ARTICLES OF ASSOCIATION

Introduction :-

The term Article generally means –(a particular item /

object ) or (a piece of writing with others in newspaper /
magazine / other publication)

The term Association means – a group of persons / people

organized for a joint purpose

Thus Article of Association means – a piece of writing

pertaining to a group of people organized / connected for a
common purpose

Meaning :-

Sec 2(5) defines Articles of Association :- as :-

“Articles means the Articles of Association (AOA) of a Co.

originally framed or altered or applied in pursuance of
any previous Company law or of this Act”.

To understand the meaning of Articles of Association – the

following points are necessary to understand :-

(1) Articles of Association – are also called as Articles.

(2) Articles are – rules/ regulations / bye-laws for the
internal management of the Co.
(3) Articles relate to the Internal management of the
affairs of the Co.
 (4) Aim :- while framing the Articles – is to carry out the
aims / objects as set by MOA (Because anything
beyond MOA is ultra vires the Co.)
(5) Articles – may also contain such matters as may be
prescribed.
(6) The rules / regulations / guidelines set under AOA
for working of Co. – must be within the boundaries
of MOA
(7) Thus :- Articles are next in importance / subordinate
to / controlled by when compared to MOA
[Note :- Hence care must be taken to see that
regulations under AOA do not go beyond Powers of
the Co. as specified / contemplated under MOA.]
(8) u/s 6 of Co. Act, 2013 - The contents / provisions of
Articles must not override the provisions of Co. Act,
2013.
[Note :- Any provision of AOA beyond the provisions
of Co. Act, 2013 is void]
(9) AOA is :-
 Signed by subscribers of MOA
 Registered alongwith MOA
(10) u/s 5 The Articles – contains :-

 Regulations for the management of the Co.

 Also contain such matters as may be prescribed
 Provisions for entrenchment
[Note :- Entrenchment - means the process / fact of an
attitude / habit/ belief becoming so firmly established that
change is very difficult or unlikely.

u/s 5 (3) and (4) – Provide Provisions for entrenchment +

Procedure for adding entrenchment provisions:-
(a) can be made :-
 In Pvt. Co. – if agreed by all members of the Co.
 In Public Co. – by special resolution
(b) can be added at the time of formation or may be added
later by amendment.
(c) Co shall give notice (in such manner / form as may be
prescribed) – to the Registrar of such provision.]

Contents of Articles :-

The Articles usually contains provisions relating to following

matters :-

(1) Share capital and variation of rights

(2) Lien
(3) Calls on shares
(4) Transfer of shares
(5) Transmission of shares
(6) Forfeiture of Shares
(7) Alteration of Capital
(8) Capitalization of Profits
(9) Buy Back of shares
(10) General meetings
(11) Procedure at General meeting
(12) Adjournment of meeting
(13) Voting rights of members + voting by Poll
(14) Proxy
(15) Board of Directors
(16) Proceedings of the Board
(17) Chief executive officer, Manager, Company
Secretary, Chief Financial officer
(18) Seal
(19) Dividend and Reserves
(20) Accounts and Audit
(21) Borrowing Powers
(22) Winding up
(23) Secrecy / Indemnity Clause.
Format for Articles of Association :-

U/s 5 (6) – states :-

“ The Articles of a Co. shall be in respective forms specified
in Tables F, G,H,I and J, in Schedule I as may be be applicable
to such Co.”

U/s 5(7) – States :-

“ A Co. may adopt all/ any of the regulations contained in the
model Articles applicable to such Co.”

Under Co. Act, 2013 :- The following Co. may – have their
own Articles or adopt Articles provided under Schedule I :-
(1) Unlimited Co.
(2) Co. limited by Shares
(3) Co. limited by Guarantee

The details of the Tables under Schedule I are as follows :-

(1) TABLE F :- provides Articles for Co. limited by shares

(2) TABLE G :- provides Articles for Co. limited by
Guarantee & having a share capital
(3) TABLE H :- provides Articles for Co. limited by
Guarantee not having a share capital
(4) TABLE I :- provides Articles for Unlimited Co. having
a share capital

Copies of MOA / AOA / etc. to be given to members :-

(1) u/s 17 :- Any Member may apply for a copy of MOA /

AOA / AGREEMENT / RESOLUTION
(2) such application must be accompanied with
requisite fees
(3) Such member applying - must be provided a copy of
such document by the Co. within 7 days
 (4) IF Co. defaults in providing such documents within
requisite time period – then –
 Co. + Every officer in default – is liable
 Min – Rs. 1000/- per day during which
default continues
 Max . – Rs 1 lakh.

