Articles of Association

- Debashree Mukherjee

Articles of Association
The Articles are the internal regulations of a company, subordinate to the Memorandum of Association. Ashbury Railway Carriage Co. vs.- Ritchie, 1875, (H.L.) It deals with : rules for adoption of pre-incorporation contracts; issue and transfer of shares; procedure for issue of share certificates; appointment, qualifications and powers of directors; appointment and functions of auditor; conversion of shares into stock; procedure of issuing share certificates; payments of dividends and creation of reserves; procedure relating to meetings - notices, quorum, etc.; procedure relating to winding up.

Articles of Association (contd.)

Compulsory for company limited by guarantee and unlimited company but optional for company limited by shares.

Private companies cannot adopt Table A in its entirety.

Articles must conform to Memorandum and the Act.

Alteration of Articles
Must conform to Act. Not go beyond Memorandum. Must not be inconsistent with orders of Company Law Board Not sanction anything illegal. Not deprive contractual rights accruing upon any person. Not increase liability of members. Act towards the benefit of the company. Can be altered by special resolution and submission of the copy of the same with printed copy of the altered Articles within 30 days of passing of the said resolution. Approval of Central Government is necessary in case Public company is converted to Private Company and when changes are not made in accordance with Schedule XIII of the Act.

Doctrine of Indoor Management

ROYAL BRITISH BANK Vs TURQUAND (1856)
FACTS OF THE CASE ARE: The Articles empowered the Directors to borrow money provided they were authorized by a Resolution passed at the General Meeting of the Co. HELD THATThe outsiders dealing with the Co. are entitled to presume that as far as the internal management of the Co. is concerned, everything has been regularly done. Doctrine of indoor management is an exception to the Doctrine of constructive notice

Exceptions to the Doctrine of Indoor Management

Knowledge of irregularity Negligence on the part of outsiders Forgery No knowledge of Articles Acts outside apparent authority

Binding force of MoA and Articles

Members can enforce rights against the company. Each member is also simultaneously bound to the company. Members are also bound inter se. Company is not bound to outsiders.

Distinction between MoA and Articles of Association

1. It is the Charter of the company which gives the basic framework of the country. Defines the scope of business of the company. It is supreme document of the company. A company must have its own Memorandum. Strict restrictions for alteration. 1. It provides the rules and regulations relating to the internal management of the company. Lays down the rules to carry out the business/objects of the company. It is subordinate to the Memorandum. Company limited by shares need not have its own Articles. Special resolution only necessary for alteration.

2. 3. 4. 5.

2.

3. 4.

5.