What is Articles of Association?
Section 2(2) of the Company Act defines the Articles of Associations. Articles of Association are nothing but the bye laws or rules and regulations that would govern the internal affairs of the company, however, it is controlled by the Memorandum of Association. Any clause in the Articles of Association inconsistent with the memorandum of association will be treated as ultra vires. In addition to this, Articles of Association should not contravene the provision of the Company Act. Lord Claim in Ashbury Railway Carriage and Iron Co. Ltd V. Riche L.R. 7H.L 653 THAT stated that Articles of Association are subsidiary to the memorandum of association. Articles of Association provides the rights of the members and the powers of officers of the company and creates a contract between the company and members and also between the members. Section 26 of the Act states that a public limited company at its option may register the Articles of Association, signed by all the members of the company or alternatively it can adopt the regulations of Table of first Schedule of the Act. Unlimited company and company limited by guarantee, should specify the number of members at the time of registration of the Articles of Association. Generally, the Articles of Association should contain matters related to clauses included and excluded from Table A , about preliminary contracts, number and value of shares, allotment of shares, calls on shares, lien, transfer, and transmission of shares, buy back procedure, dematerialization, conversion of shares into stock, meetings and rules regarding committees, issuance of debenture stocks, directors, seal, remuneration of directions, about general meetings, winding up procedure, borrowing powers, accounts and audit, maintenance of reserves etc., and other clauses whichever required.
The Act has given a statutory right under section 31 of the Act may, by passing special resolution, alter the Articles of Association subject to the provisions of Act as well as provision of the Memorandum of Association, and any such alternation shall be valid as if it was originally provided in the Articles. However, alteration should not exceed the powers given in the memorandum of Association. In Walker v.s London Tramway Co. (1879) it was held that the right of alternation of articles of association is very important, it cannot by express provisions in the articles or by independent contract, deprive itself of the powers to alter its articles. Therefore, a company has right to alter its articles even after its incorporation by passing special resolution, subject the provisions of Company Act and Memorandum of Association.
Adv. Anitha Gutti