ARTICLES OF ASSOCIATION AND ITS ALTERATION

‘Articles’ means the articles of association of a company as originally framed or as altered from
time to time in pursuance of any previous companies law of this act. The articles of association
are the rules and regulations of a company framed for the purpose of internal management of its
affairs. It deals with the rights of the member of the company inter-se. articles are internal
regulations and bye-laws. Articles are to contain regulations for management of the company.
Schedule 1 of the Act sets out tables of model forms of articles for different companies. [Tables
F, G, H, I and J] Table F is applicable to companies limited by shares. Such a company my either
frame its own articles or adopt Table F and the Table automatically applies to the extent to which
it is not excluded. The chief advantage of adopting Table F is that its provisions are legal beyond
all doubt. The document has to be divided into paragraphs, numbered consecutively and must be
signed by every subscriber.

Articles of association is the second document which has to be registered along with the
memorandum. Articles as defined in Section 2(5) 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. The articles are framed for carrying out the aims and object of the
Memorandum of association. The articles of association of a company are sub -ordinate to and
are controlled by the memorandum of association. Lord Cairns observed in this regard, “The
memorandum is as it were the area beyond which the action of the company cannot go; inside
that area the shareholder may make such regulation for their own government as they think fit.”1

It is not obligatory to register articles in the case of a public company limited by shares. In such a
case model articles contained in ‘Table A’ of schedule I will apply. However, a private company,
a company limited by guaranteed and an unlimited company must register their articles along
with the memorandum. (section26)

In the case of an unlimited company, the articles shall state the number of the members, with
which the company is to be registered, and if it has a share capital, the amount of share capital
with which it is to be registered. [section 27(1)]

In the case of a company limited by guarantee, the articles shall state the number of members
with which the company is to be registered.

In the case of a private company, articles must contain provisions which

(a) Restrict the right to transfer its shares;

(b) Limit the number of its member to fifty excluding past and the present employees of the
company;

1
Company Law – Avtar Singh
(c) Prohibit any invitation to the public to subscribe for any share in or debenture of the
company.

The articles must be printed and divided into paragraph, numbered consecutively. The articles
must be signed by each subscriber of the memorandum in the presence of at least one witness
who will attest the signature and likewise add his address, description and occupation, if any.

The articles may contain provisions for entrenchment to the effect that the specified provisions of
the articles may be altered only if conditions or procedures that are more restrictive than those
applicable in the case of a special resolution are met or complied with. Such provisions may be
made on the formation of the company or by subsequent amendment with the consent of all the
members of a private company or by special resolution in the case of a public company. The
provisions for entrenchment whenever brought in have to be notified to the registrar in the
prescribed manner. Articles are now compulsory in all cases.

Contents of articles:
Articles of Association may prescribe such regulations for the company as the subscribers to the
memorandum deem expedient. The Act gives the subscribers a free hand. Any stipulation as to
the relations between the company and its members, and between members inter se may be
inserted in the articles. But everything stated therein is subject to the Companies Act.
The articles usually contain the following matter:

1. Exclusion wholly or in part of Table A.

2. Adoption of preliminary contracts.

3. Number and value of shares.

4. Allotment of shares.

5. Calls on shares.

6. Lien on shares.

7. Transfer and Transmission of shares.

8. Forfeiture of share.

9. Alteration of capital.

10. Share certificates.

11. Conversion of share into stock.

12. Voting rights and proxies.

13. Meeting.

14. Directors their appointment etc.

15. Borrowing powers.

16. Dividends and reserves.

17. Accounts and audit.

18. Winding up.

The document must not conflict with the provisions of the Act. 2 Any clause which is contrary to
the provisions of the Act or of any other law for the time being in force, is simply inoperative
and void.

Form And Signature Of Articles:

If articles are proposed to be registered they must be printed. They should be divided into
paragraphs, each consisting generally of one regulation and numbered consecutively. Each
subscriber of the memorandum has to sign the document in the presence of at least one attesting
witness, both of them adding their addresses and occupations.
Alteration of Articles:

Companies have wide powers to alter their articles. Any restriction on the exercise of their
powers will be invalid. Articles of association may be altered by a company by passing a special
resolution to that effect. The altered articles will bind the members in the same way as did the
original articles. The company must file with the registrar a copy of the special resolution within
one month from the date of its passing.

Limitations:

The right of alteration of articles is subject to the following conditions:

1. The alteration must not be inconsistent with or go beyond the provisions of the memorandum.

2. The alteration must not provide for anything which is opposed to the provisions of the act; for
example, articles cannot authorize a company to purchase its own shares.

3. The alteration of articles must be made in good faith for the benefit of the company as a
whole.

2
Section gives overriding effect to the Act. Madras Stock Exchange Ltd. V. SSR Rajkumar, (2003) 116 Comp Cas 214,
the Stock Exchange was a guarantee company provision for expulsion of members in the interest of discipline was
held to be consistent with the Act and Table C. The member under expulsion was holding office in another
company in violation of the company’s articles. The provision and forfeiture valid.
4. The alteration of articles must not constitute a fraud on minority.

5. No member of a company will be bound by any alteration made in the memorandum or the
articles after he become a member which requires him to take or subscribe for more shares or in
any way increases his liability to contribute to the share capital of or otherwise to pay money to
the company, unless he agrees in writing before or after the alteration is made.

6. No alteration can be made in the articles which has the effect of converting the public
company into a private company unless such alteration has been approved by the central
government.

7. An alteration in the articles which causes a breach of contract with an outsider will be
inoperative.

8. The alteration must not sanction anything which is illegal.

Effect Of Articles Of Association:

Section 36 provides that 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
and contain covenants on its and his part to observe all the provisions of the memorandum and of
the artiles. Thus the company is bound to its members, the members are bound to the company
and the members are bound to the company and the members are bound to the other members by
whatever is contained in these documents. But in relation to articles, neither a company nor its
members are bound to outsiders.3

The articles of association merely govern the internal management, business or administration of
a company. They may be binding between the members affected by them but do not have the
force of the statute.4

Binding effect of Articles of association:

Merely because in articles of association, the board of directors is empowered to refer any claim
or demand to arbitration provisions of section 36 cannot be interpreted to mean that the company
or its directors shall be bound to incorporate a provision for arbitration in every agreement that a
company executes.5

3
http://www.legalservicesindia.com/article/article/articles-of-association-&-alteration-of-articles-1050-1.html
4
Irrigation Development Employees’ Association Vs. Government fof Andhra Pradesh [2005] 55 SCL 459 (AP).
5
Skypark builders & distributers Vs. Kerela Police housing & construction Corpn. Ltd. (2004)