Articles of Association

 

 

Articles of association

Meaning

According to the Act, ‘articles’ means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous company laws or of this Act…”.

The articles of association of a company are its bye laws or rules and regulations that govern the management of its internal affairs and the conduct of its business. They define the powers of its officers. They also establish a contract between the company and the members and between the members inter se.

 

Contents of Articles

Articles usually contain provisions relating to the following matters like:

a) Different classes of shares and their rights.

b) Procedure of making an issue of share capital and allotment there of.

c) Procedure of issuing share certificates and share warrants.

d) Forefeiture of shares and the procedure of their reissue.

e) Procedure for transfer and transmission of shares.

f) The time lag in between calls on shares, conversion of shares into stock.

g) Directors, their appointment, remuneration, qualifications, etc.

h) Accounts and audit.

i) Lien of shares.

j) Payment of commission on shares and debentures to underwriters.

k) Rules for adoption of ‘preliminary contracts’ if any.

l) Re-organisation and consolidation of share capital.

m) Alteration of share capital and buyback of shares.

n) Borrowing power of directors.

o) General meeting, proxies and polls.

p) Voting rights of members.

q) Dividend and reserves.

r) Winding up.

 

Alteration of Articles

a) Procedure for alteration:

i. Passing of a special resolution.

ii. Copy of resolution should be sent to the registrar within 30 days.

iii. Copy of altered articles to be registered within 3 months of passing of resolution.

 

b) Limitations regarding alteration of articles:

i. Alteration should not be inconsistent with the provisions of the Act or any other statute, and conditions contained in memorandum.

ii. Alteration must not constitute a fraud on the majority.

iii. Alteration must not deprive any person of his rights under a contract.

iv. Alteration must be bonafide for the benefit of the company as a whole.

v. Alteration must not be contrary to the order of National Company Law Tribunal

vi. An alteration of articles to effect a conversion of a public company into a private company cannot be made without the approval of the central government.

vii. No retrospective operation of articles.

 

Difference Between Memorandum of Association and Articles of Association

Sr.No. Memorandum Article
1. Charter of company Regulations for internal management.
2. Defines the scope of the activities. Rules for carrying out the objects of company
3. Supreme document Subordinate to the memorandum
4. Must for every company Company limited by shares need not have it.
5. Strict restrictions, some alterations may require sanction of central government. Can be altered by special resolution.
6. Act ultra-vires is wholly void and cannot be ratified Act ultra-vires can be ratified

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