article of association

1. Articles of Association
LECTURE 4

2. Articles of Association (Section 36)
“articles” mean the articles of association of a company framed in accordance
with the company law or this Act;
Section 2 (3) of the Companies Act, 2017

3. Features:
Regulations for the internal administration of a company’s affairs.
The prescribe rules and bye-laws for the general management of the
company and for the attainment of its objects as given in its
memorandum.
Being subordinate to the memorandum, they cannot extend the objects
as defined in the memorandum.

4. Features:
The general functions of articles of association in accordance with “Lord
Cairns” in Ashbury Railway Carriage Co. vs. Riche:
The articles play a part subsidiary to the memorandum of association.
Articles proceed to define the duties, the rights and the powers of the
governing body as between themselves and the company at large;
Mode and form in which the business of the company is to be carried on;
Mode and form in which changes in the internal regulations of the
company may from time to time be made.”

5. Difference between MOA & AOA:
Distinguishing between the functions of the memorandum and the articles of
association, observed in Guineness vs. Land Corporation of Ireland.
Lord Justice Bowen:
“The memorandum contains the fundamental conditions upon which alone the
company is allowed to be incorporated. They are conditions introduced for the
benefit of the creditors, and the outside public, as well as of the shareholders.
The articles of association are the internal regulations of the company and are for
the benefits of shareholders.”

6. MoA
1. Defines the limits for externals;
2. Subordinate to the act only;
3. Must be filed with registrar by all
companies;
4. Defines the relation between the
company and outsiders;
5. Cannot be easily altered as needs
permission from SECP;
AoA
1. Internal regulations of the company;
2. Subordinate to the Act and to the
Memorandum;
3. A public company limited by shares
need not file a separate set of
articles;
4. Govern internal relationship between
the company and members;
5. Easily alterable by passing a special
resolution only;

7. MOA AOA
6. Acts ultra vires (Beyond the
permitted limits/legal power)
Memorandum are void;
7. No remedy against company for
contracts entered into ultra vires
the memorandum.
6. Acts ultra vires Articles are
simply irregular and not void;
7. Outsiders can enforce contract
even if its ultra vires articles.

8. Registration of Articles of Association
Registration of AOA (Section 36):
Optional for Company Limited by Shares
Compulsory for Company Limited by Guarantee or unlimited Company

9. Contents of AOA:
•The extent to which “Table A” is applicable.
•Different classes of shares and their rights.
•Procedure of making an issue of share capital and allotment thereof.
•Procedure of issuing share certificates.
•Lien on shares.
•Forfeiture of shares and the procedure of their re-issue.
•Procedure for transfer and transmission of shares.
•The time lag in between calls on shares.
•Conversion of shares into stock.

10. Contd: Contents of AOA:
•Payment of commission on shares and debentures to underwriters.
•Rules for adoption of preliminary contracts, if any.
•Re-organisation and consolidation of share capital.
•Alteration of share capital.
•Borrowing powers of directors.
•Procedure for convening, holding and conducting different kinds of general
meetings.
•Voting rights of members, proxies and polls,

11. Contd: Contents of AOA:
•Payment of dividends and creation of reserves.
•Appointment, powers, duties, qualifications, remuneration etc., of directors.
•Use of the Common Seal of the company.
•Keeping of books of accounts and their audit.
•Appointment and remuneration etc., of auditors.
•Capitalization of profits.
•Board meetings and proceedings thereof.
•Rules as to resolutions.

12. Contd: Contents of AOA:
•Appointment, powers, duties, qualifications, remuneration etc., of managing
director, manager and secretary, if any.
•Arbitration provision, if any.
•Provision for such powers which cannot be exercised without the authority
of articles, for example, the issue of redeemable preference shares; issuing
share warrant to bearer; refusing to register the transfer of shares; reducing
share capital of the company.
•Winding up.

13. Alteration in AOA:
Alteration in AOA (Section 38):
By Special Resolution
Copy to be provided to Registrar within 30 days.

14. General Requirement of AOA:
AOA to be printed, signed and dated (Section 37):
1. printed in the manner generally acceptable;
2. divided into paragraphs numbered consecutively;
3. signed by each subscriber with his/her:
present name;
◦ occupation and father’s/Husband’s name;
◦ nationality;
◦ usual residential address; and
◦ such other particulars as may be specified.
4. Dated

15. Effects of MOA & AOA Registration (Section 17):
1. Binds the company and the members;
2. contained a covenant on the part of each member, his heirs and legal
representatives, to observe and be bound by all the provisions of the
memorandum and of the articles;
3. All moneys payable by a subscriber shall be debt due from him and be
payable in cash within thirty days from the date of incorporation of the
company.

16. Effect of Alteration in MOA & AOA (Section 35):
A member shall not be bound to an alteration in MOA & AOA after the date on
which he became a member (until member agreed in writing to bound by such
alteration):
◦ if alteration requires him to take or subscribe for more shares than the
number held by him at the date on which the alteration is made; or
◦ in any way increases his liability as at that date to contribute to the share
capital of or otherwise to pay money to the company.

17. DOCTRINE OF CONSTRUCTIVE NOTICE
A person is expected to have inspected the basic public document of the
company (memorandum and articles) available at SECP office before any
transaction with the company.
He should have knowledge what action is not authorized to director or the
agent of the company.
Even if he has not inspected these documents he would be assumed to have
done so.

18. DOCTRINE OF CONSTRUCTIVE NOTICE
Oakbank Oil Co. v. Crum (1882 8 A.C.65)-
It has been held that anyone dealing with the Company is presumed not only to
have read the memorandum and Articles, but understood them properly.
Thus, Memorandum and Articles of a company are presumed to be notice to the
public.
Such a notice is called Constructive notice.

19. DOCTRINE OF INDOOR MANAGEMENT
An exception to doctrine of constructive notice
Offers protection to outsider dealing with a company
Gives outsider confidence in dealing with company with limited liability
Doctrine has been applied to make companies liable in case where deals were made by the
directors:
1. Whose appointment was defective
2. Who were appointed properly but were yet to be delegated necessary authority
3. Who had not yet been appointed as director
4. Who have been delegated authority in a meeting which had lacked quorum

20. DOCTRINE OF INDOOR MANAGEMENT
Royal British Bank v. Turquand:
Turquand, a company, had a clause in its constitution that allowed the company to borrow
money once it had been approved and passed by resolution (decision) of the shareholders
at a general meeting. Turquand entered into a loan with the Royal British Bank and two of
the co-directors signed and attached the company seal to the loan agreement. Loan had
not been approved by the shareholders.
Company defaulted on their payments and the bank sought restitution. Company refused
to repay claiming that the directors had no right to enter into such an arrangement
It was held that – the Turquand was entitled to assume that the resolution was passed.
The Company was therefore bound by the rule.
Doctrine is also popularly known as the Turquand rule’.

21. EXCPETION TO DOCTRINE OF INDOOR MANAGEMENT
Knowledge of irregularity
Sufficient ground for suspicion
Forgery
Acts outside apparent authority
Non existence of agency
Acts ultra vires the company