Chapter six Articles of Association 1. Definition and nature of articles of association Articles of association are the rules and regulations of a company formed for the purpose of internal management. The articles are subordinate to the company law and to the memorandum of the company.

2. Content of Articles of Association This document will contain the basic regulations for the management of the company, covering such matters as the issue and allotment of shares, the calls on shares, the rules relating to the transfer of shares, the procedures to be followed at general meetings and the regulations relating to members voting, the appointment, removal and powers of directors, the payment of dividends and the capitalization of profits.

3. Alteration of articles of association The company has the right to alter its articles through special resolution. The right to alter the company is so important that the company itself cannot deprive that right of alteration in its articles or even in an independent contract. The alteration is subject to the company act and also conditions contained in the memorandum of the company.

The power of the company to alter its articles is subject to the following limitation: The alteration must not inconsistence with company law and other laws; The alteration must not exceed the power given in the memorandum of Association; The alteration must not contain anything that is illegal or opposed to public policy; The alteration must be bona fide for the benefit of the company as whole; The alteration must not constitute a fraud on minority by the majority; Articles of the company can not be altered in a such a way that compels an existing member……

to take more shares or in any way increase his liability unless he gives his consent to that in writing. 4. Relation between Articles and Memorandum of Association a. The articles are subordinate to memorandum; b. The memorandum must be read in conjunction with article in the cases of ambiguity, and to supplement the memorandum when it is silent on a matter and the law of Company does not regulate it.

Distinction between Memorandum of Association and Article of Association : The charter of the company and also defines the fundamental condition for which company is granted incorporation . It also defines the relation of the company with the outsiders. The rules and regulations that are framed for the internal management of the company. Articles of association regulates the relation between the company and members and the members inter se. The supreme document of the company and subordinate to the company law. Its subordinate to the company law and Memorandum. Alteration of clauses of Memorandum are very restrict and it nee the approval of the government Alteration of articles can be done by special resolution provided that there are no inconsistence with the company law and memorandum. Acts beyond the memorandum are void and can not be ratified by unanimous of the vote of shareholder. Acts beyond article of association of the directors can be ratified by the shareholders.

5. legal effects of Memorandum and Articles When Memorandum and Articles are registered; the members are bound by it and shall have to observe it. The following is the extent of the legal effect of Memorandum and Articles: a. Members to the Company The Memorandum and Articles constitute a binding contract between the members and the company. The effect of this is that each member is bound to the company. b. Company to the Members A company is bound to the members in the same manner as the members are bound to company.

c. Members ‘inter se’ As between the members among themselves, the memorandum and the articles constitute a contract among them which bind on each member against the other and that is enforceable only through the medium of the company. In some cases, articles may regulate the rights of shareholders in their capacity as members and in that case they constitute as binding contract between members only and the company does not join as a party.

d. company to outsiders The articles and memorandum do not constitute a binding contract as between a company and an outsider. 6. constructive notice of Memorandum and Articles Memorandum and Articles on registration become public documents and are available public inspection in the registrar’s office on payment required fees. So that, every person who deals with the company is deemed to know (read an understood) the content of memorandum and

articles. This doctrine is a negative one because it operates only against outsider. 7. Doctrine of indoor management - The doctrine of indoor management imposes a limitation on the doctrine constructive notice. - Based on Doctrine of indoor Management, persons dealing with the company are not bound to enquire into the regularity of any internal proceedings and they will not be affected any irregularities as they have read and understood the memorandum and articles of the company.

- This rule is based on public convenience and Justice. Exceptions to the doctrine of indoor management Knowledge of irregularity Forgery Negligence on the part of the outsider No knowledge of articles