Article of association company

According to Section 2(2) of the Companies Act, Article means such rules which are made at the preliminary stage or establishment of the company or which are amended from time to time according to the previously passed companies Act. Mutual relations and liabilities between the company and its members are determined by the Articles. Such rules must be according to the provisions of the Companies Act. The Articles are meant for the internal ruling of the company.

According to Section 36(1) of the Companies Act, “In absence of any other ruling in the Act, after registration
of the Memorandum and Articles of the company, these establish mutual contractual relationship between the company and shareholders by which both remain liable to each other just like that as if each of them has made contract personally with, the company. Contents of the Article- According to the Companies Act, 1956, the following must be described specially in
the Articles of the company-

1.Description of exclusion of Table ‘A’. 1.

2.Acceptance of preliminary contracts.

3.The rules for dividing the capital and its increase, decrease or alteration, etc.

4.Rules pertaining to shares or types of shares, number and value thereof, request, allotment, transfer, amendment, etc.

5.Rules regarding borrowing power.

6.Rules of law of information regarding meetings, working method, vote-counting, work-details etc.

7.Rules regarding appointment number, efficiency,rights, liability, availing leave, inefficiencies and remuneration of the directors.

8.Rules pertaining to the conditions and terms of appointment, rights, duties, liabilities, remuneration,suspension of the managing director, managing secretary etc.

9.Rules regarding ledger-procedure, audit, liability of preparation and keeping of other general and legal books etc.

10.Rules regarding share-certificate, share-warrant, bonus share, debenture etc.

11.Procedure of winding-up of the company and its rules.

Registration of articles- According to the Indian Companies Act, the company must get its articles printed in separate photographs and numbering of these in sequence is necessary. All the signatories of the memorandum are supposed to sign the articles in the presence of at least one object evidence and alongwith their names, address and occupation must be mentioned. According to Section 30, affixing of stamp at the stamp rate applicable in that state according to Indian Stamp Act on the articles is necessary.

Legal significance of Articles of Association: Mutual relations between the company and its members can be determined by the Articles of Association, and the rules assessed therein are applicable to each other. Company cannot do any such work towards its shareholders which is not mentioned in its Articles. Likewise shareholders too cannot do any such work against the company, the right of doing the same is not provided to them in the Articles. On violathis rule a party can lodge suit against the other party in the court, but it is worth mentioning that generally, the rules of the Articles do not establish any type of indenture, even then if the company wants then it can control the mutual relations of the members by its Article (Section 36). The liabilities produced by the Articles can be explained as under –

(1) Company-liability to its Members – Company remains bound to its members. Company cannot do such work to its members which it has not mentioned in its Articles.

(2) Members-liability to the Company- The members of company are also so bound as if they have made contract to comply with the Articles of the company.

(3) Liability between the members interse – No contract can be made between the members interse of the company by the Articles, even then they inter-change their those rights which can be made effective through the company, but a member cannot compel the other member to comply with the Article, because by these documents contractual relationship cannot be established between the member a interse. The member who does not comply with the rulings of the Articles, suit can be presented in the court by the company against him.

(4) Company’s liability to the outsiders – Company itself or any of its member is not bound to comply with a rule or sub-rule of the Articles to the outsiders. In other words, it can be said that for assessing the relations between the company and the outsiders the Articles cannot be treated as contract.