Introduction: The Unseen Rulebook
Every company has an official identity that the world can see and a hidden system of rules that only the insiders experience. The visible part is the Memorandum of Association. It tells the world what the company is allowed to do and where its legal boundaries lie. But the unseen part, the one that decides how decisions are made, how members act, how directors function, and how meetings take place, is the Articles of Association (AOA). This document is the company’s internal rulebook and governs every detail of its management.
To understand the Articles properly, you must first understand the statutory definitions. Under Section 2(5) of the Companies Act, 2013, the Articles mean the Articles of Association of a company as originally framed or as altered from time to time. This definition confirms that Articles are flexible. They are not fixed in stone. They evolve with the company and can be amended legally whenever necessary. Under Section 5, the Act explains what Articles contain, how they must be formatted, and how they may include entrenchment provisions. Section 5 also allows a company to adopt model articles given under Schedule I or prepare its own customized articles based on its structure and requirements.
Before going deeper, it is important to connect this document with the Memorandum of Association. The Memorandum is the charter of the company. It defines the company’s registered office, its objects, its liability structure, the capital clause, and its subscribers. The Memorandum sets the outer boundary. The Articles regulate everything happening inside those boundaries.
This basic difference shapes the thesis of this blog:
The Articles of Association act as the internal constitution of the company. They regulate its management, protect member rights, and determine the procedural discipline that keeps a company functional. They are legally binding, flexible, enforceable, and subject to doctrines that define their interpretation.
To get a clearer foundation before diving deeper into Articles, you may review earlier blogs such as What is Company, Incorporation of Company, Types of Company,memorandum of association and Lifting of Corporate Veil. These pieces will help you understand how a company is created before learning how it is internally run.
AOA vs MOA: The Charter and the Bylaws
To understand the Articles properly, you must first contrast them with the Memorandum. The Memorandum tells what the company is. The Articles explain how the company works. The Memorandum creates the company’s legal identity. The Articles create its internal mechanics.
The Memorandum controls the company’s external powers. It says what the company can legally do and what it cannot. If the company does something outside the Memorandum, the act is void. The Articles cannot override or expand anything written in the Memorandum.
The Articles are subordinate to the Memorandum. They must comply with the provisions of the Memorandum and cannot contradict it. Even though Articles regulate almost every internal aspect of the company, the moment they conflict with the Memorandum, the Memorandum prevails.
This comparison becomes clearer with a formal table.
Comparison Table: MOA vs AOA
| Basis | MOA | AOA |
|---|---|---|
| Purpose | Defines corporate charter and limits of powers | Defines internal rules, management, procedures |
| Scope | External | Internal |
| Legal Position | Supreme and cannot be overridden | Subordinate to MOA |
| Alteration | Requires strict compliance under Section 13 | Altered by special resolution under Section 14 |
| Effects of Ultra Vires | Acts beyond MOA are void | Acts inconsistent with AOA can be ratified if within MOA |
The subordinate relationship is crucial. The Articles may provide detailed rules for management, but they always operate under the shadow of the Memorandum. A company cannot use its Articles to justify an action that violates the Memorandum. Courts have always been consistent in affirming this hierarchy.
Drafting the AOA: Contents and Model Articles
Drafting of Articles is governed by Section 5 of the Companies Act, 2013. A company can adopt model Articles under Schedule I or draft its own based on its specific needs. The Articles must be printed, divided into paragraphs, numbered consecutively, and signed by all subscribers to the Memorandum.
Schedule I provides model Articles for different types of companies. These include Table F for companies limited by shares, Table G for companies limited by guarantee without share capital, Table H for companies limited by guarantee with share capital, Table I for unlimited companies without share capital, and Table J for unlimited companies with share capital. These tables serve as ready-made frameworks which companies may adopt entirely or modify as required.
The content of Articles covers the entire internal functioning of a company. Every operational issue—from how directors must conduct meetings to how shares can be transferred—is governed by Articles.
Share Capital and Rights
The Articles explain the structure of share capital, the types of shares the company can issue, and the rights attached to each class. They determine how the company may alter its capital, issue new shares, consolidate or subdivide shares, and deal with unpaid share capital. Rights of preference shareholders and equity shareholders must be clearly stated. Ambiguity in share-related provisions may create disputes that affect voting, dividends, and liquidation preferences.
Transfer and Transmission of Shares
Shares may be voluntarily transferred or involuntarily transmitted due to death, insolvency, or succession. The Articles lay down the rules for both. Private companies usually impose restrictions on transfer, such as right of first refusal or board discretion to decline registration. Public companies require free transferability. The procedural details—applications, board approvals, documentation, registration—are all governed by Articles. Transmission rights belong to legal heirs or representatives and must be clearly outlined.
Directors: Appointment, Powers and Duties
The Articles define the number of directors, qualifications, tenure, appointment procedures, retirement by rotation, remuneration, and removal. They explain the powers of directors, delegation of authority, duties, responsibilities, and fiduciary obligations. Directors are the mind of the company, and the Articles decide how the board should function. Board meeting rules, quorum requirements, voting procedures, and circular resolutions all flow from the Articles.
