEDGE OF ARTICLES
"A person who at the time of entering into a
contract with a company has no knowledge of the
company's articles of association , cannot rely on
those articles as conferring otensible or apparent
authority on the agent of the company with whom
SCOPE OF AUTHORITY
"If the act is one which is ordinarily within
the powers of such an officer, then the
company cannot dispute the officer's
authority to do the act, whether the
directors have have not actually invested
him with authority to do it."
Acts Outside Apparent Authority
If the act of an officer of a company is one which
would ordinarily be beyond the powers of such
an officer , the plaintiff cannot claim the
protection of "TURQUAND RULE" simply
because under the articles power to do the act
could have been delegated to him.
A company is an incorporated body so there should be
some rules & regulations formed for the management
of its internal affairs & conduct of its business as well as
the relationship between the members and the
company. Moreover, the rights and duties of its
members and the company are to be recorded. This is
why articles of association are necessary. The articles of
association is a document that contains the purpose of
the company as well as the duties and the
responsibilities of its members defined and recorded
clearly. It is an important document which needs to be
filed with the registrar of companies