2. WHAT ARE THE ARTICLES OF ASSOCIATION ?
CONTAINS THE RULES RELATING TO THE MANAGEMENT OF THE COMPANY’S
INTERNAL AFFAIRS
ACC . TO SECTION 26, REGISTRATION OF ARTICLES IS
• OPTIONAL FOR - PUBLIC COMPANIES LIMITED BY SHARES
• COMPULSORY FOR - ALL OTHER COMPANIES
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3. CONTENTS OF ARTICLES
• DIFFERENT CLASSES OF SHARES AND THEIR RIGHTS
• PROCEDURE OF MAKING AN ISSUE OF SHARE CAPITAL & ALLOTMENT
• PROCEDURE OF ISSUING SHARE CERTIFICATES & WARRANTS
• FORFEITURE OF SHARES & PROCEDURE FOR RE-ISSUE
• PROCEDURE FOR TRANSFER & TRANSMISSION OF SHARES
• TIME LAG IN BETWEEN CALLS ON SHARES
• CONVERSION OF SHARES INTO STOCK
• LIEN ON SHARES
• PAYMENT OF COMMISSION ON SHARES & DEBENTURES TO UNDERWRITERS
• RULES FOR ADOPTION FOR PRELIMINARY CONTRACTS
• RE ORGANISATION & CONSOLIDATION OF SHARE CAPITAL
• ALTERATION OF SHARE CAPITAL
• BORROWING POWER OF DIRECTORS.
• GENERAL MEETING, PROXIES & POLLS
• VOTING RIGHTS OF MEMBERS
• PAYEMENT OF DIVIDENDS & CREATING OF RESERVES
• APPOINTMENT, POWERS, DUTIES, QUALIFICATION, & RENUMERATION OF DIRECTORS
• USE OF THE COMMON SEAL OF THE COMPANY
• KEEPING BOOKS OF ACCOUNT & THEIR AUDIT
• APPOINTMENT , POWERS, DUTIES , RENUMERATION OF AUDITORS
• CAPITALISATION OF PROFITS
• BOARD MEETINGS AND PROCEEDINGS
• RULES AS TO RESOLUTIONS
• ARBITRATION PROVISIONS
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4. DIFFERENCES: MEMORANDUM & AOA
Memorandum Articles of Association
• Conditions upon which company is • Internal regulations of the company
incorporated
• It is subordinate to act only • It is subordinate to act as well as the
memorandum
• It is to be filed by all types of companies • Public companies limited by shares
need not file
•Can not be easily altered • Can be easily altered
• Defines relation b/w company and • Governs internal relationship between
outsiders i.e. creditors, buyers etc the company & members
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5. ALTERATION OF ARTICLES
BEING THE INTERNAL REGULATIONS, THE COMPANY CAN ALTER IT BY PASSING A
SPECIAL RESOLUTION ONLY, ACCORDING TO SECTION 31.
LIMITATIONS:
THE ALTERATION MUST NOT BE INCONSISTENT WITH
•THE PROVISIONS OF THE COMPANIES ACT
•THE CONDITIONS CONTAINED IN THE MEMORANDUM
•ALTERATION ORDERED BY THE COMPANY LAW BOARD
MUST NOT DEPRIVE ANY PERSON OF HIS RIGHT UNDER A CONTRACT
MUST NOT CONSTITUTE A FRAUD ON THE MINORITY
MUST BE BONAFIDE FOR THE BENEFIT OF THE COMPANY AS A WHOLE
CENTRAL GOVERNMENT APPROVAL HAS TO BE OBTAINED IN CERTAIN CASES
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6. BINDING FORCE OF MEMORANDUM &
ARTICLES
• COMPANY TO MEMBERS
• MEMBER TO COMPANY
• MEMBER TO MEMBER
• NO BOUNDATION TO
OUTSIDERS
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7. COMPANY TO MEMBERS
1. The company is bound to comply with the provisions of the AOA documents.
2. The member can restrain the company from committing a breach of the articles.
(e.g the member can enforce his right to vote or his right to recover dividend.)
MEMBER TO COMPANY
1. Members are bound to follow the provisions of the memorandum and articles.
2. All money payable by a member under the articles is a debt due from him.
3. In this regard a company can sue it’s member(s) for the enforcement of it’s
articles as well as for restraining their breach.
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8. MEMBERS TO MEMBERS
1. Members are not bound to each other by default.
2. Any member is not allowed to sue another member for any wrong done by latter
to the company.
3. Exception – When the person against whom relief is sought controls the majority
share and will not allow an action to be brought in the name of the company.
NO BOUNDATION TO OUTSIDERS
1. The articles create no contact with any person/entity external to the organization.
2. A member is also an outsider if the matter in question is not concerned with his
membership rights.
3. An outsider therefore cannot take advantage of these documents to find a claim
against the company.
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9. DOCTRINE OF CONSTRUCTIVE NOTICE
• After registration memorandum and articles become “public documents”.
• The legal effect of this doctrine is that if a person deals with the company in a
manner inconsistent with the provisions of AOA, he is deemed to have dealt with
the company at his own risk.
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10. DOCTRINE OF INDOOR MANAGEMENT
• Person dealing with company can assume that internal requirements have been
observed
• No one is presumed to know company’s internal work process
• Proposed dealings should be regular and consistent
EXCEPTIONS:
• Knowledge of irregularity
• Negligence
• Forgery
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