General Meetings
Articles regulate how Annual General Meetings and Extraordinary General Meetings are convened. They specify notice periods, quorum requirements, voting procedures, proxy rules, poll mechanics, and record-keeping of minutes. These procedural rules ensure that member democracy is respected and that corporate actions receive proper authorisation.
Accounts and Audit
Articles outline the rules for maintaining proper books of accounts, preparing financial statements, presenting reports to members, and appointing auditors. These clauses ensure that financial accountability is preserved and that the company follows statutory requirements for transparency.
Borrowing Powers
The board’s power to borrow money, issue debentures, pledge assets, and create charges is governed by the Articles. Companies may set limits on borrowing and decide which actions require shareholder approval. These provisions protect members from unexpected financial exposure caused by excessive borrowing.
Winding Up
Articles also cover aspects of voluntary winding up, distribution of surplus assets, and rights of shareholders upon dissolution. These clauses determine how the final chapter of a company’s life will be handled.
Entrenchment Provisions (Section 5(3))
Entrenchment makes certain clauses difficult to alter. For example, the Articles may require unanimous approval instead of a special resolution for specific amendments. Entrenchment protects crucial governance structures from sudden or politically motivated changes. It ensures continuity, stability, and protection of minority interests.
The Legal Significance (Part I): AOA as a Binding Contract
The strongest legal effect of Articles comes from Section 10 of the Companies Act, 2013. It states that the Memorandum and Articles bind the company and its members as if each had personally signed the document. This creates a binding contract.
Members Bound to the Company
Members must follow the Articles. They cannot refuse to comply with voting rules, transfer procedures, or meeting regulations simply because they disagree with them. The Articles form the foundation of internal discipline.
The Company Bound to Members
Just as members are bound to the company, the company is bound by its own Articles. It cannot violate the procedures it has set for itself. If the Articles require shareholder approval before taking a certain action, the company cannot skip that requirement.
Members Bound Inter Se
Members are bound to one another under the Articles. Their mutual rights and duties—voting, transfers, participation in meetings—are governed by these rules. Articles create an internal contract among members, ensuring uniformity and consistency.
The Outsider Rule
The Articles do not bind outsiders. For example, an external supplier or auditor cannot claim rights under the Articles. Unless there is an independent contract, outsiders do not have enforceable rights based on Articles alone. This prevents misuse and maintains the internal nature of the document.
The Legal Significance (Part II): Doctrines Governing Articles
Certain legal doctrines shape the interpretation and application of Articles. These doctrines determine how outsiders interact with companies and how internal irregularities are viewed.
Doctrine of Constructive Notice
Under Section 399, the Memorandum and Articles are public documents. Anyone dealing with a company is presumed to have knowledge of their contents. They cannot claim ignorance. This doctrine protects companies by limiting the excuses outsiders may use in transactions.
Doctrine of Indoor Management (Turquand’s Rule)
This doctrine protects outsiders who assume that internal procedures have been complied with. It originated from the classic case Royal British Bank v Turquand. Outsiders cannot be expected to investigate internal procedures such as board approvals. If the Articles allow directors to borrow with shareholder approval, the outsider may assume approval was obtained unless suspicious circumstances exist.
Exceptions to Indoor Management
The protection is lost in certain cases.
If the outsider knew the irregularity, they cannot claim protection. If suspicious circumstances existed, the outsider must inquire further. Forged documents never enjoy protection. And acts that are ultra vires the Articles or the Memorandum cannot be validated through this doctrine.
Alteration of the AOA: Changing the Rules
Under Section 14, a company may alter its Articles by passing a special resolution. The alteration must be filed with the Registrar. In some cases, approval from the Central Government may be required.
But the power to alter Articles is not unlimited.
Restrictions on Alteration
The alteration must not exceed the Memorandum. It must not violate the Companies Act or any other law. It must be bona fide for the benefit of the company as a whole. It cannot amount to a fraud on the minority. It cannot override a separate contract. And under Section 15, it cannot increase member liability without written consent.
Courts carefully scrutinize alterations to ensure fairness and prevent abuse of power. The company must show that alterations serve legitimate purposes and do not discriminate unjustly.
AOA vs Shareholder Agreements (SHAs): A Modern Corporate Conflict
Shareholder Agreements are private contracts among shareholders containing rights related to transfer restrictions, exit mechanisms, voting arrangements, and investor protections. Conflict arises when SHA terms differ from Articles.
The traditional view in V.B. Rangaraj v. V.B. Gopalakrishnan held that restrictions not present in the Articles are unenforceable against the company or third parties. The modern view, particularly in the Vodafone judgment, recognizes that SHAs are valid among parties but cannot override the Articles or the Companies Act.
The safest approach, therefore, is to incorporate key SHA terms into the Articles. This ensures enforceability and provides constructive notice to third parties.
Conclusion: The AOA as a Living Document
The Articles of Association form the backbone of a company’s internal administration. They define how decisions are made, how rights are exercised, how directors operate, and how members participate in governance. They create a clear structure, prevent confusion, reduce disputes, and ensure the company functions smoothly. They are adaptable when necessary but firm enough to safeguard consistency and fairness.
As corporate governance becomes more complex, the AOA continues to evolve. It reflects the company’s culture, ethics, and vision. A well-drafted AOA protects members, enhances transparency, strengthens financial credibility, and ensures lawful operations.
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