Articles of Association: Definition, Example, Contents, Alteration

What are Articles of Association?

Articles of Association are the rules and regulations or the bye-laws which govern the internal management of the company.

It is the second most important document to be filed with registrar at the time of registration of the company. It states the powers of directors, officers and of shareholders as to voting etc., the mode and form in which business is to be carried out and the mode, and the form in which changes in the internal regulations can be made.

It is not obligatory for public companies limited by shares to have their own Articles (Section 5). A public company limited by shares, may either frame its ‘Articles’ or adopt the rules and regulations contained in Table F of schedule 1 of the Companies act, 2013 (Section 5).

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Provisions related to Printing and Signature of Articles

Articles shall be printed, divided into paragraphs, numbered consecutively and signed by each subscriber of the Memorandum of Association in the presence of at least one witness who shall attest the signature and shall likewise, add his address and occupation.

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Contents of Articles of Association

Contents of Articles of Association are:

1. The exclusion, whole or in part, of Table F
2. Share Capital
3. Rights of Different classes of shareholders
4. Allotment of shares
5. Calls on shares
6. Lien on shares
7. Forfeiture of shares
8. Transfer of shares
9. Surrender of shares
10. Share certificate
11. Issue of share warrants
12. Increase or decrease of share capital
13. Conversion of shares into stock
14. Consolidation and sub-division of shares
15. Borrowing powers
16. General meetings, proceedings, thereof and votes, proxies and polls
17. Appointment of managerial personnel
18. Appointment and remuneration of auditors
19. Dividends and reserves
20. Accounts and audit
21. Adoption or execution of preliminary contracts
22. Capitalization of profits
23. Notices
24. Common seal
25. Winding up

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Procedures for the Alteration of Articles of Association

Section 8, Companies Act, 2013 states that a company cannot alter the Articles of Association without obtaining a prior permission from the central government. It should be noted that a company can never place the existing articles. It can only change the regulation contained in the Articles. The changes must not increase the liability of any member and must not provide for the expulsion of a member by the company.

A notice calling general meeting should be sent to every member at least 21 days prior to the meeting wherein the proposed special resolution and the explanation relating to the implication of the proposed change be given.

In case of listed company, notice shall be send to the respective stock exchange. After the Articles have been altered, copy of amended articles should be filed with the stock exchange. A copy of the special resolution along with explanatory statement in form MGT 14 must be filed with the registrar.

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Limitations on Alteration of Articles

A company can alter or add to the Articles of association at any time by passing a special resolution. However the right to alter the Articles is subject to the following limitations or restrictions:

1. Not inconsistent with provisions of any act
2. Not illegal or against public policy
3. Not inconsistent with the order of a government or a court
4. Must be bonafide
5. Must not be fraudulent
6. Must not result in breach of contract
7. Must not increase liability of the members

Not inconsistent with provisions of any act

The alteration must not be inconsistent with any provisions of the Companies Act or any other statute. However, Articles may impose on the company conditions stricter than those provided under the law. If the alteration in Article will be Ultra vires the memorandum, then it would be void and inoperative.

Not illegal or against public policy

The alteration must not contain anything illegal or against public policy.

Not inconsistent with the order of a government or a court

The alteration must not be inconsistent with an order of the Central Government or a tribunal as the case may be.

Must be bonafide

The alteration must be bonafide for the benefit of the company as a whole. The alteration made shall be valid even if it is likely to affect adversely the interest of some of the members.

Must not be fraudulent

If the alteration is for the benefit of majority and it constitutes a fraud on the minority or inflicts hardship on the minority without any corresponding benefit to the company as a whole, it shall be invalid.

Must not result in breach of contract

The alteration must not cause a breach of contract with an outsider. Such an alteration shall be void and the company shall be liable to pay damages to the other party.

Must not increase liability of the members

An alteration which has the effect of increasing the liability of the members to contribute to share capital, is not binding on the present members, unless he has given his consent in writing.

An alteration in the articles which has the effect of converting a public company into a private company shall not be effective unless such an alteration has been approved by tribunal.

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Difference between Memorandum and Articles of Association

Memorandum	Articles of Association
The Memorandum is the charter of the company which defines its objects and powers.	The Articles are the bye – laws of the company, for the internal management of the affairs, for achieving the objects set out in the Memorandum.
Memorandum is the supreme document of the company.	The Articles are subordinates to the Memorandum.
The Memorandum defines the relationship between the company and the outsiders.	The articles define the relationship between the company and its members and among the members themselves.
A new company must prepare its Memorandum and file it with the Registrar before the registration of the company becomes effective.	Articles are not required to be filed for the purpose of registration. A company can adopt Table ‘F’ if it does not prepare its own articles.
Any act of the company which is Ultra Vires the Memorandum is wholly void and cannot be ratified even by the whole body of shareholders.	Any act which is Ultra Vires the Article, but Intra Vires the Memorandum, can be ratified by the shareholders by passing a special resolution.
The Memorandum cannot be altered easily. But alteration of Articles is not difficult.	Articles can be passed by passing a special resolution and the approval from the Central Government is not necessary.

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Business Law Notes

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Business Law Book References

1. Goel, P. K. (2006). “Business Law for Managers” Wiley
2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

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