CORPORATE LAW

UNIT- I
INCORPORATION AND FORMATION OF
COMPANY
TOPIC 1.d:
Memorandum and Articles of Association

ABHISHEK DWIVEDY
Assistant Professor
DME, Law School
ARTICLES OF ASSOCIATION
• According to Section 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 or applied in pursuance of any previous
company law or of this Act.
• AOA consists of the Norms, Bye laws, rules and Regulations for the management of Internal Affairs of a
company.
• It acts as a guideline stating the:
• Duty, Authority and it also creates balance between the objective and aim of the Company.
• The Articles of a company have often been compared to a rule book of the company’s working, that
regulates the management and powers of the company and its officers.
• It prescribes several details of the company’s inner workings such as the manner of making calls,
director’s/employees qualifications, powers and duties of auditors, forfeiture of shares etc.
• Every type of company whether public or private and whether limited by shares or limited by guarantee
having a share capital or not having a share capital or an unlimited liability company must register their
articles of association.
Features

• It is a Part of the Constitution of the Company i.e. MOA

• It is a contract between the members and Company
• Point out the Rights, Duties of the Shareholders
• Provides the Bye Laws and Regulation for the Company
• It is a public Document and anyone can inspect it after payment of a fees.
• Subordinate to MOA hence provisions of AOA should not be in conflict with the MOA
• The general functions of the articles have been aptly summed up by Lord Cairns, L.C. in Ashbury Railway
Carriage and Iron Co. Ltd. v. Riche, (1875) L.R. 7 H.L. 653 as follows:
• “The articles play a part that is subsidiary to the memorandum of association. They accept the
memorandum of association as the charter of incorporation of the company, and so accepting it, the
articles proceed to define the duties, rights and powers of the governing body as between themselves and
the company at large, and the mode and form in which business of the company is to be carried on, and
the mode and form in which changes in the internal regulations of the company may from time to time be
made... The memorandum, is as it were... the area beyond which the action of the company cannot go;
inside that area shareholders may make such regulations for the governance of the company as they think
fit”.
• Lord Cairns in Ashbury Carriage Co. vs. Riches as follows:
• The articles play a part subsidiary to memorandum of association.
• They accept the memorandum as the charter of incorporation, and so accepting it the articles proceed
to define the duties, the rights and powers of the governing body as between themselves and the
company and
• the mode and form in which the business of the company is to be carried on, and
• the mode and form in which changes in the internal regulation of the company may from time to
time be made.
• Thus, the memorandum lays down the scope and powers of the company, and the articles govern the
ways in which the objects of the company are to be carried out and can be framed and altered by the
members. But they must keep within the limits marked out by the memorandum and the Companies Act. The
articles regulate the internal management of the affairs of the company by way of defining the powers of its
officers and establishing a contract between the company and the members and between the members inter
se.
• It must be noted, however, that the articles of association, are subordinate to the memorandum of
association of a company, which is the dominant, fundamental constitutional document of the company.

• Further, as laid down in Shyam Chand v. Calcutta Stock Exchange, any and all articles that go beyond
the memorandum of association will be deemed ultra vires. Therefore, there should not be any provisions
in the articles that go beyond the memorandum. In the event of a conflict between the memorandum and the
articles, the provisions in the memorandum will prevail. In case of any ambiguity or uncertainty regarding
details in the memorandum, it should be read along with the articles.
• In terms of section 5(1), the articles of a company shall contain the regulations for management of the
company. The articles of association of a company are its bye-laws or rules and regulations that govern
the management of its internal affairs and the conduct of its business.

• The articles play a very important role in the affairs of a company. It deals with the rights of the members of
the company inter se. They are subordinate to and are controlled by the memorandum of association.
• (2) The articles shall also contain such matters, as may be prescribed:
• Provided that nothing prescribed in this sub-section shall be deemed to prevent a company from including
such additional matters in its articles as may be considered necessary for its management.
• CONTENTS OF ARTICLES
• The articles set out the rules and regulations framed by the company for its own working. The articles should
contain generally the following matters:
• Exclusion wholly or in part of Table F.
• Adoption of preliminary contracts.
• Number and value of shares.
• Issue of preference shares.
• Allotment of shares.
• Calls on shares.
• Lien on shares.
• Transfer and transmission of shares.
• Nomination.
• Forfeiture of shares.
• Alteration of capital.
• Buy back.
• Share certificates.
• Dematerialisation.
• Conversion of shares into stock.
• Voting rights and proxies.
• Meetings and rules regarding committees.
• Directors, their appointment and delegations of powers.
• Nominee directors
• Dividends and reserves.
• Accounts and audit.
• Winding up.
• Indemnity.
• Capitalisation of reserves.
.
• Issue of Debentures and stocks.
• Audit committee.
• Managing director, Whole-time director, Manager, Secretary.
• Additional directors.
• Seal.
• Remuneration of directors.
• General meetings.
• Directors meetings.
• Borrowing powers.
ENTRENCHMENT PROVISIONS

• The Companies Act, 2013 recognizes an interesting concept of entrenchment.

• Entrenchment (Section 5 (3))

• The articles may contain provisions for entrenchment to the effect that specified provisions of the articles
may be altered only if conditions or procedures that are more restrictive than those applicable in the case of a
special resolution, are met or complied with.

