Definition
The articles of association of a company contain the rules relating to the management of its internal affairs. They are similar to the 'partnership deed' in a partnership. They prescribe rules and regulations for the general management of the company and for the attainment of its objects as given in its memorandum.
Contents of Articles.
The articles of a company shall contain regulations for the management company. The articles shall also contain such matters, as may be prescribedro 5 (1) (2)]. Articles usually deal with the rules and bye - laws on matters like:
(1) The extent to which the respective format of articles specified in different "Tables" is applicable.
(2) Different classes of shares and their rights.
(3) Procedure of making an issue of share capital and allotment thereof.
(4) Procedure of issuing share certificates.
(5) Forfeiture of shares and the procedure of their re - issue.
(6) Procedure for transfer and transmission of
shares.
shares.
(7) The time lag in between calls on shares.
(8) Conversion of shares into stocks ...
(9) Lien on shares.
(10) Payment of commission on shares and debentures to underwriters.
(11) Rules for adoption for 'preliminary contracts', if any.
(12) Re - organization and consolidation of share capital. .
(13) Alteration of share capital.
(14) Borrowing powers of directors.
(15) General meetings, proxies and polls.
(16) Voting rights of members.
(17) Payment of dividends and creation of reserves.
(18) Appointment, powers, duties, qualifications and remuneration of directors.
(19) Use of the Common Seal of the company.
| (20) Keeping of books of account and their audit.
(21) Appointment, powers, duties, remuneration, etc. , of auditor.
(22) Capitalization of profits.
(23) Board meetings and proceedings thereof.
(24) Rules as to resolutions.
(25) Appointments, powers, duties, qualifications, remuneration managing director, manager and secretary, if any.
(26) Arbitration provisions, if any.
(27) Provision for such powers which cannot be exercised without the authority of articles, for example, the issue of redeemable preference shares; refusing to register the transfer of shares; payment of dividend in proportion to amount paid up; the appointment of additional or alternate director (s).
(28) Winding up.
Addition to the above matters, the articles of a private company havinga Beapital must contain the three restrictions as given by Section 2 (68) under ab - dauses (a), (b) and (c), namely:
(a) restriction on the right of the members to transfer shares;
(b) To limit of the number of its members to 200, excluding members who Porwere in the employment of the company: joint holders of shares to be treated as single member;
(c) prohibition of any invitation to the public to subscribe for any securities of the company.
Provisions for entrenchment [Sec. 5 (3)]. The articles may contain provisions for entrenchment. Provisions for entrenchment provide a more restrictive procedure than passing a special resolution for altering certain provisions in the articles.
The provisions for entrenchment shall only be made either:
(a) on formation of a company, or
(b) by an amendment in the articles agreed to by all members in the case of a private company, and
(C) by a special resolution in the case of a public company.
The Registrar shall be given notice of such provisions for entrenchment in such form and manner as may be prescribed [Sec. 5 (4) (5)].
It may be noted that nothing in this section ( Sec. 5) shall apply to the articles of a company registered under any previous company law unless amended under this Act (2013 Act) [Sec. 5 (9)].
The articles, being the internal regulations of the company, can be faltered He company. The right to alter or add to the articles is expressly conferred by Section 14 which states that a company may alter its articles, as often as required by passing a special resolution only.
A copy of special resolution authorizing the alteration together with a printed copy of the altered articles must be filed with the Registrar within 15 days of passing the said resolution, who shall register the same The alteration will be effective from the date of registration by the Registrar.
Limitations Regarding Alteration of Articles.
(1) The alteration must not be inconsistent with the provisions of the Companies Actor any other statute (Sec. 14).
Thus a company cannot alter its articles so as to exclude or limit the right of its contributors (shareholders) to present a petition for the winding up of the company, because this right is conferred by Section 272.
(2) The alteration must not be inconsistent with the conditions contained in the memorandum (Sec. 14).
The articles are subject to the memorandum and so must not over - ride the memorandum. As such they cannot be altered so as to give powers which are not given by the memorandum.
(3) The alteration must not be inconsistent with the alteration ordered by the Tribunal.
In the exercise of its powers to remedy "oppression" and "mismanagement" under Section 241 and 242, the Tribunal has power to alters company 's memorandum and articles in any way it thinks fit. When the Tribunal has amended the memorandum or articles, the company can make no alteration which 242 (5)]
(4) Approval of the Central Government must also be obtained in certain cases.
For example, in the following cases alteration made in the articles shall be
valid and operative only if such alteration has also been approved by the Central Government:
(a) In the case of a public company, if alteration relates to any provision regarding the appointment or re - appointment of a managing or whole - time director or manager, and the The proposed alteration is not in accordance with the conditions specified in Schedule V in that regard. (Sec. 196 read with Schedule V)
(b) In the case of a public company, if alteration results in an increase of beyond the limits prescribed in Schedule V. (Sec. 197 read with Schedule V)
(5) The alteration must not deprive any person of his rights under a contract.
Alteration should not destroy any of the rights possessed by any person by virtue of a contract.
(6) The alteration must not constitute a fraud on the minority.
Alteration would be liable to be impeached if the effect of it were to defraud or oppress the minority shareholders, so as to give the majority shareholders an advantage of which the minority shareholders were deprived.
(7) The alteration must be bone fide for the benefit of the company as a whole.
Alteration shall not be valid if it has been made for the benefit of an aggressive or fraudulent majority.
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