artices_of_association.ppt

7/28/2019 ARTICES_OF_ASSOCIATION.ppt

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Definition

Article means the articles of association of a

company as originally framed or as altered from

time to time in pursuance of any previous

companies laws or of this Act

Sec.2 (2)

ARTICLES OF ASSOCIATION


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. The articles proceed to define the duties, the

right and the powers of the governing body as

between themselves and the company at large and

the mode and form in which the business of thecompany 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.

- Lord Cairns

ARTICLES OF ASSOCIATION


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The articles regulate the manner in which

the company affairs will be managed.

The memorandum defines the company's

objects and various powers it possesses.

The articles determine how the objects

shall be achieved and those powers

exercised.


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Subject to the rule that the memorandumprevails in the event of a conflict, thememorandum and articles of association mustbe read together and ambiguity or uncertainty in

the one may be removed by reference to theother.Thus where the memorandum was silent as to

whether the companys shares where to be allof one class or might be of different classes, it

was held that the power given by the articles toissue shares of different classes resolved theuncertainty and enabled the company to do so.(south Durham Brewery Company)


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1. The extent to which Table A is applicable2. Different classes of shares and their rights

3. Procedure of making an issue of share

capital and allotment thereof

4. Procedure of issuing share certificates and

share warrants

5. Forfeiture of shares and the procedure of

their re-issue6. Procedure for transfer and transmission of

shares

CONTENTS OF ARTICLES


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7. The time lag in between calls on sharesconversion of shares into stock

8. Directors, their appointment, remuneration,

qualifications, etc.

9. Account and audit10. Lien of shares

11. Payment of commission on shares and debentures

to underwriters12. Rules for adoption for preliminary contracts if

any



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13. Re-organization and consolidation of shares

capital

14. Alteration of share capital & Buyback of

shares15. Borrowing power of directors

16. General meeting, proxies and polls

17. Voting rights of members

18. Winding up



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Schedule I to the act gives various model

forms of memorandum of association and

articles of association of various types of

companies.

The schedule is divided into several tables.

Each table serves as a model for one kind

of company.


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Table A deals with regulation (articles)formanagement of a company limited by

shares.

Table B contains a model form ofmemorandum of association of a company

limited by shares.

Table C gives model form of memorandumand articles of association of a company

limited by guarantee and not having a

share capital.


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Table D gives model form of memorandum

and articles of association of a company

limited by guarantee and having a share

capital.

Table E contains the model form of

memorandum and articles of association of

an unlimited company.


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Unlimited companies

Companies limited by guarantee.

Private companies limited by shares.


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Procedure :

Alteration by passing a special resolution.

Copy of resolution to be sent to registrarwithin 30 days.

Copy of altered articles to be registered

within 3 months of passing of resolution.

ALTERATION OF ARTICLES (SEC 31)


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1. Alteration should not be inconsistent with

a. Provisions of Company Act or any other statute

b. Conditions contained in memorandum

2. Approval of govt. to be obtained in certain cases

3. Alteration must not deprive any person of his rights

under a contract

4. Alteration must not constitute a fraud on theminority

5. Alteration must be bonafide for the benefit of the

company as a whole

LIMITATIONS REGARDING ALTERATION

OF ARTICLES


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A company was empowered by an alterationin the articles, to expropriate shares held byany member who was in business incompetition with the company.

At the time of alteration, there was only onemember doing business in competition withthe company.

He challenged the alteration. It was held that the alteration was valid, as

the alteration was bona fide for the benefit ofthe company.


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The altered articles must not include

anything which is illegal or opposed to

public policy or unlawful.

There cannot be alteration of the articles

so as to compel an existing member to

take or subscribe for more shares or in any

way increase his liability to contribute tothe share capital.


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The following are the legal implications:

Company is bound to its members

Each member is bound to the company

Each member is bound to other members in

exceptional case only

Neither the company nor the members are boundto outsiders

BINDING FORCE OF MEMORANDUM AND

ARTICLES (SEC 36)


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In borlands trustee vs steel Bros Co Ltdthe articles of a company contained a

clause that on the bankruptcy of a

member, his shares should be sold toother person and at a price fixed by the

directors.

B a shareholder became bankrupt. Histrustee in bankruptcy claimed that he was

not bound by these provision and should

be at liberty to sell the shares at the true

value.


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In Wood v Odessa waterworks, the

directors proposed to pay dividend in kind

by issuing debentures.

The articles provided for payment of

dividends.

The court held that payment means

payment in cash and therefore thecompany could be compelled to pay

dividend in terms of the articles.


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The articles of a company provided that Eshould be a solicitor for life to the company

and should not be removed from office

except for misconduct.But after employing him for number of

years, the company discontinued his

services.

He sued the company.

His case was dismissed on the ground that

he as a solicitor was no party to the

articles.


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Memorandum of

Association

Articles of Association

Charter of Company Regulations for interal management

Defines the scope of the activities Rules for carrying out the objects of

company.

Supreme document Subordinate to the memorandum.

Must for every company Company limited by shares need

not have it (Table A applies)

Strict restrictions, alteration only

with sanction of central govt./

tribunal.

Can be altered by special

resolution.

Act, Ultra Vires is wholly void &cannot be ratified.

Act Ultra Vires (but intra vires thememorandum) can be ratified.


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Every person dealing with the company is treatedas having the knowledge of the contents of thememorandum. (Public documents of the

company). It seeks to protect the company against the

outsider. Imputation of knowledge whether the party

concerned has actual knowledge or not.


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Persons dealing with the company are assumed to

have read the public documents of the company

and to have ascertained that the proposed

transactions are not inconsistent there with, theyare not required to know more , they need not

inquire into the regularity of the internal

proceedings and may assume that all is being doneregularly.


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It operates to protect outsiders against the

company.

The rule is beneficial for convenience in

business relations.

An outsider is presumed to know the

constitution of a company, but not what

may or may not have taken place withinthe doors that are closed to him.


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Suppose if you desire to buy a bond or

debenture issued by a company, you are

not going to ask directors of the company

to produce shareholders resolution

authorizing them to issue such bond

before you subscribe the same.


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The facts ofTurquands case were that the directors ofa company were authorized by the articles to borrowon bonds such sums of money as should from time totime, by a resolution of the company in the generalmeeting, be authorized to be borrowed.

The directors gave a bond to T without the authority ofany such resolution.

The question arouse whether the company was liableon the bond.

It was held that, the company was liable on the bond,

as T was entitled to assume that the resolution of thecompany in general meeting has been passed.


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Persons having knowledge of irregularity

No knowledge of articles

Forgery

Negligence

Others


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In Howard v Patent Ivory Co. the articles of thecompany empowered the directors to borrow up to1000 pounds only.

They could, however exceed the limit, of 1000 poundswith the consent of the company in general meeting.

Without such consent having been obtained, theyborrowed 3,500 pounds from one of the directors whotook debentures.

The company refused to pay amount. It was held, that the debenture were good to the extent

of 1000 ponds only because the director had notice or

was deemed to have the notice of the internalirregularity.

The director being an insider, the doors of thecompany are not closed to him.


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Forgery:

Example of secretary issuing share certificate.


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An accountant of a company transferred

some property of a company in favour of

Anand Behari.

On an action brought by him for breach ofcontract, the court held the transfer to be

void.

It was observed that the power of transferringimmovable property of the company could not

be considered within the apparent authority of

an accountant .


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