The document discusses key aspects of articles of association, which are the internal rules and regulations that govern a company. It covers topics like the contents of articles, requirements for different types of companies, how articles relate to and differ from the memorandum of association, limitations on altering articles, the doctrines of constructive notice and indoor management, and exceptions to the doctrine of ultra vires. It also briefly discusses piercing the corporate veil.

1. ARTICLES
OF
ASSOCIATION
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Presented by:
Deepak Mohan
Asst. professor
Bharata Mata College

2. ARTICLES OF ASSOCIATION
The articles of association are the rules,
regulations and bye-laws for he internal
management of the affairs of a company.
They are framed with the object of carrying out
the aims and objects as set out in the
Memorandum of Association.
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3. CONTENTS OF ARTICLES
Share capital, rights of shareholders, variation of
these rights, payment of commissions, share
certificates
Lien on shares
Calls on shares
Transfer of shares
Transmission of shares
Forfeiture of shares
Conversion of shares into stock
Share warrants
Alteration of capital
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4. CONTENTS OF ARTICLES Contd..
General meetings and proceedings thereat
Voting rights of members, voting and poll, proxies
Directors, their appointment, remuneration,
qualifications, powers and proceedings of board of
directors
Manager
Secretary
Dividends and reserves
Accounts, audit and borrowing powers
Capitalization of profits
Winding up.
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5. Companies which must have their own Articles
Unlimited companies
Companies limited by guarantee
Private companies limited by shares
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6. STATUTORY REQUIREMENT
Printed
Divided into paragraphs
Signed by each subscriber of the
memorandum
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7. ALTERATION OF ARTICLES
Wide powers of alteration
Any clause in the articles that restricts or prohibits
alteration of Articles is invalid
Procedure of alteration
• Special resolution
• Lawfully included originally
• A copy of every special resolution altering the
Articles shall be filed with the Registrar
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8. LIMITATIONS TO ALTERATION
Must not be inconsistent with the act
Must not conflict with the Memorandum
Must not sanction anything illegal
Must be for the benefit of the company
Must not increase liability of members
Alteration by special resolution only
Approval of Central Government when a public
company is converted into a private company
Breach of contract
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9. ARTICLES & MEMORANDUM –Relations
The articles are subordinate to Memorandum
The Memorandum must be read in conjunction with
Articles
To explain any ambiguity in the terms of the
Memorandum, or
The terms of the Memorandum cannot be modified or
controlled by the Articles
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10. Articles & Memorandum - Distinction
Memorandum of Association Articles of Association
Charter of the company Regulations
Defines the scope They are the rules
Supreme Document Subordinate
Must own Memorandum Need not have Articles of its own
Strict regulation in alteration Altered by a special resolution
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11. Doctrine of Constructive Notice
Any person entering into contract with the company
is presumed to know the powers of the company and
to the extend to which they have been delegated to to
the directors.
In other words, “Every person dealing with the
company is presumed to have read the basic
documents and understood them in their true
perspective.”
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12. Doctrine of Indoor Management
Doctrine of Indoor Management or the rule in ‘Royal
British Bank vs. Tarquand’ or just Turquand Rule,
seeks to protect outsiders against the company.
The gist of the rule is that persons dealing with
limited liability companies are not bound to inquire
into the regularity of the internal proceedings and will
not be affected by irregularities of which they had no
notice.
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13. Exceptions to the doctrine of Indoor Management
Knowledge to irregularity
Negligence
Forgery
Acts outside the scope of apparent authority
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14. DOCTRINE OF ULTRA VIRES
A company has the power to do all such things
as :
Authorized to be done by the companies
Essential to the attainment of its objects
specified in the memorandum
Reasonably and fairly incidental to its objects
Everything else is ultra vires
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15. PURPOSEOF ULTRA VIRES
Investors in the company- so that they may know the
objects in which their money is to be employed
Creditors- by ensuring that the company’s funds are
not wasted in unauthorized activities
Ultra vires act is void
Ultra vires the directors
Ultra vires the articles
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16. Effects of the ultra vires transactions
Injunction
Personal liability of directors
Breach of warranty of authority
Ultra vires contracts
Ultra vires acquired property
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17. EXCEPTIONS OF ULTRA VIRES
If an act is ultra vires to the directors of a company,
but is intra virus the company, the company may
ratify it
If an act is ultra vires the articles of company, the
articles may be altered to include the act within the
powers of the company
If an act is intra vires for a company, but is
irregularly done, the shareholders may ratify it
It is important to protect the company’s creditors and
shareholders against ultra vires transactions
The rights over the property acquired by ultra vires
expenditures are protected
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18. EXCEPTIONS OF ULTRA VIRES Contd..
If a company has purchased some property from
a third party……..
Ultra vires loan
Ultra vires loan through some misrepresentation
If a director makes payment ultra vires the
company….
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19. Piercing the corporate veil
(Lifting the corporate veil)
• Example
– a businessman has left his job as a director and
has signed a contract to not compete with the
company he has just left for a period of time. If he
sets up a company which competed with his
former company
– What Happens ?
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20. • Technically it would be the company and not
the person competing
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21. • But it is likely a court would say that the new
company was just a "sham“or a "cover", and
would still allow the old company to sue the man
for breach of contract.
• This is called "pierce" or "lift" the corporate veil
• Piercing the corporate veil or lifting the
corporate veil is a legal decision to treat the
rights or duties of a corporation as the rights or
liabilities of its shareholders
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22. Circumstances
• Prevention of Fraud
• Company mere sham or cloak
• Enemy Character
• Protection of Public Policy
• Where a company acts as an agent of its
shareholder
• Tax Evasion
• Reduction of membership below statutory
minimum
• Improper use of Name
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