16-01-2013, 12:45 PM
Articles of Association of a company
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INTRODUCTION
A company is an incorporated body. So there should be some rules and regulations are to be formed for the management of its internal affairs and conduct of its business as well as the relation between the members and the company. Moreover the rights and duties of its members and the company are to be recorded. There comes the need and origin of Articles of Association. The Articles of Association is a document that contains the purpose of the company as well as the duties and responsibilities of its members defined and recorded clearly. It is an important document which needs to be filed with the Registrar of companies.
In the Table A of Schedule 1 of the Companies Act, 1956 is given a model regulations for the management of the company limited by shares. All or any of the regulations contained in Table A may be adopted by a company limited by shares. Articles of Association is a document which all companies should prepare.
Meaning and purpose of articles
Section 2(2) of the Companies Act defines Articles as the Articles of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act. But it is not clearly defined what is an Article of Association. Basically Article of Association contains the rules and regulations relating to the management of companies internal affairs. It is similar to as a partnership deed in a partnership.
Memorandum defines the area or business of the company. A company cannot operate beyond the limits of its memorandum. At the same time an Article contains the rules and regulations of the business of the company. Therefore, Article is subordinate to, and controlled by the Memorandum.
The Article of Association contains the following details:
1. The powers of directors, officers and the shareholders as to voting etc.,
2. The mode and form in which the business of the company is to be carried out
3. The mode and form in which the changes in the internal regulations can be made.
4. The rights, duties and powers of the company as well as the members who are included in the Articles of Association.
The article is binding not only to the existing members, but also to the future members who may join in the future. The hires of members, successors and legal representatives are also bound by whatever is contained in the Article. The Articles bind the company and its members as soon as they sign the document. It is a contract between the company and its members. Members have certain rights and duties towards the company and the company haver certain obligations towards its members. At the same time the company also expects some duties and obligations which the members has to fulfill for the smooth functioning of the company.
Memorandum of association
Memorandum of association is one of the documents which has to filed with the registrar of companies at the time of incorporation of a company. Section 2(28)defines a memorandum to mean “the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this act.” The definition, however, either does not give us any idea as to what a memorandum of association really is nor does it point out the role which it plays in the affairs of the company.
The memorandum of association is an extremely important document in relation to the affairs of the company. It is a document which sets out the constitution of the company and is really the foundation on which the structure of the company is based. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. A company may pursue only such objects and exercise only such powers as are conferred expressly in the memorandum or by implication therefore i.e. such powers as are incidental to the attainment of the objects. A company cannot depart from the provisions contained in its memorandum, however, great the necessity may be. If it does, it defines its relation with the outside world and the scope of its activities. The purpose of the memorandum is to enable shareholders, creditors and those who deal with the company to know what is the permitted range of the enterprise.
It defines as well as confines the powers of the company; it not only shows the object of its formation, but also the utmost possible scope of its operation beyond which its action cannot go. Lord Cairns in Ashbury Railway Carriage Co. V. Riche pointed out,” The memorandum is as it were, the area beyond which the action of the company cannot go; inside that area the shareholders may make such regulations for their own government as they think fit.”
Purpose of memorandum:
The purpose of the memorandum is two fold.
1. The intending share holder who contemplates the investment of his capital shall know within what field it is to be put at risk.
2. Anyone who shall deal with the company shall know without reasonable doubt whether the contractual relation into which he contemplates entering with the company is one relating to a matter within its corporate objects.
At least seven persons in the case of public company and at least two in the case of a private company must subscribe to the memorandum. The memorandum shall be printed, divided into consecutively numbered paragraphs, and shall be signed by each subscriber, with his address, description and occupation added, the presence of at least one witness who will attest the same.
Different clauses:
A brief discussion of the various clauses are as follows:
Name clause:
A company may be registered with any name it likes. But no company shall be registered by a name which in the opinion of the central government is undesirable and in particular which is identical or which too nearly resembles the name of an existing company. Where a company is registered by a name so similar to that of another company, that the public are likely to be deceived, the court will grant an injunction restraining it from using that name.
Every public company must write the word ‘limited’ after its name and every private limited company must write the word ‘private limited’ after its name. The use of the word ‘company’ is however, not compulsory. Companies, whose liabilities are not limited, are prohibited from using the word ‘limited’. The words ‘limited’ may be dispensed with in the name of charitable companies. But companies formed to promote art, science, religion etc, which do not propose to pay dividend but intend to apply all its profits towards the working of the company, can be registered without the word ‘limited’ under licenses granted by the central government.
A company cannot adopt a name which violates the provisions of the emblems and names act 1950. This act prohibits the use of the name and emblems of the united nation, and the world health organization, the official seal and emblem of the central and the state governments, the Indian National Flag, the name and pictorial representation of Mahatma Gandhi and the prime minister of India.
If a limited company makes a contract without using the word ‘limited’ the directors who make the contract on behalf of the company would be personally liable.
Every company is required to publish its name outside its registered office, and outside every place where it carries on business, to have its name engraved on its seal and to have its name on all business letters, bill heads, notices and other official publications of the company.
Registered office clause:
This clause states the name of the state where the registered office of the company is to situate. The registered office clause is important for two reasons. Firstly, it ascertains the domicile and nationality of a company. This domicile clings to it throughout its existence. Secondly, it is the place where various registers relating to the company must be kept and to which all communications and notices must be sent. A company need not carry on its business at its registered office.
A company shall have its registered office. Such office must be in existence from the date on which the company begins to carry on business or within 30 days after incorporation, whichever is earlier. Notice of situation of the registered office and every change therein must be given within 30 days from the date of incorporation of the company of after the date of change, as the case may be.
Objects clause:
The objects clause is the most important clause in the memorandum of association of a company. It is not merely a record of what is contemplated by the subscribers, but it serves a two-told purpose:
(a) It gives an idea to the prospective shareholders the purposes for which their money will be utilized.
(b) It enables the persons dealing with the company to ascertain its powers.
In case of companies which were in existence immediately before the commencement of the companies’ act 1965, the objects clause has simply to state the objects of the company. But in the case of a company to be registered after the amendment, the objects clause must state separately: