Chapter: 7.1 Contents of Articles of Association of Company

Contents of Articles of Association

Articles of association set out provisions for the manner in which the company is to be administered. In particular, they provide for matters like making of calls, forfeiture of shares, directors' qualifications, appointment, power and duties of auditors, procedure for transfer and transmission of shares and debentures.

Relation between Memorandum of Association and Articles of Association
1.    Both documents are complimentary to each other.
2.    Memorandum of association is a principal document and articles of association are subordinate and supplementary to the memorandum of association. The powers which are not stated by the memorandum of association cannot be alleged by the articles of association.
3.    The articles of association are supplementary to the memorandum and so they cannot extent or enlarge the scope of memorandum.
4.    The provisions of memorandum of association cannot be modified or controlled by the articles of association. Both the documents must be read together for proper interpretation of certain provisions.

Every company should have its separate set of articles except a company limited by shares which does not wish to prepare its separate articles of association.

Articles of association should be duly stamped and signed by the signatories to the memorandum of association. In case of Pvt. Company 2 persons and in case of Public Company 7 persons required to sign these documents.

Alteration of Articles:

Under Section 31, the articles of association may be altered by special resolution, a copy of which along with the explanatory statement must be filed with the Registrar of Companies within 30 days. The memorandum of association/articles of association cannot abrogate the company's right to alter its articles. It has to alter by special resolution only.

Restrictions/Limitations of Alteration
1.    Under section 38, articles must not lead to increase the liability of a member without his written consent by compelling him to take more shares than he held prior to the alteration or to pay more money than what he was liable to pay.
2.    Under section 31 (proviso), an alteration in the articles to convert a public company into a private, one shall become effective only after the alteration has been approved by central government:
3.    The alteration must be bonafide for the benefit of the company as a whole.
4.    The alteration must not be oppressive to constitute fraud on the minority.
5.    The alteration must not be inconsistent with any provision of the Companies Act or any other statute.
6.    It should not be made for carrying out an illegal object.
7.    It must not clash with an order of the Company Law Board.
8.    It must not clash with any provision of memorandum of association.
9.    Alterations, which have been acted on, for many years are binding.