UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY CHANDIGARH

COMPANY LAW
ARTICLES OF ASSOCIATION AND IT’S ALTERATION

SUBMITTED TO: SUBMITTED BY:

Ms. Sonal Preet Divay Kathuria

Company Law Professor B.COM L.L.B.

UILS,PU Section D

Chandigarh 207/21

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 ACKNOWLEDGEMENT

The success and outcome of this project required guidance and I am privileged to have the
requisite assistance for the completion of my assignment.

I respect and thank Ms. Sonal Preet for providing me with an opportunity to research on project
topic “Articles of Association and it’s Alteration”. I am extremely thankful to her for providing
me with relevant information and direction. I am grateful and fortunate to get constant
encouragement and suggestions. I would also like to acknowledge all those who provided me
with kind support and help to complete this project. Any omission in this brief acknowledgement
does not mean a lack of gratitude.

Divay Kathuria

B.COM L.L.B. (Hons.)

8th Semester

Section D

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 INDEX

 Articles of Association…………………………………………………………4.
 Form and content of Articles of Association…………………………………..5,6.
 Difference between MOA and AOA…………………………………………..6.
 Entrenchment Provisions………………………………………………………7.
 Alteration of Articles of Association………………………………………….7,8.
 Restriction on Alteration of AOA……………………………………………..8.
 Act to Override MOA & AOA…………………………………………………8.
 Copy of Memorandum, Articles etc. to be given to members………………….8,9.
 Legal Effect of Registration of MOA and AOA………………………………..9,10,11.
 Bibliography…………………………………………………………………….12.

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 ARTICLES OF ASSOCIATION

According to Section 2(5) of the Companies Act, 2013, provides that "articles" means Articles of
Association of the company as originally framed or as altered from time to time in pursuance of
any previous company law or of this Act.

Form and contents of Articles (Section 5)

The articles of a company shall be in respective forms specified in Tables, F, G, H, I and J in

Schedule I as maybe applicable to such company.

 The Form in Table F is applicable in the case of companies limited by shares

 The Form in Table H is applicable to the companies limited by guarantee not having a
share capital;
 the Form in Table G is applicable to companies limited by guarantee having a share
capital;
 the Form in Table J is applicable to unlimited companies not having share capital.
 the Form in Table I is applicable to unlimited companies having share capital;

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.

Contents of Articles of Association

Articles usually contain provisions relating to the following matter.

1. Exclusion wholly or in part of Table F.

2. Adoption of preliminary contracts.

3. Number and value of shares.

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4. Issue of preference shares.

5. Allotment of shares.

6. Calls on shares.

7. Lien on shares.

8. Transfer and transmission of shares.

9. Nomination.

10. Forfeiture of shares.

11. Alteration of capital.

12. Buy back.

13. Share certificates.

14. Dematerialisation.

15. Conversion of shares into stock.

16. Voting rights and proxies.

17. Meetings and rules regarding committees.

18. Directors, their appointment and delegations of powers.

19. Nominee directors.

20. Issue of Debentures and stocks.

21. Audit committee.

22. Managing director, Whole-time director, Manager, Secretary.

23. Additional directors.

24. Seal.

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25. Remuneration of directors.

26. General meetings.

27. Directors meeting.

28. Borrowing powers.

29. Dividends and reserves.

30. Accounts and audit.

31. Winding up.

32. Indemnity.

33. Capitalisation of reserves.

Difference between Memorandum and Articles of Association

(1) The memorandum, being the charter of the company, is the supreme document. Articles are
subordinate to the memorandum. If there is conflict between the articles and the
memorandum, the latter prevails.
(2) Memorandum is the charter of the company, which defines the fundamental conditions and
objects for which it is incorporated. Articles of association contain the internal rules and
regulations framed by the company to govern its internal management.
(3) The memorandum defines the area beyond which the activities of the company cannot go
while articles lay down the regulations for the internal management of the company within
the area determined by the memorandum (Ashbury versus Riche).
(4) Registration of Memorandum is mandatory for all classes of companies, however a public
company with share capital may adopt the model specified in Table F of Schedule I as its
Articles, so as to avoid the formalities of registration of articles with the Registrar.
(5) Memorandum can be altered by following various prescribed provisions which may include
approval of NCLT. In case of articles, the alteration can be done by a special resolution, to
any extent, provided they do not conflict with the Memorandum and the Companies Act.

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(6) Any act of the company which is ultra vires, the memorandum is wholly void and cannot be
ratified even by the whole body of shareholders. Any act of the company, which is ultra vires
the articles, but is intra vires the memorandum, can be confirmed by the shareholders.

Entrenchment Provisions

The Companies Act, 2013 recognizes an interesting concept of entrenchment. 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 investors, especially in joint ventures.

