Articles of association

Introduction:
Articles of association is an important document of a company as it contains the
rules and regulations of the company. They are related to the internal working or
management of the company. It deals with the rights of the members of the
company between themselves. The contents of articles of association should not
contradict with the Companies Act and the memorandum of association. If the
document contains anything contrary to the companies Act or the memorandum
of association, it will be inoperative.
Relevant provision:
2 (3), 36 to 41 of the companies act, 2017.
Contents of articles of association:
The following are usually the contents:
1. Definition of important terms and phrases.
2. Adoption or execution of pre-incorporation contracts.
3. Share capital and the rights of the shareholders.
4. Allotment of shares.
5. Procedure as to making of calls on shares.
6. Procedure as to forfeiture of shares.
7. Transfer of shares.
8. Lien on shares.
9. Share certificates and share warrants.
10.Alteration of share capital.
11.Conversion of shares into stock.
12.Dividend, reserve and capitalization of profits.
13.Directors, their appointment, powers, duties etc.
14. Meetings.
15.Borrowing powers
16. Accounts and audits.
17.Common seal of company.
18.Voting rights and proxies.
19.Winding up of company.
 20. Rules regarding length of notice, quorum etc.
According to section 2 (3):
“Articles” mean the articles of association of a company framed in accordance
with the company law or this Act.
Registration of articles
According to section 36 (1):
In the case of a company limited by shares, it is optional to register the articles of
association, but in the case of a company limited by guarantee or an unlimited
company, it is mandatory to register the articles of association. The articles of
association are signed by the subscribers to the memorandum and set out the
regulations for the company.
This is an important legal requirement for companies to follow and is necessary
for the proper functioning of the company.
Adoption of Regulations from Table A for Company Limited by Shares section 36
(2):
Articles of association of a company limited by shares may adopt all or any of the
regulations contained in Table A in the First Schedule to this Act.
Statement of Share Capital for Unlimited Company or Company Limited by
Guarantee section 36 (3):
In the case of an unlimited company or a company limited by guarantee, the
articles, if the company has a share capital, shall state the amount of share capital
with which the company proposes to be registered.
Registration Details for Unlimited Company or Company Limited by Guarantee
with No Share Capital section 36 (4):
In the case of an unlimited company or a company limited by guarantee, if the
company has no share capital, the articles shall state the number of members
with which the company proposes to be registered.
Company limited by shares and registered after the commencement of this Act
section 36 (5):
In the case of a company limited by shares and registered after the
commencement of this Act, if articles are not registered, or, if articles are
registered, in so far as the articles do not exclude or modify the regulations in
Table A in the First Schedule to this Act, those regulations shall, so far as
applicable, be the regulations of the company in the same manner and to the
same extent as if they were contained in duly registered articles.
Requirements for Clarity and Specificity in Company Articles Regarding Share
Rights and Securities section 36 (6):
The articles of every company shall be explicit and without ambiguity and,
without prejudice to the generality of the foregoing, shall list and enumerate the
voting and other rights attached to the different classes of shares and other
securities, if any, issued or to be issued by it.
Penalty for Breach of Company's Articles of Association section 36 (7):
If a company contravenes the provisions of its articles of association, the company
and every officer of the company shall be liable to a penalty not exceeding of level
1 on the standard scale.
Articles to be printed, signed and dated section 37
Printed form Section 37 (a):
The articles shall be printed in the manner generally acceptable.
Divided into paragraphs section 37 (b):
The articles shall be divided into paragraphs numbered consecutively.
Signed by each subscriber section 37 (c):
signed by each subscriber, who shall add his present name in full, his occupation 1
[, nationality, ] usual residential address and such other particulars as may be
specified, in the presence of a witness who shall attest the signature and shall
likewise add his particulars.
Dated section 37 (d):
The articles of association shall be dated.
Alteration of articles of association section 38:
Section 38 (1):
Subject to the provisions of this Act and to the conditions contained in its
memorandum, a company may, by special resolution, alter its articles and any
alteration so made shall be as valid as if originally contained in the articles and be
subject in like manner to alteration by special resolution.
