Article of Association
The rules and regulations which are framed of the internal management of the company are set out in a document named Articles of Association. The arties are framed to help the company in achieving its objectives set out in a memorandum of association. It is a supplementary document to the memorandum. According to Section 2(2) of the Companies Act, “Articles of association of the company as originally framed or as altered from time to time in pursuance of any previous companies’ law or of this act.”
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The private companies limited by shares, companies limited by guarantee and unlimited companies must have their articles of association. A public company limited by shares may or may not have its own Articles. As per Section 26 of Companies Act, it is not obligatory on the part of a public company limited by shares to prepare and register Articles of Association along with Memorandum of Association. However, such a company may adopt all or any of the regulations contained in the model set of Articles given in table A in the Schedule I of the Act. It means the company can partly frame it sown articles and partly incorporate some of the regulations in Table A. Unless the company prepares its own articles then regulations of Table A shall be applicable in the same manner as if they were contained in its own registered articles.
The articles cannot contain anything contrary to the Companies Act and also to the memorandum of association. If the document contains anything contrary to the Companies Act or memorandum, it will be inoperative. When articles are proposed to be registered, they must be printed, divided into paragraphs and numbered consecutively. Each subscriber to the memorandum must sign the articles in the presence of at least one witness.
- The nature of Articles may be explained as follows:
- Articles of association are subordinate to memorandum of association.
- The articles are controlled by memorandum.
- Articles help in achieving the objectives laid down in the memorandum.
- Articles are only internal regulation over which members exercise control.
- Articles lay down the regulations of governance of the company.
Contents
Some of the contents of articles of association are follows:
- The amount of share capital issued, different types of shares, calls on shares, forfeiture of shares, transfer and transmission of share and rights and privileges of different categories of shareholders.
- Powers to alter as well as reduce share capital.
- The appointment of directors, powers, duties and their remuneration.
- The appointment of manager, managing director, etc.
- The procedure for holding and conducting of various meetings.
- Matters relating to maintaining of accounts, declaration of dividends and keeping of reserves, etc.
- Procedure for winding up the company.
Alteration of Articles of Association
- The articles of association can be altered by assign a special resolution. Certain restrictions are imposed on the nature and extent of the alternation that may be made.
- The change should not be violating the provisions of the Companies Act.
- It should not be contrary to the provisions of the memorandum of association.
- The alteration must not have anything illegal.
- The alteration should not adversely affect the minority shareholders.