Question

Name and describe the contents of the document defining the bye-laws of the company.

Answer 1

The articles of association of a company are its by-laws or rules and regulations which govern the management of its internal affairs and the conduct of its business. They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association. According to Section 2(2) of the Companies Act, 1956 ‘articles’ means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies laws or of the present Act, i.e. the Act of 1956.

Articles are like the partnership deed in a partnership. They set out provisions for the manner in which the company is to be administered. In particular, they provide for matters like the making of calls, forfeiture of shares, directors’ qualifications, appointment, powers and duties of auditors, procedure for transfer and transmission of shares and debentures.

Contents Of Articles Of Association

Articles usually contain provisions relating to the following matters-

1. Share capital including sub division thereof, rights of various shareholders, the relationship of these rights, payment of commission, share certificates,

2. Lien of shares

3. Calls on shares

4. Transfer of shares

5. Transmission of shares

6. Forfeiture of shares

7. Surrender of shares

8. Conversion of shares into stock

9. Share warrant

10. Alteration of capital

11. General meetings and proceedings thereat

12. Voting rights of members, voting by poll, proxies

13. Directors, including first directors or directors for life, their appointment, remuneration, qualifications, powers and proceedings of Board of directors’ meetings

14. Dividends and reserves

15. Accounts and audits

16. Borrowing powers

17. Winding up

Utmost care must be taken to prepare the articles of association of the proposed company. They are certain matters in respect of which powers can be exercised by the company only if the articles so provide and in the manner provided therein. Therefore, the articles must contain provisions in respect of all matters which are required to be contained therein so as not to hamper the working of the company later. At the same time, the articles of association should not provide for matters in respect of which it has no powers to exercise. It cannot, for example, provide for expulsion of a member, as such a power is opposed to the fundamental principal of company jurisprudence and, therefore, ultra vires the company.

Companies Which Must Have Articles (Section 26)

The following companies must have their own articles, namely

1. Unlimited companies

2. Companies limited by guarantee

3. Private companies limited by shares