ARTICLE OF ASSOCIATION

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Meaning

Articles are the rules, regulations, and bye laws for the internal management of the affairs of a company. They are framed with the object of carrying out the aims & objects as set out in the MOA. It must be signed by the subscribers of the MOA & registered along with MOA.

COMPANIES WHICH REQUIRE ARTICLES

Unlimited companies. Companies limited by guarantee. Private companies limited by shares. A public company may have its own Articles of Association. If it does not have its own Articles, it may adopt Table A given in Schedule 1 to the Act. This Table can be used in totality or in part.

Contents Of Articles

Should not violates MOA, General Law of country, Public Policy Share capital and its alteration, rights of shareholders, adoption of preliminary contracts, allotment of shares, share certificates, lien on shares, Calls on shares, Transfer & Transmission of shares, Forfeiture of shares, Number & value of shares,General meetings & proceedings, Voting rights of member, proxies, Directors, their appointment, remuneration, qualification, power & proceeding of BOD, Dividends & reserves,

Alteration of AOA

A co. by passing a special resolution, alter its AOA under section 31 A copy of every special resolution along with altered AOA shall be filed with the registrar within 30 days of its passing resolution.

Restrictions on alteration

The alteration must not go beyond the provisions of companies act. Must not conflict with MOA Must not sanction anything illegal Must not increase the liability of members Alteration by special resolution only. Not to be inconsistent with the order of company Law Board

Central Govt approval in some cases

Alteration affecting the conversion Public/Private, Related to appointment, reappointment of manageror director not liable to retire by rotation, increase in renumeration of director or manager in case of public co.

Must be for the benefit of the company

Sidebottom V Kershaw, Leese & Co. Ltd Alteration empowered directors to require any member, who carried on a business competing with that of company to sell his shares at a fair price to persons nominated by directors. Although this gave benefit to persons getting the shares, but still it is in the benefit of the company as person competing with the company is removed, so such alteration is

Alteration in breach of contract : case British Murac Rubber Syndicate Ltd v. Alperton Rubber Co Ltd

Company A entered into a contract with company B whereby it was agreed that as long as company A held 5,000 shares of company B, company A should have right to nominate 2 directors in company B. It was also agreed that company B cant alter this

company B gave a notice of meeting at which it was proposed to pass a resolution to alter the articles & depriving company A of the right to nominate. The court issued an injunction restraining company B from altering the Articles, but later it was held that company can have alteration resulting in breach of contract but company is liable to paying damages to the third party.

Distinction between AOA & MOA

MOA is the charter of the company. It defines companies relation with outside world. AOA are the regulations for the internal management. MOA defines the scope of the activities of the co. AOA are the rules for carrying out objects of the company as set out in MOA MOA is the supreme document & AOA is subordinate to MOA.

Every company must have its MOA but a company limited by shares need not have articles of its own. Any act of the company which is ultra vires the MOA cannot be ratified by the shareholder. Any act of the company which is ultra vires the AOA ( but intra vires the MOA) can be confirmed by the shareholders.

Constructive notice of MOA & AOA

Every outsider dealing with the company is deemed to have notice of the contents of MOA & AOA. These documents on registration become the public documents this is known as constructive notice of MOA & AOA.

Office of registrar is a public office MOA & AOA are open & assessable to all. It is the duty of every person dealing with the company to inspect these documents & see that it is in powers of the co. to enter into the proposed contract. Kotla Venkatswami V Ram Murthi Acc to Article all deeds should be signed by MD, Secretary and working director, R entered the contract with company without signature of MD. So R could not claim anything under the

Doctrine of indoor management

There is one limitation to the doctrine of constructive notice of MOA & AOA. Once the outsider is satisfied that company has power to enter into the proposed contract,they are entitled to assume that the internal proceedings of the co. have been regularly done. Claim is not affected by internal irregularities of the company.

Royal British bank Vs. Turquand

The directors of the co. had issued a bond to T. they had the power under the article to issue such bond provided a resolution is passed by the shareholders in general meeting. No such special resolution is passed by the co. Held T could recover the amt on the ground that he was entitled to assume that resolution has been passed.

Exception to doctrine of indoor management

Knowledge of irregularity:- If a person dealing with the co. knows of the irregularity in its internal management in connection of his dealings, he cannot claim the benefit.

Company A lends money to Company B but the procedure laid down in articles was not compiled with and directors for 2 companies were the same. It is presumed that Company A has notice of irregularity.

Forgery:- The doctrine of indoor management will not apply where a document on which the person seeks to rely is a forgery. Acts outside the apparent authority:this rule doesnt apply where a person acting on behalf of co. exceeds any actual authority given to him.