Articles of Association (Section 5) →
If the memorandum of association is the company's charter — fixing its name, its objects, and its relationship with the outside world — the articles of association are its rulebook. The articles, governed by Section 5 of the Companies Act, 2013, contain the regulations for the internal management of the company: how directors are appointed, how shares are transferred, how meetings are convened, how dividends are declared. They are subordinate to the memorandum, but they are far from inert. Once registered, the articles operate as a statutory contract binding the company and every member, they can be entrenched against easy amendment, and through the doctrine of constructive notice they impute knowledge of their contents to everyone who deals with the company. This chapter works through the definition, contents, model forms, the Section 10 contract, alteration, and the indoor-management gloss that softens constructive notice.
Meaning and statutory definition
The articles of association are the internal regulations that govern the conduct of the company's affairs. They deal with the rights of the members inter se, the powers and duties of the directors, the conduct of meetings, the issue and transfer of shares, the declaration of dividends, the keeping of accounts, and the winding up — in short, the day-to-day constitutional machinery of the company. Section 2(5) of the Companies Act, 2013 defines "articles" to mean the articles of association of a company as originally framed or as altered from time to time, or as applied in pursuance of any previous company law or of this Act. Section 5(1) then provides directly that the articles of a company shall contain the regulations for management of the company.
Section 5(2) goes further and expressly permits the articles to contain such matters as may be prescribed, while making clear that nothing in the sub-section prevents a company from including additional matters in its articles considered necessary for its management. The articles are therefore a flexible instrument: the Act prescribes a baseline through the model forms, but the promoters are free to draft their own regulations so long as they do not contravene the Act or the memorandum. In Ashbury Railway Carriage and Iron Co. v. Riche, (1875) LR 7 HL 653, the House of Lords described the articles as defining the duties, the rights and the powers of the governing body as between themselves and the company at large, and the mode and form in which the business of the company is to be carried on — a description that remains the classic statement of their function.
Articles distinguished from the memorandum
The two constitutional documents are not of equal rank. The memorandum is the dominant instrument; the articles are subordinate to it. The memorandum lays down the scope and the powers of the company — its objects, its capital, the limit of its members' liability — while the articles merely regulate how those powers are to be exercised. The consequence is that the articles can neither enlarge nor contradict the memorandum: any provision in the articles that is inconsistent with the memorandum is void to the extent of the inconsistency. The Court of Appeal said as much in Guinness v. Land Corporation of Ireland, (1882) 22 Ch D 349, holding that the memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated, whereas the articles are the internal regulations of the company and are postponed to the memorandum.
The ranking has a further, sharper consequence for ratification. An act of the company which is ultra vires the memorandum — beyond its objects — is void and cannot be ratified even by the unanimous vote of all the shareholders, the rule established in Ashbury Railway Carriage and Iron Co. v. Riche. By contrast, an act that is merely beyond the authority conferred by the articles, but otherwise within the company's objects, is only irregular and can be ratified by the members by passing an appropriate resolution. This distinction — incurable invalidity under the memorandum versus curable irregularity under the articles — is examined further in our chapter on the company's capacity, the object clause and the ultra vires doctrine. Where the memorandum and the articles conflict, the memorandum prevails; where the articles are silent or ambiguous, the memorandum may be read to explain them, but never to be controlled by them.
Entrenchment — Section 5(3) to 5(5)
One of the genuine innovations of the 2013 Act is the statutory recognition of entrenchment. Section 5(3) provides that the articles may contain provisions for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures more restrictive than those applicable in the case of a special resolution are met or complied with. The ordinary route to amending the articles is a special resolution under Section 14 — that is, a three-fourths majority of members present and voting. Entrenchment allows the company to ring-fence chosen provisions behind a still higher hurdle: unanimity, a ninety-per-cent threshold, the consent of a named shareholder, or any other more demanding condition the drafters select.
Section 5(4) controls when entrenchment may be introduced. Such provisions can be made only in one of two ways: either on the formation of the company, or by a later amendment to the articles — and that amendment must be agreed to by all the members of the company in the case of a private company, and by a special resolution in the case of a public company. The higher consent requirement for introduction is deliberate: because entrenchment fetters the future amending power, the law insists that it be adopted with strong member backing. Section 5(5) completes the scheme by requiring that where the articles contain provisions for entrenchment, whether made on formation or by amendment, the company shall give notice to the Registrar of such provisions in the prescribed form and manner. Entrenchment is, in substance, a minority-protection device. It enables a class of investors — venture-capital backers, joint-venture partners, founder groups — to secure that the safeguards they bargained for cannot be stripped away by a bare special-resolution majority. Its statutory cousin is the share-transfer-restriction principle in V.B. Rangaraj v. V.B. Gopalakrishnan, AIR 1992 SC 453, where the Supreme Court held that a restriction on the transfer of shares is enforceable only if it is incorporated in the articles; a private agreement among shareholders not reflected in the articles binds nobody. Entrenchment gives that logic a formal home.
