Articles of Association
Every company is required to file Articles of Association along with the Memorandum of Association with the Registrar at the time of its registration. Companies Act defines ‘Articles as Articles of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies Acts. They also include, so far as they apply to the company, those in the Table A in Schedule I annexed to the Act or corresponding provisions in earlier Acts.
Articles of Association are the rules, regulations and bye-laws for governing the internal affairs of the company. They may be described as the internal regulation of the company governing its management and embodying the powers of the directors and officers of the company as well as the powers of the shareholders. They lay down the mode and the manner in which the business of the company is to be conducted.
In framing Articles of Association care must be taken to see that regulations framed do not go beyond the powers of the company it self as contemplated by the Memorandum of Association nor should they be such as would violate any of the requirements of the companies Act, itself. All clauses in the Articles ultra vires the Memorandum or the Act shall be null and void.
Article of Association are to be printed, divided into paragraphs, serially numbered and signed by each subscriber to Memorandum with the address, description and occupation. Each subscriber shall sign in the presence of at least one witness who shall attest the signatures and also mention his own address and occupation.
Contents of Articles of Association
Articles generally contain provision relating to the following matters;
(i) the exclusion, whole or in part of Table A;
(ii) share capital different classes of shares of shareholders and variations of these rights
(iii) execution or adoption of preliminary agreements, if any;
(iv) allotment of shares;
(v) lien on shares
(vi) calls on shares;
(vii) forfeiture of shares;
(viii) issue of share certificates;
(ix) issue of share warrants;
(x) transfer of shares;
(xi) transmission of shares;
(xii) alteration of share capital;
(xiii) borrowing power of the company;
(xiv) rules regarding meetings;
(xv) voting rights of members;
(xvi) notice to members;
(xvii) dividends and reserves;
(xviii) accounts and audit;
(xix) arbitration provision, if any;
(xx) directors, their appointment and remuneration;
(xxi) the appointment and reappointment of the managing director, manager and secretary;
(xxii) fixing limits of the number of directors
(xxiii) payment of interest out of capital;
(xxiv) common seal; and
(xxv) winding up.
Model form of Articles
Different model forms of memorandum of association and Articles of Association of various types of companies are specified in Schedule I to the Act. The schedule is divided into following tables.
Table A deals with regulations for management of a company limited by shares.
Table B contains a model form of Memorandum of Association of a company limited by shares.
Table C gives model forms of Memorandum and Articles of Association of a company limited by guarantee and not having a share capital.
Table D gives model forms of Memorandum and Articles of Association of a company limited by guarantee and having a share capital. The Articles of such a company contain in addition to the information about the number of members with which the company proposes to be registered, all other provisions of Table A.
Table E contains the model forms of memorandum and Articles of Association of an unlimited company.
A Public Company may have its own Article of Association. If it does not have its own Articles, it may adopt Table A given in Schedule I to the Act.
Adoption and application of Table A (Section 28). There are 3 alternative forms in which a public company may adopt Articles :
Alteration of Articles
Section 31 grant power to every company to alter its articles whenever it desires by passing a special resolution and filing a copy of altered Articles with the Registrar. An alteration is not invalid simply because it changes the company’s constitution. Thus in Andrews v Gas Meter Co., A company was allowed by changing articles to issue preference shares when its memorandum was silent on the point.
Alteration of articles is much easier than memorandum as it can be altered by special resolution. However, there are various limitations under the Companies Act to the powers of the shareholders to alter the articles.
In case of conversion of a public company into a private company, alteration in the articles would only be effective after approval of the Central Government [Section 31]. The power are now vested with the Registrar of Companies.
Alteration of the articles shall not violate provisions of the Memorandum. It must be made bonafide the benefit of the company. All clauses in the articles ultra vires the Memorandum shall be null and void, and the articles shall be held inoperative. Alteration must not contain anything illegal and shall not constitute fraud on the minority Alteration in the articles increasing the liability of the members can be done only with the consent of the members.
The Court may even restrain an alteration where is likely to cause a damage which cannot be adequately compensated in terms of money. Similarly, a company cannot by altering articles, justify a breach of contract. Any alteration so made shall be valid as if originally contained in the articles.
Where a special resolution has been passed altering the articles or an alteration has been approved by the Central Government where required, a printed copy of the articles so altered shall be filed by the company with the Registrar of Companies within one month of the date of the passing of special resolution.