Articles of Association

A document that specifies the regulations for a companys

operation is called as articles of association.
This document contains rules , regulations and bye laws for
general administration of company.

Articles when compulsory:

Companies which must have articles of association are
1. Unlimited companies
2. Companies limited by guarantee
3. Private companies limited by shares

 Forms and signatures [S.30]

1.

2.

Articles proposed to be registered must be printed and

divided in paragraphs. Each paragraph must contain one
regulation and numbered consecutively
Each subscriber of memorandum to sign the document in
the presences of at least one attesting witness. Both of
them adding their address and occupations.

. Contents of articles
1.
2.
3.

It prescribes such regulations for the company as the

subscriber to the memorandum deem expedient.
The act gives subscribers free hand. Any stipulations
between the company and its members.
Everything stated therein is subject to Companies Act.

Articles in relation with

memorandum
Articles are subordinate to memorandum
1. It must not contain anything the effect of which is to alter a condition in
memorandum or contrary to its provisions.
2. This is because the memorandum is to state the purposes for which
company is established while the articles provide manner in which company
is to be carried and the proceedings are to be disposed.

. In words of LORD CAIRNS the difference is this

1. The memorandum is as it were the area beyond which action of
company cannot go ; inside that area the shareholders may make
such regulations for their own government as they think fit

. In words of Bowen LJ
1. The memorandum contains the fundamental conditions upon which
alone the company is allowed to incorporated. The condition
introduced for benefits of the creditors and the outside public as well
as share holders
2. The articles of associations are internal regulations of the company.

Constructive notice
Memorandum and Articles of Association
should be registered with the Registrar
of companies
Since Registrar of companies is a public
office once registered Articles of
Association becomes public documents
Open and accessible to all
The person will be presumed to know
the contents of documents

Constructive notice
Constructive notice is also with special
resolution and particular of charges
According to palmer the principles applies
to those documents which affects the
powers of the company
The court said , the common law doctrine
of constructive notice should apply to the
form
Constructive is more or less an unreal
doctrine

Examples
People know the company through its officers and
not through its documents
The courts in India also do not seem to take the
notice so seriously
For example in dehradun , mussorie electric
tramway jagmandardas articles of company
expressly provided that the directors could
delegate all the powers except the power to borrow
Also Calcutta high court enforced a security which
was not in accordance with the companys articles

Binding force of memorandum and articles

Company to members
1.
2.
3.

The members are bound to the company by the articles

The members can restrain the company from committing a breach of the
articles.
(Eg -The member can enforce his right to vote or his right to recover
dividend)

. Members to company
1. Members are bound to follow the provision of the articles
2. All money payable by member is a debt due from him
3. In this regard , the company can sue its member for the
enforcement of its article as well as restraining its breach

 Members to members
1. Members are no bound to each other
2. No member is allowed to sue other member for any
wrong done by latter to the company
3. Exception- when the person against whom relief is
sought control the majority of shares and will not
allow an action to be brought against the name of
the company
. Not to outsider
1. The article create no contact with any person/entity
external to the organization
2. A member is also an outsider if the matter in
question is not concerned with its membership rights
3. An outsider therefore cannot take advantage of this
documents to find a claim against the company

ALTERATION OF ARTICLES
Every company has a clear power to alter its article of
association by a special resolution. It is a statutory power
given by section 31.
The power of alteration as conferred by section 31 is almost
absolute. It is subject only to two restrictions.
In the first place, the alteration must not be in
contravention of the provisions of the act. It should not
be an attempt to do something which the act forbids.
Secondly, the power of alteration of article is subject
to the conditions contained in the memorandum of
association.
The provisions to sub-section 1 says that an alteration which
has the effect of converting a public company into a private
company would not have any effect unless it is approved by
the central government.

LIMITATIONS ON POWER TO
ALTER ARTICLES
The alteration must not exceed the
powers given by memorandum.
The alteration must not be inconsistent
with any provision of companies act as
no company can purchase its own share
sec.77
The altered article must not include any
thing which is legal.
The alteration must be bonafied for the
benefit of the company.

ALTERATION IN BREACH OF
CONTRACT
But, where apart from the articles, the company
has entered into an independent agreement, the
company may repudiate it by changing articles,
but it will be answerable in damages for the
breach.
The court may even restrain an alteration where it
is likely to cause a damage which cannot be
adequately compensated in terms of money.

INCREASING LIABILITY OF
MEMBERS.
An alteration cannot require a member to
purchase more shares or increase his
liability in any way except with his consent
in writing.
A person who becomes a member under
the protection of limited liability cannot be
converted into a member with unlimited
liability except with his consent in writing.

DOCTRINE OF 'INDOOR
MANAGEMENT'
SCOPE OF OPERATION
The doctrine of indoor management is
opposed to that of the doctrine of constructive
notice. The latter seeks to protect the company
against the outsider.

Firstly , the memorandum and articles of association

are public document, open to public inspection
It has been used to cover acts done on behalf of a
company by de facto directors who have never been
appointed.
The rule had its genesis in royal british bank v
turquand

1.Knowledge Of
Irregularity
The first and the most obvious restrictions is that
the rule has no application where the party
affected by an irregularity had actual notice of it.
Example of howard v patent ivory manufacture
company
But apart from this, the principle is clear that a
person who is himself a part of the internal
machinery cannot take the advantage of
irregularities.

2.Suspicion Of
Irregularity

The protection of "TURQUAND RULE" is also

not available where the circumstances
surrounding the contract are suspicious and
therefore invite inquiry.
Suspicion should arise ,for example,from
the fact that an officer is purporting to act in
a manner which is apparently outside the
scope of his authority

3. Forgery
"It is quite true that persons dealing
with limited liability companies are not
bound to inquire into their indoor
management and will not be
affected by irregularities of which they
have no
notice.
Case of madras high court .

OTENSIBLE POSITION ALLOWED TO DIRECTORS

"Where there was a group of companies

all controlled by the same person who
was in full control of everything -it had
to be supposed that he was the chairman
& managing director of each. It seemed
that he had not only actual but also
otensible authority
Thus the otensible position allowed to an
officer is the most crucial factor.

CONTRACTING PARTY'S KNOWLEDGE OF ARTICLES

"A person who at the time of entering into

a contract with a company has no
knowledge of the company's articles of
association , cannot rely on those articles
as conferring otensible or apparent
authority on the agent of the company
with whom he dealt."

SCOPE OF AUTHORITY

"If the act is one which is ordinarily

within the powers of such an
officer, then the company cannot
dispute the officer's authority to do
the act, whether the directors have
have not actually invested him with
authority to do it."

Acts Outside Apparent Authority

If the act of an officer of a company is

one which would ordinarily be beyond
the powers of such an officer , the
plaintiff cannot claim the protection of
"TURQUAND RULE" simply because
under the articles power to do the act
could have been delegated to him.

Conclusion
A company is an incorporated body so there
should be some rules & regulations formed
for the management of its internal affairs &
conduct of its business as well as the
relationship between the members and the
company. Moreover, the rights and duties of
its members and the company are to be
recorded. This is why articles of association
are necessary. The articles of association is a
document that contains the purpose of the
company as well as the duties and the
responsibilities of its members defined and
recorded clearly. It is an important document
which needs to be filed with the registrar of
companies