ARTICLES OF

ASSOCIATION
INTRODUCTION TO ARTICLES OF
ASSOCIATION

 Contain the rules relating to the management of

internal affairs of a company & are basically for
the benefit of the shareholders

 Play a part subsidiary to the memorandum of

association(MOA)

 Cannot extend the objects as defined in the

memorandum
FORMALITIES

Articles of association shall be:

 Printed
 Divided into paragraphs numbered consecutively
 Signed by each signatory of the memorandum in
the presence of atleast one attesting witness
Also articles should not contain anything which is
against:
LAW OF THE LAND
THE COMPANIES ACT
THE PUBLIC POLICY
ULTRAVIRES THE MEMORANDUM

Any such clauses shall be inoperative and void.

CONTENTS OF ARTICLES
Articles usually deal with the rules & bye-
laws on matters like:

1.Extent to which “TABLE A” is applicable

2.Different classes of shares & their rights
3.Procedure of issuing share certificates & share
warrants
4.Alteration of share capital
5.Borrowing powers of directors
6.Voting rights of members
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
 A company has a statutory right to alter is
AOA.
 Statutory power & cannot be negatived 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
 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
 Approval of Central Government is also required in
certain cases

- Conversion of public company into a private

company
- Appointment or re-appointment of a director
- Increase in remuneration of a director
 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
MEMORANDUM AND ARTICLES

 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

businesspersons
DOCTRINE OF INDOOR
MANAGEMENT
 The Doctrine of Indoor Management lays down that persons
dealing with a company having satisfied themselves that the
proposed transaction is not in its nature inconsistent with the
memorandum and articles, are not bound to inquire the regularity
of any internal proceeding. In other words, while persons
contracting with a company are presumed to know the provisions
of the contents of the memorandum and articles, they are entitled
to assume that the provisions of the articles, they are entitled to
assume that the officers of the company have observed the
provisions of the articles. It is no part of duty of any outsider to
see that the company carries out its own internal regulations.
It is important to note that the notice of constructive notice can be
invoked by the company and it does not operate against the
company. It operates against the person who has failed to inquire
but does not operate in his favor. But the doctrine of “indoor
management” can be invoked by the person dealing with the
company and cannot be invoked by the company.
EXCEPTIONS TO THE DOCTRINE OF
INDOOR MANAGEMENT

Though the doctrine provides outsiders, protection while dealing

with registerd 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
MEMORANDUM OF
ASSOCIATION(MOA) &
ARTICLES OF
ASSOCIATION(AOA)
MoA
 Defines the limits and
objects of the company
 Subordinate to the act only
 Must be filed with registrar
by all companies
 Defines the relation
between the company and
outsiders
AoA
 Internal regulations of
the company; subsidiary
to memorandum
 Subordinate to the Act
and to the Memorandum
 A public company limited
by shares need not file a
separate set of articles
 Govern internal
relationship between the
company and members
MoA
 Cannot be easily altered
 Acts ultra vires
Memorandum are void
 No remedy against
company for contracts
entered into ultra vires the
memorandum
AoA
 Easily alterable by
passing a special
resolution only
 Acts ultra vires Articles
are simply irregular and
not void
 Outsiders can enforce
contract even if its ultra
vires articles