Meaning of Articles of Association
Articles of association is a secondary document (primary document – memorandum) containing the laws regarding internal management of the company.
According to sec 2(5) of the Companies Act, 2013 ‘Articles’ means the “Articles Of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act.”
Articles of Association is a public document which can be examined from the registered office of the company. Articles help to establish the relationship between the company and internal management.
According to companies Act 2013, it is compulsory for every company to have its own Articles of Association and file the same with Registered Office for registration.
Form and Contents of Articles of Association
According to sec 5 of the companies Act, the Articles of Association of a company can be in respective Forms specified in Table F, G, H, I and J of Schedule 1 of the Act.
Form in Table F is applicable to companies limited by shares;
Form in Table G is applicable to companies limited by guarantee and having share capital
Form in Table H is applicable to the companies limited by guarantee and not having a share capital
Form in Table I is applicable to unlimited companies and having a share capital
Form in Table J is applicable to unlimited companies and not having a share capital
Contents of Articles of Association
Share Capital and different classes of shares
Procedure for Issue of share capital
Procedure of making share allotment
Forfeiture of share and procedure for re-issue
Procedure for Transfer and Transmission of shares
Voting rights of members
Alternation of Share capital and Lien on Shares
Use of common seal of company
Payment of dividend
Qualification, appointment, removal of Directors
Rules for adopting preliminary contracts
Alteration in share capital
Procedure regarding call on share
Procedure regarding passing of resolution
Appointment, Duties, Powers, Remuneration of the Director, Manager, Secretary
Appointment, Duties, Powers, Remuneration of the auditors
Underwriting commission and Arbitration provisions
Board meetings and the proceedings
Capitalisation of profits
In addition to the above the articles also contain details about the number of members with which the company is formed. However, it must not contain any provision against the company’s Act or public policy. It must be prepared in true and fair manner and must not contain any provision against the memorandum.
Alteration of Articles of Association
According to sec 14 of the companies Act 2013, a company may, by passing a special resolution in the general meeting can alter its Articles of Association.
Every alteration in the articles and a copy of the order of the National Company Law Tribunal (NCLT), approving the alteration shall be filed with the Registrar within a period of 15 days with a printed copy of the altered articles.
Binding force of Memorandum and Articles of Association –
Both memorandum and articles of association contains provisions which have legal effect on the company. The provisions can bind the company and its members also, however there are certain exceptions.
The binding force can be studied from the following heads –
COMPANY IS BOUND TO ITS MEMBERS – The Articles of Association and memorandum provides that the company is bound to its members. The individual members can enforce his membership rights on the company (eg. Rights to vote, right to receive dividend)
MEMBER IS BOUND TO THE COMPANY – The members have to follow the provisions of memorandum and articles of association. Any money payable by any member to the company shall be a debt to the company and therefore the company can also sue the member for any breach of contract.
EACH MEMBER IS BOUND TO THE OTHER MEMBERS BUT IN EXCEPTIONAL CASES – Usually the memorandum and articles of association do not create or express agreements between the members. But in exceptional cases the individual member can sue the other person when majority of shareholders are against the other person.
THE COMPANY AND THE MEMBERS ARE BOUND TO THE OUTSIDE WORLD – The company and its members have no contract with the outsiders. Even a member of the company will be treated as an outsider if the matter in question is not related to his membership rights and obligations as mentioned in the articles of the company.