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• ARTICLES OF ASSOCIATION

NATURE OF ARTICLES

• (^) According to Section 2(5) of the Companies Act, 2013, ‘articles’ means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act. It also includes the regulations contained in Table A in Schedule I of the Act, in so far as they apply to the company.

• (^) The general functions of the articles have been aptly summed up by Lord Cairns, L.C. in Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) L.R. 7 H.L. 653 as follows:
• (^) “The articles play a part that is subsidiary to the memorandum of association. They accept the memorandum of association as the charter of incorporation of the company, and so accepting it, the articles proceed to define the duties, rights and powers of the governing body as between themselves and the company at large, and the mode and form in which business of the company is to be carried on, and the mode and form in which changes in the internal regulations of the company may from time to time be made... The memorandum, is as it were... the area beyond which the action of the company cannot go; inside that area shareholders may make such regulations for the governance of the company as they think fit”.

• (^) Thus, the memorandum lays down the scope and powers of the company, and the articles govern the ways in which the objects of the company are to be carried out and can be framed and altered by the members. But they must keep within the limits marked out by the memorandum and the Companies Act.

Articles Subordinate to Memorandum

• (^) The articles of a company are subordinate to and subject to the memorandum of association and any clause in the Articles going beyond the memorandum will be ultra vires. But the articles are only internal regulations, over which the members of the company have full control and may alter them according to what they think fit.
• (^) Only care has to be taken to see that regulations provided for in the articles do not exceed the powers of the company as laid down by its memorandum [Ashbury v. Watson, (1885) 30 Ch. D 376 (CA)].

• (^) The relationship between the two documents was further emphasised in Guinness v. Land Corporation of Ireland, (1882) 22 Ch D 349, where it was observed: “The memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated. They are conditions introduced for the benefit of the creditors, and the outside public, as well as of the shareholders. The articles of association are the internal regulations of the company.

• (^) Section 5(2) provides that the articles shall also contain such matters, as may be prescribed. However, nothing prescribed in this sub-section shall be deemed to prevent a company from including such additional matters in its articles as may be considered necessary for its management.
• (^) The articles of a company shall be in respective forms specified in Tables, F, G, H, I and J in Schedule I as may be applicable to such company. [Section 5(6)]

STATUTORY REQUIREMENTS

• (^) The articles must be printed, divided into paragraphs, numbered consecutively, stamped adequately, signed by each subscriber to the memorandum and duly witnessed and filed along with the memorandum. The articles must not contain anything illegal or ultra vires the memorandum, nor should it be contrary to the provisions of the Companies Act, 2013.

• (^) 11. Alteration of capital.
• (^) 12. Buy back.
• (^) 13. Share certificates.
• (^) 14. Dematerialisation.
• (^) 15. Conversion of shares into stock.
• (^) 16. Voting rights and proxies.
• (^) 17. Meetings and rules regarding committees.
• (^) 18. Directors, their appointment and delegations of powers.
• (^) 19. Nominee directors.
• (^) 20. Issue of Debentures and stocks.
• (^) 21. Audit committee.
• (^) 22. Managing director, Whole-time director, Manager, Secretary.
• (^) 23. Additional directors.
• (^) 24. Seal.

• (^) 25. Remuneration of directors.
• (^) 26. General meetings.
• (^) 27. Directors meetings.
• (^) 28. Borrowing powers.
• (^) 29. Dividends and reserves.
• (^) 30. Accounts and audit.
• (^) 31. Winding up.
• (^) 32. Indemnity.
• (^) 33. Capitalisation of reserves

DISTINCTION BETWEEN MEMORANDUM

AND ARTICLES

• (^) The main points of distinction between the memorandum and articles are given below:
• (^) 1. Memorandum of association is the charter of the company and defines the fundamental conditions and objects for which the company is granted incorporation. Articles of association are the rules and regulations framed to govern this internal management of the company.

• (^) 2. Clauses of the memorandum cannot be easily altered. They can only be altered in accordance with the mode prescribed by the Act. In some of the cases, alteration requires the permission of the Central Government or the Court. In the case of articles of association, members have a right to alter the articles by a special resolution. Generally there is no need to obtain the permission of the Court or the Central Government for alteration of the articles.
• (^) 3. Memorandum of association cannot include any clause contrary to the provisions of the Companies Act. The articles of association are subsidiary both to the Companies Act and the memorandum of association.

LEGAL EFFECT OF THE MEMORANDUM AND

ARTICLES

• (^) The memorandum and articles, when registered, bind the company and its members to the same extent as if they have been signed by the company and by each member to observe and be bound by all the provisions of the memorandum and of the articles. Also, all monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company (Section 10).

CONSTRUCTIVE NOTICE OF MEMORANDUM

AND ARTICLES

• (^) The memorandum and articles, when registered, become public documents and can be inspected by anyone on payment of nominal fee. Therefore, every person who contemplates entering into a contract with a company has the means of ascertaining and is consequently presumed to know, not only the exact powers of the company but also the extent to which these powers have been delegated to the directors, and of any limitations placed upon the exercise of these powers.