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Unit 8: Formation of Company

of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any Notes
person and diminish the amount of the share capital by the amount of the shares so cancelled.
This constitutes diminution of capital and should be distinguished from reduction of capital
which is discussed under unit on ‘Share capital’.

8.4 Articles of Association

8.4.1 Meaning and Purpose

The articles of association of a company and its bye laws are regulations which govern the

management of its internal affairs and the conduct of its business. They define the duties, rights,
powers and authority of the shareholders and the directors in their respective capacities and
of the company and the mode and form in which the business of the company is to be carried
out. The Articles of association of a company have a contractual force between company and its
members as also between the members inter se in relation to their rights as such members. They
are subordinate to and are controlled by memorandum. Articles cannot supersede the objects as
set out in the memorandum of association [Birds Investments Ltd. v. C.I.T. (1965) 35 Comp. Cas.
147 Cal.] The memorandum, as we have seen earlier, lays down the scope and powers of the
company, whereas the articles govern the ways in which the objects of the company are to be
carried out. Also the alteration of memorandum involves elaborate procedure, whereas the articles
can be framed and altered by the members by passing special resolution. The memorandum is
the area beyond which the actions of the company cannot go inside that area the shareholders

may make such regulations for their own governance as they think fit. However, the articles must
not be inconsistent with the memorandum. Also, as in the case of memorandum, the articles of
the company must not contain anything which is against or repugnant to the provisions of the
Companies Act (s.9).

8.4.2 Registration of Articles

Section 26 states that a public company limited by shares may register articles of association
signed by the subscribers to the memorandum. If, however, it does not register its own articles,
then the articles given in Table A of Schedule I automatically becomes applicable. Further, even
if it does register articles of its own, Table A will still apply automatically unless it has been

excluded or modified. There are actually three possible alternatives in which such company may
adopt articles: (i) it may adopt Table A in full or, (ii) it may wholly exclude Table A and set
out its own regulations in full, or (iii) it may set out is own articles and adopt part of Table A.
The alternatives (ii) and (iii) are often employed; and partial adoption of Table A has particular
advantage for small companies, because of economy in printing and also because any provision
of Table A is legally beyond any doubt.

As regard a company limited by guarantee and unlimited liability company and, a private
company limited by shares, s.26 provides for compulsory registration of articles prescribing
regulations for the company. However, they may adopt any of the appropriate regulations of
Table A.
In any case, the articles of a company must be: (i) printed, (ii) divided into paragraphs, numbered
consecutively, (iii) signed by subscribers to the memorandum in the presence of at least one
witness who shall attest the signatures. Also, articles are to be stamped with requisite stamp and
filed along with the memorandum (s.3).

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