ALTERATION OF ARTICLES :-

The provision for alteration in Articles is provided u/s 14

Alteration of provision for entrenchment is provided u/s
5(3)

Procedure for Alteration of Articles :- is as follows –

(1) Alteration can be done by way of – addition /

omission/ substitution.
(2) Alteration of Articles – must be subject to conditions
contained in MOA
(3) Co. – may alter its Articles – by passing a special
resolution.
(4) The alteration of Articles – may also have effect of
conversion of :-
 Private Co. to Public Co.
 Public Co. to Private Co.
(5) If Private Co. – so alter its Articles that now Articles
n longer include restrictions / limitations required
for Private Co. – then Private co. from date of
alteration cease to be Private Co.
(6) Alteration – having effect of conversion from Public
Co. to Private Co. –
 Is not effective / allowed – unless approved by
Tribunal (in such form/ manner prescribed)
  (i.e. Approval of Tribunal is required/
compulsory)
(7) Alteration must be registered :-
 Co. must File with Registrar :- (within 15days
in such manner as may be prescribed) =

Copy of every alteration in the Articles

+
Copy of altered Article
+
Copy of order of Tribuna (in case of conversion
from Public Co. to Pvt. Co)

 The Registrar – shall then register the same

(8) Effect of such alteration :- Altered Articles are valid

as if it were originally in Articles.
(9) U/S 15 The Alteration of MOA and AOA – must be
noted in every copy of MOA and AOA –
 Thus, every alteration in AOA – must be noted
in every copy of Articles
 If such Alteration is not noted – then :- Co. +
Every officer in default
 Be liable to penalty f Rs. 1000/- to each
copy so issued with alteration.

Limitations to Alterations :-

(1) Such alteration must not be inconsistent with the

provisions of Co. Act, 2013

(2) No conflict with the Memorandum :-

 Sec 14 (1) provides – subject t the provisions
of this Act and the conditions contained in the
Memorandum”
  The Alteration of Article thus, must not exceed
the powers given by MOA / conflict the
provisions of MOA
 If any alteration made – exceeds / conflicts the
provisions of MOA – the same is wholly void
and inoperative

(3) Alteration must not purport sanction of anything

Illegal
(4) Benefit of the Co. :- Alteration must be
 Bonafide
+
 Made to benefit the Co. as a whole
(5) Liability of Members :- The alteration in no way
increase
 the liability of members, or
 otherwise force members to pay money to the
Co., or
 otherwise force members to contribute to the
share capital of the Co.
unless the same has been agreed in writing by such
members (before / after such alteration is made)
[Note :- Exception to above rule - Where Co. is a club /
association – Alteration may be made for subscription /
changes at a higher rate)
(6) Alteration by special Resolution only :-
 To make any alteration in Articles – special
resolution is necessary / compulsory
 Even clerical alterations – should be set right
by special resolutions
(7) Approval of Tribunal :- Alterations having effect of
converting Public Co. to Private Co. – Can be made
only if approved by Tribunal. In this case opy of the
order of the Tribunal + Printed copy of altered
Articles must be filed with Registrar within 15 days
from date of receipt of such order.
 (8) Breach of Contract :- Co is allowed / not prevented
 to alter an Article even if such Alteration would
result in Breach of contract
 This is because the same has been passed by
special resolution
 However the affected party – may file suit for
damages for breach of contract

(9) No expulsion of member :-

 The Board of Directors are not allowed to alter
Articles with assumption that they have power
to expel any member by amending Articles.
 If BOD – does any such alteration then such
alteration is void / Illegal
[Note :- Expulsion of member comes under the provisions of
rights of the members of the Co.. Thus , act of BOD in this
case becomes repugnant / unacceptable.]

(10) Alteration in Articles – may be with retrospective

(means looking back on/ dealing with past events or
situations) effect .
[Note :- If some members suffer a detriment / harm/
damage here – this does not make Alteration void

(11) Approval of Stock Exchange :-

 This is applicable in case of Listed Co.
 The Articles of a Listed co. cannot be altered
without approval of the Stock Exchange
concerned (i.e. where such Co. is listed).

RELATION BETWEEN MOA & AOA

(1) Both are Public Documents.

