In this article, Cheshta Jetly pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the difference between Articles of Association under old and new Companies Act.

Any company so incorporated has to follow certain procedures for registration and incorporation.

Section 7 of the Companies Act, 2013 state that the first and foremost decision to be taken, is to decide the name and the Registrar will let them know if there is an availability of the same.After receiving the consent for the name, certain documents^[1] must be submitted to the Registrar.

The first most important document is the Memorandum of Association (MoA), filed with the Registrar at the time of the formation of the company.

Memorandum, as described under article 2(56) of the Companies Act 2013 as;

 “memorandum” means 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”;^[2]

It is a document, which lays down the powers and objects of the company, the scope of its operations, and the activities, beyond which its can’t go. It is, therefore, rightly called the ‘Charter of the Company’.

The articles of association (AoA) or the articles, is the second most important document that has to be filed with the Registrar, at the time of the registration of the company.

Articles contain the rules and regulations framed by the company for its own governance: the rules, regulations and the bye-laws for the internal management of the company are laid down in the articles.

The legal definition of articles under section 2(5) of the act, states the following:

“articles” means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act”^[3]

Thus, one can safely conclude, that

• ‘The Articles are subordinate to and controlled by the Memorandum and the Memorandum lays down the objects and the powers of the company and the articles lay down the modes in which the internal matters of the company are to be carried out by its members.
• All rules and regulations framed must not be in contravention with the powers so granted by the Memorandum’^[4]
• In case, there is a conflict between the memorandum and the article, the the memorandum will prevail unless the memorandum is silent or ambiguous on a particular issue, then the articles can be referred to.^[5]
• Nothing in both, the Articles and the Memorandum must be in contravention with the provisions of the Companies Act.

Importance of the Articles of Association

Since, the articles play a very important role in the management of the company, some of the important function it performs are:

1. Payment of underwriting commission with regard to issue of shares and debentures (Section 40)
2. To accept calls in advance from shareholders (Section 50)
3. Payment of dividend proportionate to paid-up amount on shares (Section 51)
4. Issue and Redemption of preference shares (Section 55)
5. Power of limited company to alter its share capital (Section 61)

• Increase Share capital (Sec 61(1)(a))
• To consolidate and divide its share capital into larger amounts than existing shares (Sec 61(1)(b))
• Convert its fully paid up share capital to stock and reconvert that stock into fully paid up shares (Sec 61(1)(c))
• Sub-divide its shares into shares of smaller amount than fixed by the memorandum (Sec 61(1)(d))

6. Issue share warrants to bearers
7. Alter the memorandum by special resolution so as to render the liability of its director unlimited.
8. Have an official seal outside India

Table of Comparison between the sections of Companies Act 1956 & Companies Act 2013 regarding the Default articles of association.^[6]

Changes Brought in by the Companies Act, 2013 with respect to the Articles of Association:^[7]

1. The approval of the Tribunal is required by the alteration which has the effect of converting a public company into a private company.

Whereas, in the previous act (1956), the approval of the Central Government has to be taken.

2. Every alteration, along with the printed copy of the altered articles is required to be filed with the registrar within 15 days of the passing of the special resolution as against one month required under section 31 of the earlier Companies Act, 1956.

Conclusion

The Companies Act, with respect to Articles has not seen too many changes. The sections have been compressed or rearranged in the new act, which has been time and again, vide the MCA notifications.

References

^[1] ‘printed, and computer printing by laser is acceptable, however, no xerox copies will be sufficient’

Selvarajan And Company vs Registrar Of Companies, Madras, 1987 62 CompCas 220 Mad

^[2]http://www.advocatekhoj.com/library/bareacts/companies2013/2.php?Title=Companies%20Act,%202013&STitle=Definitions.

^[3]http://www.advocatekhoj.com/library/bareacts/companies2013/2.php?Title=Companies%20Act,%202013&STitle=Definitions.

^[4] Ashbury Railway Carriage & Iron Company Ltd. v Riche (1875) LR 7 HL 653

^[5] In re Ducan Gilmore & Co. Ltd., (1952) 2 All ER 871

^[6] Companies Act 1956 (Bare Act) and the Companies Act 2013 (Bare Act)

^[7] Companies Act 1956 (Bare Act) and the Companies Act 2013 (Bare Act)