3 - Articles Of Association

Articles of Association ➢ ➢

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Second document to be registered along with Memorandum of Association Companies which must compulsorily have Articles of Association are  Unlimited companies  Companies limited by guarantee  Private companies limited by shares Contains rules, regulations and by-laws for administration of the Company Schedule I contains various formats and tables

FORM AND SIGNATURE OF ARTICLES (Section 30) ➢ Divided into paragraphs each for one regulation ➢ Signed by each subscriber in the presence of attesting witness CONTENTS OF ARTICLES ➢ All regulations Eg. Relations of members inter se ➢ Freedom to put any stipulation but according to Companies Act but otherwise void ARTICLES IN RELATION TO MEMORANDUM ➢ Articles subordinate to Memorandum of Association ➢ In case of inconsistency the Articles must give way

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MEMORANDUM OF ARTICLES OF ASSOCIATION ASSOCIATION Nature States the purposes The manner in of the Company which the Company is to be carried on Alteration Altered with Altered by Special sanction of the Resolution Company Law Board Ultra Vires Beyond its scope is Beyond its scope is Ultra Vires merely irregular Articles of Association can be used to explain Memorandum of Association

BINDING FORCE OR ARTICLES OF ASSOCIATION AND MEMORANDUM OF ASSOCIATION(Section 36) ➢ Once Company is registered Memorandum of Association and Articles of Association have the binding force of Contracts a) Binding on members in their relation to Company  Members bound to Company by Articles of Association b) Binding on Company in relation to members  Company is bound to its members by Articles of Association c) Not binding in relation to outsiders  Articles of Association constitute contract between Company and a third person Browne vs. La Trinidad – director not removable till 1888  Who is an outsider?  Outsider means who is not a member  Member as well as outsider in individual capacity d) How far binding between members  Moot point ALTERNATION OF ARTICLES ➢ Section 31 -> by special resolution ➢ No clause saying Articles of Association cannot be changed ➢ Alteration subject to a) Memorandum of Association b) Companies Act ➢ No retrospective effect ➢

Alteration against Memorandum of Association  Is not valid

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Alteration in Breach of Contract  Valid unless there is independent Contract, liable in damages

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Increasing liability of members  Eg. Members not to buy more shares

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Fraud on Minority Shareholders

CONSTRUCTIVE NOTICE OF MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION ➢ Memorandum of Association and Articles of Association registered with the Registrar of Companies -> Public Office, therefore, become Public Documents ➢ Therefore presumed to know, that is, constructive notice ➢ And presumed to have understood ➢ Disclosure philosophy ➢

Statutory Reform of Constructive Notice  Europe and England – this provision is abrogated

DOCTRINE OF INDOOR MANAGEMENT – TURQUAND RULE ➢ Scope of Operation  Opposed to the rule of Constructive Notice  Above protects Company against outsiders and latter protects outsiders against Company ➢

Exceptions 1. Knowledge of Irregularity  Knowledge may arise from the fact that the person was a party to inside procedure 2. Suspicion of Irregularity  Suspicious circumstances would invite enquiry 3. Forgery 4. Representation through Articles  When Articles confer Power of Delegation it can be assumed delegation has taken place  Duties consistent with that of a Director  Ostensible authorities  Within scope of authority 5. Acts outside Apparent Authority  Not binding