The provisions for entrenchment referred to in section 5(3) shall 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.
[Section 5 (4)]

Where the articles contain provisions for entrenchment, whether made on formation or by
amendment, the company shall give notice to the Registrar of such provisions in such form and
manner as may be prescribed. [Section 5(5)]

Alteration of Articles of Association (Section 14)

 A company has a statutory right to alter its articles of association;

 The power to alter is subject to the provisions of the Act and to the conditions contained
in the memorandum;
 Section 14(1) provides that a company may, by a special resolution, alter its articles
including alterations having the effect of conversion of a private company into a public
company; or vice versa;
It also stipulates that any alteration having the effect of conversion of a public company
into a privatecompany shall not be valid unless it is approved by an order of the Central
Government on an application made to it;

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  Section 14(2) - Every alteration of the articles under this section and a copy of the order
of the Central Government approving the alteration as per section 14(1) shall be filed
with the Registrar, together with a printed copy of the altered articles, within a period of
fifteen days.

Restriction on Alteration of Articles of Association

 Alteration must not exceed the powers given in MOA.

 Alteration must not be inconsistent with Companies Act.
 Alteration must be in the bona fide interest of company.
 Alteration must not be illegal.
 Alteration must not be against to public policy.
 No alteration regarding expulsion of member.

Act to override MOA &AOA (Section 6)

Section 6 of the Companies Act, 2013 provides that:-

 If the MOA & AOA or resolution passed by board or members contain provisions which
are contrary to the act, then the provisions as contained under the act shall prevail.
 If the provisions contained in the MOA & AOA or the resolution passed by Board or
members is more restrictive than that of the Act, then such restrictive provisions shall
prevail over the act.

Copies of Memorandum, articles etc. to be given to members [Section 17]

(1) A company shall, on being so requested by a member, send to him within seven days of the
request and subject to the payment of such fees as may be prescribed, a copy of each of the
following documents, namely:—
 the memorandum;
 the articles; and
 every agreement and every resolution referred to in subsection (1) of section 117,
if and in so far as they have not been embodied in the memorandum or articles.

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(2) If a company makes any default in complying with the provisions of this section, the
company and every officer of the company who is in default shall be liable for each default, to a
penalty of one thousand rupees for each day during which such default continues or one lakh
rupees, whichever is less.

Legal Effect of registration of MOA & AOA [Section 10]

Section 10 of the Companies Act, 2013 provides that, subject to the provisions of the Act, the
memorandum and articles shall, when registered, bind the company and the members thereof to
the same extent as if they respectively had been signed by the company and by each member;
and contained a covenant on its and his part to observe all the provisions of the memorandum
and of the articles.

The effect of documents, when registered, may be disused under the following heads:-

1. Members bound to the Company;

2. Company bound to the members;

3. Member bound to Member; and

4. Company not bound to outsider.

(1) Members bound to the company

The memorandum and articles constitute a contract bind the members to the company. The
company can, therefore, enforce articles against any member.

In the case of Boreland’s Trustee v Steel Brother and Co. Ltd., articles of a company
contained a clause that on the bankruptcy of a member his shares would be sold to other persons
at a price fixed by the directors. Boreland a shareholder was adjudicated bankrupt. His trustee in
bankruptcy claimed that she was not bound by these provisions and should be at liberty to sell
the shares at their true value. It was held that the trustee was bound by the articles as the shares
were purchased by Boreland in terms of the articles of the company.

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(2) Company bound to Members

Just as the members are bound to the company, so also the company is bound to the members to
observe and follow the articles.

In Wood v Odessa Waterworks Co., The articles provided that the directors may, with the
sanction of the company in general meeting, declare a dividend to be paid to the members in
cash. Instead of paying the dividend in cash to the shareholders resolution was passed to give
them debentures/bonds. The directors were restrained from acting on the resolution.

(3) Member bound to Member

As between the members inter-se each member is bound by the articles to the other members.

In Rayfield v Hands, the plaintiff was shareholder of company. The articles required him to
inform the director of his intention to transfer his shares and the director (who were also
member) were to take those shares at a fair price. The plaintiff notified the directors, who
contended that they were not bound to take the shares and pay for them. It was held that the
articles were banking upon the plaintiff as member and the directors as members, so that the
member- directors upon the plaintiff as a member and the directors as members, so that the
member-directors were bound to purchase plaintiff’s shares and pay for them.

(4) Company not bound to Outsider

The team “outsider” signifies a person who is not member of the company, even if she is a
director of an or solicitor to the company. The articles do not constitute a contract between a
company and an outsider. The articles do not confer any contractual rights even upon a member,
in a capacity other than that of a member.

In Eley v Positive Life Insurance Co., the articles provided that Eley should act as a solicitor
for life to the company and should not be removed from office except for misconduct.

Eley acted as a solicitor to the company and also became a member of the company.

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The company however discontinued his he had no cause of action because the articles did not
constitute any contract between the company and himself as solicitor,. His action was dismissed.

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 BIBLIOGRAPHY

 https://blog.ipleaders.in/articles-of-association-under-indian-company-
law/#Difference_between_Memorandum_of_Association_MOA_and_Articles_of
_Association_AOA
 Company law & Practice by Amit Vohra (Bharat Publication)
 https://www.investopedia.com/terms/a/articles-of-association.asp
 https://cleartax.in/s/articles-association-aoa-format-download

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