Articles of Association

The Articles of Association of a Company

• Are rules, regulations and bye-laws for

management of its internal affairs and the conduct
of business

• Articles are framed to carry out the objects of the

Co. as mentioned in Memorandum

• Define powers of its officers which must not

exceed the powers of the Co. under Memorandum
and not contrary to the Companies Act.
• Establishes a contract between the company
and its members and between the members
inter se in relation to their rights as such
members

• Subordinate to Memorandum which

prevails in the event of a conflict with
Articles of Association
•Contains provisions relating to matters like

•share capital of the company;

•rights of various shareholders;

•general meetings and proceedings

• directors, their appointment, qualifications and the powers

• Proceedings of Board of directors’ meetings etc.

 Alteration of the Articles

•May be altered by passing a special resolution of the shareholders.

(Sec. 31) – in a validly called meeting

• Resolution should be passed by ¾ majority of share holders-

present and entitled to vote

•Even clerical mistake in Article can be ratified by special

resolution . It can not be set right by an application to the court

•Altered Article Should be filed with Registrar within 30 days

•All copies should be changed accordingly- in default fine up to

Rs.100 for each copy issued.
 Alteration of the Articles

•Empowered by Companies Act , Therefore, neither Co. nor

anybody can deprive from this power.

•Statutory powers can not be taken away by any agreement

•Any restrictive clause in Articles in this regard will be invalid under

the Companies Act

•Altered Articles are binding in the same way as original articles

 LIMITATIONS ON ALTERATION OF THE ARTICLES

Basic requirements for alteration :

•Good faith- in the overall interest of Co.

•Fairness between different classes of shareholders

•Alteration is subject to certain limitations:

•Must not be inconsistent with Companies Act, or any other law

•Ex. : Alteration to provide dividends out of capital - in case there is no profit

(Violation Sec 205 of CA)
•Must not be inconsistent with Memorandum
Alteration will be allowed, if not prohibited by Memorandum

•Must not be illegal or opposed to public policy

• Must be bona fide & in the interest of company as a whole

•Must not constitute a fraud on minority,

(alteration to authorise majority to purchase the minority shares compulsorily to
meet the financial difficulties )

•Must not result in the increase of liability of a member without

his so agreeing in writing

•Alteration should not result in breach of contract with third parties

•Must not have the effect of converting a public company into a

private company unless approval of the Central government
Consequences: Registration of Memorandum and Articles
with Registrar

•become public documents

•can be inspected by any one on payment of a nominal fee.

• Since the facility of inspection has been made available ,so law
presumes that

• all persons dealing with company, should have knowledge and

understood the contents of M.A. & A. A.
 Article of Association in their relation to outsiders

Doctrine of constructive notice

• If the party dealing with the company does not have actual notice of
the contents of these documents ,

• Law will presume that he has an implied/Constructive notice

• The rule of constructive notice is subject to the “rule of indoor

management”
•The rule of indoor management

•It offers a protection to the persons who deal with the company through
Co. officers and

•Officers fail to follow the procedures prescribed under the articles

before exercising powers.

•The THIRD PARTY are not bound to enquire into the regularity of
internal proceedings.

•The rule is commonly known as Turquand’s Rule first laid down in the
case of The Royal British Bank v. Turquand. (1856)
•The relief under ‘indoor management’ cannot be availed of under
the following circumstances: Main Exceptions – when Co. not liable

•Knowledge of Irregularity

•No knowledge of Articles at all

•Void or illegal transactions

•Negligence etc (suspicion of irregularities)

• Circumstances where Co. can exercise a particular power - only after

fulfilling some prior conditions (Approval by Central Govt. )