"Requirements for Majority Approval in Altering Articles Affecting Member
Rights and Liabilities"
Provided that, where such alteration affects the substantive rights or liabilities of
members or of a class of members, it shall be carried out only if a majority of at
least three-fourths of the members or of the class of members affected by such
alteration, as the case may be, exercise the option through vote personally or
through proxy vote for such alteration.
Registration and Filing of Altered Articles of Association section 38 (2):
A copy of the articles of association as altered shall, within thirty days from the
date of passing of the resolution, be filed by the company with the registrar and
he shall register the same and thenceforth the articles so filed shall be the articles
of the company.
Copies of memorandum and articles to be given to members section 39
Section 39 (1):
Each company shall send to every member, at his request and within fourteen
days thereof, on payment of such sum, as the company may fix, a copy of the
memorandum and the articles, if any.
Penalty for non-compliance section 39 (2):
If a company makes default in complying with the requirements of sub-section
(1), it shall be liable to a penalty not exceeding of level 1 on the standard scale.
Alteration of memorandum or articles to be noted in every copy.—
Section 40 (1):
Where an alteration is made in the memorandum or articles of a company, every
copy of the memorandum or articles issued after the date of the alteration shall
conform to the memorandum or articles as so altered.
Penalty for Issuing Non-Conforming Copies of Altered Memorandum or Articles
section 40 (2):
If, where any such alteration has been made, the company at any time after the
date of the alteration issues any copies of the memorandum or articles which do
not conform to the memorandum or articles as so altered it shall be liable to a
penalty not exceeding of level 1 on the standard scale for each copy so issued and
every officer of the company who is in default shall be liable to the like penalty.
Restriction on alteration of articles of association:
The alteration of the Articles should not sanction anything illegal. They should be
for the benefit of the company. They should not lead to breach of contract with
the third parties. The following are the regulations regarding alteration of articles:
A company may alter its Articles with a special resolution. But, to ensure that the
alteration of Articles of Association does not conflict with the provisions of the
Memorandum of Association or the Companies Act. A copy of every special
resolution altering the Articles must be filed with the Registrar within 30 days of
its passing.
1. Compliance with the Companies Act
The alteration must not be in contravention of the provisions of the
Companies Act.
The Companies Ordinance is the law that governs companies in Pakistan.
Any alteration to the articles of association must comply with the provisions
of the Companies Ordinance.
2. Compliance with the Memorandum of Association
The proposed alteration must not contravention of the provisions of the
Memorandum of Association.
The memorandum of association is a document that sets out the
fundamental rules and regulations of a company. Any alteration to the
articles of association must comply with the provisions of the
memorandum of association.
3. Legality of the Alteration
The alteration must not propose anything that is illegal.
The alteration must not propose anything that is contrary to the law. For
example, the alteration cannot propose to change the company's objects to
something that is illegal.
4. Protection of Minority Shareholders
The alteration must not operate against the substantive rights of minority
shareholders.
The alteration must not be made in a way that disadvantages minority
shareholders. For example, the alteration cannot be made to reduce the
number of votes that minority shareholders have.
5. No Increase in Liability
The alteration must not increase the liability of existing members.
The alteration must not be made in a way that increases the liability of
existing members. For example, the alteration cannot be made to increase
the amount of money that members are required to contribute to the
company.
6. No Breach of Contract
The alteration must not amount to a breach of contract with an outsider.
The alteration must not be made in a way that breaches a contract that the
company has with an outsider. For example, the alteration cannot be made
to change the company's name if the company has a contract with a
supplier that uses the company's old name.
7. Good Faith and for the Good of the Company
The alteration must be made in good faith and for the good of the
company.
The alteration must not be made for the benefit of a particular group of
shareholders or directors. The alteration must be made in good faith and
for the benefit of the company as a whole.
8. Special Resolution Required
Alteration can be made only by a special resolution.
Conclusion:
Articles of association are a document that sets out the rules and regulations for how a
company is to be run. They are signed by the subscribers to the memorandum, which is
the document that sets out the company's name, its purpose, and the amount of capital
that it is authorized to raise.