ARTICLES OF

ASSOCIATION

Farzana Yeasmin Mehanaz

Faculty of Law
Eastern University
Introduction to Articles of Association
■ Articles of Association is a document which prescribes
the rules and bye-laws for the general management of the
company and for the attainment of its object as given in
the memorandum of association of the company.
■ It contains the rules relating to the management of
internal affairs of a company & are basically for the
benefit of the shareholders.
Cont…
■ It plays a part subsidiary to the memorandum of
association(MOA).
■ The articles of association define the rights, duties,
powers of the management of a company as between
themselves and the company at large.
■ It is a document of paramount significance in the life of a
company as it contains the regulations for the internal
administration of the company’s affairs.
Cont…
■ Further, It also prescribes the mode and form in which changes
in the internal regulation of a company may be made from time
to time.
■ The articles of association of a company must always be in
consonance with the memorandum of that company and being
subordinate to the memorandum;
■ they cannot extend the objects of a company as specified in the
memorandum of the company.
Cont…
■ In the case of Naresh Chandra Sanyal v. Calcutta Stock
Exchange Association Ltd AIR 1971 SC 422, the
Indian Supreme Court provided that the articles of
association of a company also establish a contract
between the company and its members as well as
between the members. This contract governs the
ordinary rights and obligations incidental to the
membership in the company.
Cont…
 Articles of association are like the partnership deed in a partnership.
 They particularly provide for matters such as the making of calls,
forfeiture of shares, directors qualifications, the procedure for
transfer and transmission of shares and debentures, powers, duties
and appointment of auditors.
 The following companies must have their own articles of association:
1. Unlimited Companies
2. Companies limited by guarantee
3. Private companies limited by shares
OBLIGATION TO REGISTER ARTICLES

 Public Company Limited By Shares- may register its

articles of Association.
 Company Limited By Guarantee/ Unlimited
Company/Private Company Limited By Shares-must
register articles along with the memorandum at the time
of registration.
FORMALITIES
Articles of association shall be:
 Printed;
 Divided into paragraphs, numbered consecutively;
 Signed by each signatory of the memorandum in the
presence of at least one attesting witness.
Articles Should Not Contain
Articles should not contain anything which is

against:

 Law of the land;

 The companies act;

 The public policy;

 ultra vires to the memorandum of Association.

Any such clauses shall be inoperative and void.

CONTENTS OF ARTICLES
Articles usually deal with the rules & bye-laws on matters like:
1.Different classes of shares & their rights;
2.Procedure of issuing share certificates & share warrants;
3.Alteration of share capital;
4.Borrowing powers of directors;
5.Voting rights of members;
Cont…
7.Payment of dividends & creation of reserves;

8.Use of common seal of the company;

9.Board meetings & proceedings thereof;

10.Rules as to resolutions;

11.Arbitration provision, if any;

12.Winding up; ETC.

ALTERATION OF ARTICLES
 Right to alter or add to articles-expressly conferred by
SECTION 20;
 Statutory power & cannot be negative in any way;
 Done by passing a SPECIAL RESOLUTION;
 Copy must be filed with Registrar within 30 days of passing the
said resolution;
 Copy of altered articles also be filed with Registrar within 3
months of passing the resolution.
Limitations Regarding Alteration of
Articles
The alteration must not be inconsistent with the
provisions of the companies act or any other statue;
- The alteration cannot be made so as to increase the
liability of any member without his written consent.
- However, the articles may impose on company conditions
stricter than those provided under the law.
Cont…
The articles must not be inconsistent with the
conditions contained in the memorandum;
The alteration must not be inconsistent with the
alteration ordered by the company law board;
- Permission of company law board is required to
make alterations to articles of association.
Cont…
The alteration must not deprive any person of his
rights under a contract;
The alteration must not constitute a fraud on the
minority;
The alteration must be a bona fide for the benefit of
the company as a whole.
BINDING FORCE OF ARTICLES OF
ASSOCIATION
 Company is bound to its members;
 Each member is bound to the company;
 Each member is bound to other members in exceptional
case only;
 Neither the company nor the members are bound to
outsiders.
DOCTRINE OF CONSTRUCTIVE NOTICE
 A person is expected to inspect the basic public document of the
company (memorandum and articles) available at RoC office
before any transaction with the company;
 He should have knowledge what action is not authorized to
director or the agent of the company;
 Even if he has not inspected these documents he would be
assumed to have done so;
 Doctrine of constructive notice is not feasible for practical
business persons.
DOCTRINE OF INDOOR
MANAGEMENT
 An exception to doctrine of constructive notice;
 Offers protection to outsider dealing with a company;
 Gives outsider confidence in dealing with company with limited liability;
 Doctrine has been applied to make companies liable in case where deals were
made by the directors:
1. Whose appointment was defective;
2. Who were appointed properly but were yet to be delegated necessary authority;
3. Who had not yet been appointed as director;
4. Who have been delegated authority in a meeting which had lacked quorum.
EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT

Though the doctrine provides outsiders protection while dealing with

registered companies, court did not find it proper to apply the doctrine
in following cases and protection was denied:
 Knowledge of irregularity;
 Sufficient ground for suspicion;
 Forgery;
 Acts outside apparent authority;
 Non existence of agency;
 Acts ultra vires the company.
DIFFERENCES BETWEEN MOA & AOA
MoA AoA
 Defines the limits and  Internal regulations of the
objects of the company company; subsidiary to
 Subordinate to the act memorandum
only  Subordinate to the Act
 Must be filed with and to the Memorandum
registrar by all companies  A public company limited
 Defines the relation by shares need not file a
between the company separate set of articles
and outsiders  Govern internal
relationship between the
company and members
DIFFERENCES BETWEEN MOA & AOA
MOA the memorandum

 Cannot be easily altered

 Acts ultra vires AOA
Memorandum are void
 No remedy against  Easily alterable by passing a special resolution
only
company for contracts
 Acts ultra vires Articles are simply irregular and
entered into ultra vires not void
 Outsiders can enforce contract even if its ultra
vires articles