Introduction:
The memorandum of association is the most important document , the articles of association comes second in terms of importance. It contains all rules regulations regarding internal control of the company. A private company that is limited by shares, a company limited by guarantee and an unlimited company have to adopt articles of association.
Schedule 1 of the companies act sets out model forms of articles for various companies , which can be adopted by such companies. This is called as Table A. A company limited by shares has to adopt table A. It can also prepare its own articles.. But Table A would be applicable to the extent it is excluded. We can say that the Table is like a ready made articles of association which can be easily adopted. Since such Table is provided by the act, it legal beyond any doubt.
The articles of association have to be signed by every subscriber.
Relationship of the Articles to the Memorandum:
Memorandum of association is the supreme document when compared to articles. It explains the very purpose as to why the company exists. The articles are related only to internal control of the company. An alteration of the memorandum would need the sanction of central government and the company law board, there is no such requisite for the articles. Where the memorandum and articles of association clash, it is the memorandum that prevails, except in matter relating to reduction of share capital.
Binding for of Memorandum and Articles of Association:
1. Members bound to the Company:
The members cannot contravene the provisions of the article of association or the memorandum of association. Once they have subscribed to such documents they are completely bound by it and cannot later say they were not aware of such provisions, hence their subscription is essential.
2. Company to the Members:
A company has to follow all provisions of the memorandum and articles. It cannot contravene it as such provisions have been subscribed to and agreed by the share holders. The company would be answerable to the shareholders on an event of such contravention.
3. Members inter se:
The members are bound among themselves due to the provisions of the articles of association. But they can enforce their right only in the capacity of being a member and not an individual . And such rights can only be enforced through the company.
4. Not bound to Outsiders:
Neither the company nor the members are bound to the outsiders by the provisions of the articles. In the case of Browne vs Trinidad, The plaintiff was agreed to be made director and not removable till a certain date, it was so provided by the articles. But such provision could not be enforced as the plaintiff was an outsider. Even a members becomes an outsider, when he acts outside the capacity of a member.
Alteration of the Articles of Association:
The articles can be ordered by passing a special resolution and filing a copy of such altered articles with the registrar of companies.
Following points should be noted regarding Alteration:
1. The alteration can be regarding the constitution of the company. Eg a company can issue a certain class of shares about which the memorandum is silent.
2. A company can cause a breach of contract by alteration of the articles. A company would not be liable for damages, if such contract is wholly dependent on the articles, but it would be liable for damages for breach of contract if such contract is wholly independent of the articles.
3. Alteration cannot increase the liability of any members by asking him to subscribe to more shares.
4. The alteration cannot constitute a fraud upon the minority share holders.