Articles of Association
According to section 2 (5) of the Companies Act, 2013,” article means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or this Act.”
The Articles are subordinate to and are controlled by the memorandum. It regulates the internal management of the affairs of the company by way of defining the power of its officers and establishing a contract between the company and the members and between the members intersect.
This contract governs the ordinary rights and obligations incidental to membership in the company.
Articles of Association by a public company limited by shares.
Every type of company whether public or private and whether limited by shares or limited by guarantee having a share capital or not having share capital or an unlimited must register their Articles of Association.
Section 5 of the Companies Act, 2013, states that a public company limited by shares may at its option register its articles of association signed by the same subscribers as to the memorandum, or alternatively it may adopt all or any of the regulations contained in “Table F, of first schedule of the Act. If Articles are not registered, automatically regulations are contained in Table F.”
Limitation upon the powers of a company to alter its Articles of Association
Every company has a right to alter its articles. An alteration is effective by passing a special resolution. The right to alter the article is subject to the following limitation:
Within the memorandum: The alteration must not exceed the powers given by memorandum with the provisions thereof. In the event of conflict between the memorandum and articles, the memorandum shall prevail.
Within the companies Act: The alteration must not be inconsistent with any provisions of the companies Act or any other statute.
As per law: The alteration must be within the framework of existing laws and should not be illegal.
Not against minority shareholders: The effect of alteration shall not cause any fraud on minority without any corresponding benefits to the company as a whole. An alteration to the articles must not discriminate between the majority shareholders and minority shareholders so as to give the former an advantage over the latter.
No retrospective effects: The articles of association cannot be altered so as to have retrospective effects. The articles only operate from the date of the amendment.
Approval of central government: If a public company is covered into a private company, then the approval of the central government is necessary. In this regard, an injunction cannot be granted to prevent the adoption of a new article which constituted a breach of contract. But if the company acts on them it may be liable to damages.
No increase in liability of members: An alteration should not increase the liability of a member unless he has agreed thereto in writing.
Characteristics of Articles of Association
The main characteristics of Articles of Association are as follows:-
- It is document of a company which contains rules, regulations or bye laws of a company.
- Articles are subsidiary to the memorandum of association.
- Articles regulate the management of internal affair of a company.
- They define the powers and duties of directors and officers of the company.
- It is a public document which is subject to public inspection.
- It is a printed document divided into various paragraphs.
- It is an alteration document which can be altered by the company by following the procedure laid down under the law.