(2) Articles are subordinate to Memorandum
(3) Memorandum must be read in conjunction /
connection with Articles :- This is necessary to check
and ensure -
 Provisions of Articles are interns of MOA –
(especially where there is an ambiguity in
terms of MOA)
 To supplement MOA upon any matter –
Articles can explain / supplement MOA but
cannot extend / enlarge its scope.
 Terms of MOA cannot be modified / controlled
by Articles – (i.e. in case of ambiguity in MOA
the AOA can be referred only for clarity /
clarification)

Distinction between MOA & AOA

Sr. Basis Memorandum Articles

No.

1. Provision Defined u/s 2 (56) Defined u/s 2 (5)

under Co. Act,
2013

2. Meaning MOA is a public AOA is a

document that document
contains all the containing all
fundamental rules and
information regulations for
required / necessary the internal
for Incorporation of management of
Co. the Co.
+
Defines Co. relation
 with outsiders

3. Deals with Powers / objects of Rules are for

the Co. carrying out the
+ objects as set in
Scope of activities of Memorandum
Co.
(i.e. beyond which Co.
cannot go/ act)

4. Legal Status Charter of Co. Subordinate to

+ MOA
(supreme document) +
+ Subordinate to
only subordinate to Co. Act, 2013
Co. Act, 2013

5. Major Contains 6 clauses Can be drafted as

Contents (viz. name, registered per choice of Co.
office, liability,
nomination, object,
Association)

6. Format Provided under Provided under

Schedule I from Table Schedule I from
A- E Table F to I

7. Obligatory For all Co.’s –(i.e. A Co. limited by

must have its own shares may
MOA) adopt Table A or
need not have
Articles
(in such case
Table F applies)

8. Rules for Rules for alteration Can be altered

alteration are strict by Special
 resolution
(Eg. Depending on (Provided the
clause – some of the provisions do
conditions in addition not conflict with
to special resolution provisions of
also require the MOA /Co. Act,
approval of Central 2013)
Govt. or by Regional (Approval of
Director/ Tribunal) Tribunal
required only in
case of
conversion of
Public Co. into
Private Co.)

9. Relation Defines relation Defines relation

Defined between Co. and between Co. and
outsider its members
+
between
members inter
se

10. Acts done Acts done beyond Acts beyond AOA

beyond scope MOA is ultra vires (or ultra vires
and hence void AOA) but intra
+ vires MOA can be
cannot be ratified ratifies /
even by whole body confirmed by
of shareholders shareholders

11. Retrospective Cannot be amended Can be amended

effect retrospectively retrospectively
 LEGAL EFFECTS OF MEMORANDUM & ARTICLES

U/s 10 – Once Memorandum and Articles are Registered –

they bind the Co. and members.

The legal implications of MOA and AOA can be disussed as

under :-

(1) Binds Members to Co. :- each member of co. is

bound as if each member has actually signed MOA
and AOA

(2) Binds Co. to the members :-

 A Co. is bound to each of its member’s – in
terms of their ordinary rights as members.
 Co. – can exercise its rights as against any
member only in accordance with the provisions
of MOA and AOA.
 Co. – under a duty not to breach any of the
Articles. If Co. does anything ultra-vires its
Articles then members may obtain an
Injunction.
[Case :- Wood v/s Odessa Waterworks Co. (1889) -
Facts :- The Articles of the co. provided that Directors of the
Co. may with sanction at the general meeting my declare
dividend to be paid to the members. Resolution was passed
to give the shareholders – (debenture bonds instead of
paying dividend in cash)
Judgment – held that words “to be paid” means to pay in
cash. The shareholders could restrain Co. from acting on
resolution as it contravened Articles.]

(3) Members inter se :- Memorandum & Articles

constitute a contract between members inter se. -
(i.e. they are binding on each member as against the
 other / s). However such contracts can be enforced
through medium of Co. only.

(4) Co. to the outsiders :-

 Under scope of Articles – Position of
Shareholders is defined as shareholder and not
in individual capacity.
 General rule of Contract :- A stranger to a
contract cannot acquire any rights under the
contract
 Thus, Articles of a Co. are not binding to the
outsiders – (i.e. any right conferred by Articles
on a person in capacity other than members –
cannot be enforced against the Co.
 However the rule is bit relaxed now – (i.e.
while Articles cannot create a contract
between Co. & any person other than member
in his capacity as member but may indicate
basis upon which the contract may be made by
the Co.