Presentation on Articles of Association
- 1. Presentation On Articles of Association Prepared by Mrs. Seema Mahajan Asst. Prof. in Commerce Pt. Mohan Lal S.D College For Women Gurdaspur
- 2. Introduction The Companies Act, 2013 defines ‘articles’ as the “articles of association of a company originally framed, or as altered from time to time in pursuance of any previous company laws or of the present.” The Articles of Association of a company are that which prescribe the rules, regulations and the bye- laws for the internal management of the company, the conduct of its business, and is a document of paramount significance in the life of a 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.
- 3. Articles of Association: Provisions The articles of association also establish a contract between the members and between the members and the company. This contract is established, governs the ordinary rights and obligations that are incidental to having membership in the company. 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.
- 4. Memorandum of Association Articles of Association 1 Contains fundamental conditions upon which the company is incorporated. Contain the provisions for internal regulations of the company. 2 Meant for the benefit and clarity of the public and the creditors, and the shareholders. Regulate the relationship between the company and its members, as well amongst the members themselves 3 Lays down the area beyond which the company’s conduct cannot go. Articles establish the regulations for working within that area. 4 Memorandum lays down the parameters for the articles to function. Articles prescribe details within those parameters. 5 Can only be altered under specific circumstances and only as per the provisions of the Companies Act, 2013. Permission of the Central Government is also required in certain cases.Articles can be altered a lot more easily, by passing a special resolution. 6 Memorandum cannot include provisions contrary to the Companies Act. Memorandum is only subsidiary to the Companies Act. Articles cannot include provisions contrary to the memorandum. Articles are subsidiary to both the Companies Act and the Memorandum. 7 . Acts done beyond the memorandum are ultra vires and cannot be ratified even by the shareholders. Acts done beyond the Articles can be ratified by the shareholders as long as the act is not beyond the memorandum
- 5. Nature of Articles of Association As per the Companies Act, 2013, the articles of association of different companies are supposed to be framed in the prescribed form, since the model form of articles is different for companies limited by shares, companies limited by guarantee having share capital, companies limited by guarantee not having share capital, an unlimited company having share capital and an unlimited company not having share capital.
- 6. Form of Articles of Association According to sec 5 of the companies Act, the Articles of Association of a company can be in respective Forms specified in Table F, G, H, I and J of Schedule 1 of the Act. Form in Table F is applicable to companies limited by shares; Form in Table G is applicable to companies limited by guarantee and having share capital Form in Table H is applicable to the companies limited by guarantee and not having a share capital Form in Table I is applicable to unlimited companies and having a share capital Form in Table J is applicable to unlimited companies and not having a share capital
- 7. Contents of Articles of Association Share Capital and different classes of shares Procedure for Issue of share capital Procedure of making share allotment Forfeiture of share and procedure for re-issue Procedure for Transfer and Transmission of shares Voting rights of members Alternation of Share capital and Lien on Shares Use of common seal of company Payment of dividend Qualification, appointment, removal of Directors Rules for adopting preliminary contracts Alteration in share capital Procedure regarding call on share Procedure regarding passing of resolution Appointment, Duties, Powers, Remuneration of the Director, Manager, Secretary Appointment, Duties, Powers, Remuneration of the auditors Underwriting commission and Arbitration provisions Board meetings and the proceedings Winding up
- 8. The signing of the Articles of Association The Companies (Incorporation) Rules, 2014 prescribes that both the Memorandum and the Articles of a company are to be signed in a specific manner. Memorandum and Articles of a company, are both required to be signed by all subscribers, who are further required to add their names, addresses and occupation, in the presence of at least one witness, who must attest the signatures with his own signature and details. Where a subscriber is illiterate, he must affix a thumb impression in place of his signature, and appoint a person to authenticate the impression with his signature and details. This appointed person should also read out the content of the documents to the illiterate subscriber for his understanding. Where a subscriber is a body corporate, the memorandum and articles must be signed by any director of the body corporate who is duly authorised to sign on behalf of the body corporate, by a passing a resolution of the board of directors of the body corporate. Where the subscriber is a Limited Liability Partnership, the partner of the LLP who is duly authorised to sign on the behalf of the LLP by a resolution of all the partners shall sign.
- 9. Provisions for Entrenchment The concept of Entrenchment was introduced in the Companies Act, 2013 in Section 5(3) which implies that certain provisions within the Articles of Association will not be alterable by merely passing a special resolution, and will require a much more lengthy and elaborate process. The literal definition of the word “entrench” means to establish an attitude, habit, or belief so firmly that bringing about a change is unlikely. Thus, an entrenchment clause included in the Articles is one which makes certain changes or amendments either impossible or difficult. Provisions for entrenchment can only be introduced in the articles of a company during its incorporation, or an amendment to the articles brought about by a special resolution in case of a public company, and an agreement between all the members in case of a private company.
- 10. Alteration of Articles of Association Section 14 of the Companies Act, 2013, permits a company to alter its articles, subject to the conditions contained in the memorandum of association, by passing a special resolution. This power is extremely important for the functioning of the company. The company may alter its articles to the effect that would turn: 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. The company will have to acquire the consent and approval of the Tribunal. Further, a copy of the special resolution must be filed with the Registrar of Companies within 30 days of passing it. Further, a company must then file a copy of the altered, new articles of association, as well as the approval order of the Tribunal with the Registrar of Companies within 15 days of the order being received. 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. Similar to the conversion of the public to a private company, a copy of the resolution and the altered articles are to be filed with the Registrar within the stipulated period of time.
- 11. Limitations on power to alter articles The alteration must not contravene provisions of the memorandum, since the memorandum supersedes the articles, and the memorandum will prevail in the event of a conflict. The alteration cannot contravene the provisions of the Companies Act, or any other company law since it supersedes both the memorandum and the articles of the company. Cannot contravene the rules, alterations or suggestions of the Tribunal. The alteration cannot be illegal or in contravention with public policy. Further, it must be for the bona fide benefit and interest of the company. The alterations cannot be an effort to constitute a fraud on the minority and must be for the benefit of the company as a whole. Any alteration made to convert a public company into a private company, cannot be made until the requisite approval is obtained from the Tribunal. A company may not use the alteration to cover up or rectify a breach of contract with third parties or use it to escape contractual liability. A company cannot alter its articles for the purpose of expelling a member of the board of directors is against company jurisprudence and hence cannot occur.
- 12. Thank you