Articles of Association and Contents of Articles in Business Memorandum

Articles of Association:

Articles are the rules, regulations and bye-laws for the internal management of the affairs of a company. They are framed with the object of carrying out the aims and objects as set out in the memorandum of Association. They are as such subordinate to, and controlled by, the Memorandum of Association.

Contents of articles:

Articles usually contain provisions relating to the following matters:

Share capital, rights of shareholders, variation of these rights, payment of commissions, share certificates

Calls on shares

Transfer of shares

Transmission of shares

Forfeiture of shares

Conversion of shares into stock

Share warrants

Alteration of capital

General meetings and proceedings there at

Voting rights of members, Voting and poll, proxies

Directors, their appointment, remuneration, qualifications, powers and proceedings of board of directors

Manager

Secretary

Dividends and reserves

Accounts, audit and borrowing powers

Capitalisation of profits

Winding up

Companies which must have their own Articles:

The following companies shall have their own articles, namely,

Unlimited companies,

Companies limited by guarantee,

Private companies limited by shares,

The Articles shall be signed by the subscribers of the Memorandum and registered along with the Memorandum,

A public company may have its own Articles of Association. If it does not have its own Articles, it may adopt Table A given in schedule I to the Act

Regulations required in case of an unlimited company, a company limited by guarantee and a private company

Unlimited company: In the case of an unlimited company, the Articles shall state-

The numbers with which the company is to be registered, and

If it has a share capital, the amount of share capital with which the company is to be registered

Company limited by guarantee: The case of a company limited by guarantee, the articles shall state the number of members with which the company is to be registered.

Private company: In the case of a private company having a share capital, the Articles shall contain provisions which-

Restrict the right to transfer shares,

Limit the number of its members to 50 (not including employee-members), and

Prohibit any invitation to the public to subscribe for any shares in, or debentures of, the company.

Form of Articles in the case of other companies:

The Articles of any company, not being a company limited by shares, shall be in such one of the Forms in Tables C,D, and E in schedule I to the Act

Such a company may include any additional matters in its Articles in so far as they are not inconsistent with the provisions

Form and signature of Articles:

Printed,

Divided into paragraphs, and

Signed by each subscriber of the Memorandum (who shall add his address, description and occupation, in the presence of at least l witness who will attest the signature and likewise add his address) description and occupation.

Kinds of Companies in Corporate World

Classifications On The Basis Of Incorporation:

Statutory companies:

The company which is created by a special Act of the legislature called statutory companies. For example – the Reserve Bank of India, the State Bank of India, the Life Insurance Corporation, the Industrial finance Corporation, the Unit Trust of India etc.

These are mostly concerned with public utilities.

Registered companies:

Companies registered under the Companies Act 1956 are known as registered companies. These are by far the most commonly found companies.

Classification On The Basis Of Liability:

On the basis of liability companies may be classified into:

Companies with liability:

Companies limited by shares:

Where the liability of the members of a company is limited to the amount unpaid on the shares, such a company is known as a company limited by shares.

Companies limited by guarantee:

Where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in the event of its being wound up.

These are not formed for the purpose of profit but for the promotion of art, science, culture, charity, sports, commerce.

Unlimited companies:

(Section 12) specifies that any 7 or more persons (2 or more in case of a private company) may form an incorporated company with or without limited liability.

A company without limited liability is known as an unlimited company.

Every member is liable for the debts of the company in proportion to his interest in the company.

Classification On The Basis Of Number Of Members:

Private company:

A ‘private company’ means a company which has a minimum paid-up capital of Rs. 1,00,000 or such higher paid-up capital.

Restricts the right to transfer its shares.

Limits the number of its members to 50 not including its employee-members (present or past);

Prohibits any invitation to the public to subscribe for any shares in, or debentures of the company;.

Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Public company:

A public company- has a minimum paid-up capital of Rs. 5 lakh or such high paid-up capital; it is a private company which is a subsidiary of a company which is not a private company.

Classification On The Basis Of Control:

Holding company:

A company is known as the holding company of another company if it has control over that other company. According to sec. 4 (4), a company is “deemed to be the holding company of another if, that other is its subsidiary.”

Subsidiary company:

A company is known as a subsidiary of another company when control is exercised by the latter (called holding to company) over the former called a subsidiary company.

A company is deemed to be a subsidiary of another company in the following 3 cases:

Company controlling composition of board of directors.
Where a company (Company A) controls the composition of board of directors of another company (Company B), the latter (Company B) becomes the subsidiary of the former (Company A).

Holding of majority of shares:

Where a company (Company A) holds more than half in nominal value of equity share capital of another company (Company B) the latter (Company B) becomes the subsidiary of the former (Company A).

Subsidiary of anther subsidiary:

Where a company (Company B) is subsidiary of anther company (say Company A1) which is itself subsidiary of the controlling company (Company A), the former (Company B) becomes the subsidiary of the controlling company (Company A).

Classification On The Basis Of Ownership:

Government company, or

Non-government company

Government Company:

A Government company means any company in which not less than 51 per cent of the paid-up share capital is held by.
The central government, or
Any state government or governments, or
Partly by the central Government and partly by one or more state Governments.

Foreign Company:

It means any company incorporated outside India which has an established place of business in India.

Where a minimum of 50 per cent of the paid-up share capital of a foreign company is held by one or more citizens of India.