• Purpose: Essentially, the entrenchment provisions allow for certain clauses in the articles to be amended
upon satisfaction of certain conditions or restrictions (such as obtaining a 100% consent) greater than those
prescribed under the Act.

• This provision acts as a protection to the minority shareholders and is of specific interest to the investment
community. This shall empower the enforcement of any pre-agreed rights and provide greater certainty to
• Sec 5 (4) The provisions for entrenchment referred to in sub-section (3) shall only be made either on
formation of a company, or by an amendment in the articles agreed to by all the members of the company in
the case of a private company and by a special resolution in the case of a public company.

• Entrenchment:

• Private Co.: agreed to by all the members of the company

• Public Co.: a special resolution in the case of a public company.

• Notice to Registrar (Section5(5))

• Where the articles contain provisions for entrenchment, whether made on formation or by amendment, the
company shall give notice to the Registrar of such provision.
• Model form of [Link]
• Section 5(6) of the Companies Act, 2013 provides that the articles of association shall be in respective Forms
specified in Tables F, G, H, I, or J of Schedule I to the Act, as may be applicable in relation to the type of
company proposed to be incorporated.
• Form in Table F is applicable to companies limited by shares.
• Form in Table G is applicable to companies limited by guarantee having a share capital.
• Form in Table H is applicable to companies limited by guarantee not having a share capital.
• Form in Table I is applicable to unlimited companies having a share capital.
• Form in Table J is applicable to unlimited companies not having a share capital.
• Adoption of Table
• The company has three alternatives-:
• 1. It may adopt Table in full. [Section 5(7)]
• 2. It may wholly exclude Table and set out its own AOA. in full.
• 3. It may frame its own AOA. and adopt part of Table.
Unless the AOA of a public co. expressly exclude any or all provisions of relevant Table, that Table shall
automatically apply to it. [Section 5(8)]
• REGISTRATION OF ARTICLES
• Section 7(1) provides that at the time of incorporation of a company there shall be filed with the Registrar
within whose jurisdiction the registered office of a company is proposed to be situated, the memorandum and
articles of the company duly signed by all the subscribers to the memorandum in the prescribed manner.
• However, nothing prescribed in this sub-section shall be deemed to prevent a company from including such
additional matters in its articles as may be considered necessary for its management.
• STATUTORY REQUIREMENTS
• The articles must be printed, divided into paragraphs, numbered consecutively, stamped adequately,
signed by each subscriber to the memorandum and duly witnessed and filed along with the
memorandum.
• The articles must not contain anything illegal or ultra vires the memorandum, nor should it be contrary
to the provisions of the Companies Act, 2013.
ALTERATION OF ARTICLES
• Companies have been given wide powers to alter their AOA Procedure
• 1. By passing a special resolution.
• 2. A copy of resolution altering AOA shall be filed with the ROC within 15 days of its passing. [section14(1)]
• 3. ROC shall register the same. [Section 14 (2)]
• 4. Any alteration of the articles registered under section 14(2) shall be valid as if it were originally in the articles.
[Section 14(3)]
• In this regard, Section 14 lays down the provisions as follows:
• 1. Subject to: Articles shall be altered subject to the provisions of this Act and the conditions contained in the
Memorandum of the company.
• 2. Resolution: The company may alter its Articles by passing a special resolution.
• 3. Effect of alteration: The company may pass a special resolution so that the alterations shall have the
effect of conversion of
• a) a private company into a public company; or
• b) a public company into a private company.
• A public company into a private company
• For a company wanting to convert itself from public to a private company simply passing a special
resolution is not enough. A company shall not be valid unless it its approved by an order of the Central
Government on an application made in such form and manner as may be prescribed.
• A private company into a public company
• For a company wanting to convert from its private status to public, it may do so by removing/omitting the
three clauses as per section 2(68) which defines the requisites of a private company.
• Every alteration of the articles under this section and a copy of the order of the Central Government
approving the alteration as per sub-section (1) shall be filed with the Registrar, together with a printed
copy of the altered articles, within a period of fifteen days in such manner as may be prescribed, who
shall register the same.
• Any alteration of the articles registered under sub-section (2) shall, subject to the provisions of this Act, be
valid as if it were originally in the articles.
• 4. Documents to be filed with the Registrar: The special resolution in regard to every alteration of the Articles as
well as a copy, order of the Central Government approving the alteration as per sub-section (1) shall be filed with
the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such manner as
may be prescribed, who shall register the same.

• 5. Validity of alteration: Any alteration of the Articles registered with the Registrar shall be valid as if it were
originally in the Articles, subject to the provisions of this Act.

• 6. Alteration of Articles to be noted in every copy: Section 15 of the Companies Act, 2013, lays down that
every alteration made in the Articles of the company shall be noted in every copy of the Articles.

• 7. Copies of Articles to be given to members: On being so requested by a member, a company shall send to him a
copy of the Articles within seven days of the request and subject to the payment of such fees as may be prescribed.
Limitations to Alteration
• 1. Must not be inconsistent with the Act.
• 2. Must not conflict with the M.A.
• 3. Must not sanction anything illegal.
• 4. Must be for the benefit of the co.
• 5. Must not increase the liability of members.
• 6. Alteration by special resolution only.
• 7. Must not result in expulsion of a member.
• 8. Alteration must not be with retrospective effect.
• 9. The alteration must not constitute a fraud on the minority by a majority.