Model articles — Tables F to J of Schedule I
Section 5(6) provides that the articles of a company shall be in the respective forms specified in Tables F, G, H, I and J in Schedule I as may be applicable to such company. The five Tables are the statutory model articles, each tailored to a category of company. Table F applies to a company limited by shares. Table G applies to a company limited by guarantee and having a share capital. Table H applies to a company limited by guarantee and not having a share capital. Table I applies to an unlimited company having a share capital. Table J applies to an unlimited company not having a share capital. The Table that matches the company's type supplies a ready-made set of regulations covering the matters a working company needs.
The model articles are facilitative, not mandatory in their detail. Section 5(7) provides that a company may adopt all or any of the regulations contained in the model articles applicable to it. A company is therefore free to take the model wholesale, to adopt part of it, or to write its own articles entirely — subject always to the Act and the memorandum. Two default rules round out the scheme. Section 5(8) provides that in the case of any company registered after the commencement of the Act, in so far as the registered articles do not exclude or modify the regulations contained in the applicable model articles, those model regulations shall be the regulations of that company in the same manner and to the same extent as if they were contained in the duly registered articles. Section 5(9) preserves the operation of these provisions notwithstanding the other provisions of the section. The practical upshot is that silence operates in favour of the model: a company that omits to deal with a matter the model covers is taken to have adopted the model regulation on that point.
The statutory contract — Section 10
The legal force of the articles flows from Section 10. It provides that the memorandum and articles, when registered, shall bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles. Section 10(2) adds that all monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company. The effect is to create a statutory contract — a binding agreement constituted not by the parties' signatures but by the fact of registration.
The contract operates along three axes. First, the company is bound to each member: a member can compel the company to observe the articles in matters affecting him as a member. Second, each member is bound to the company: the company can hold a member to the articles. Third — and this is the proposition that the bare words of the section do not spell out but the cases supply — each member is bound to every other member. In Wood v. Odessa Waterworks Co., (1889) 42 Ch D 636, Stirling J. held that the articles of association constitute a contract not merely between the shareholders and the company, but between each individual shareholder and every other; a shareholder accordingly obtained an injunction restraining the company from paying what was in substance a dividend otherwise than in the manner the articles permitted. The discipline of the articles is, in this sense, mutual and many-sided.
The contract has a crucial limit: it binds only in the capacity of member. The articles confer no enforceable rights on an outsider, even where the outsider is named in them. The leading authority is Eley v. Positive Government Security Life Assurance Co., (1876) 1 Ex D 88. The articles named Eley as the company's solicitor for life; the company drew its business elsewhere, and Eley sued on the articles. He failed. Eley happened also to be a member, but the right he sought to enforce — the right to be employed as solicitor — was an outsider right, unconnected with his membership, and the statutory contract did not reach it. The principle is that a member may sue on the articles only to enforce rights he holds qua member; rights conferred on him in some other capacity are not part of the membership contract and cannot be enforced through it. This boundary explains why neither the company nor its members are bound to outsiders for anything contained in the articles, and why outsiders, conversely, take the articles as they find them.
Alteration of articles — Section 14
The articles are not frozen. Section 14 empowers a company, subject to the provisions of the Act and the conditions in its memorandum, by special resolution to alter its articles — including alterations having the effect of converting a private company into a public company, or a public company into a private company. A special resolution requires a three-fourths majority of those present and voting. The power to alter is, the courts repeatedly stress, a statutory power that a company cannot deprive itself of: any provision in the articles, or any private agreement, purporting to take away or fetter the power to alter the articles is void as being contrary to the statute. A company may bind itself contractually as to how it will exercise that power in a given case, and may be liable in damages for breach, but it cannot disable itself from altering the articles at all.
The proviso to Section 14 carves out the sensitive conversion. Where the alteration has the effect of converting a public company into a private company, it does not take effect except with the approval of the Tribunal, which may make such order as it thinks fit. Section 14(2) requires that every alteration of the articles, together with a copy of any order of the Tribunal approving the alteration, be filed with the Registrar, along with a printed copy of the altered articles, within fifteen days, in the prescribed manner; the Registrar registers them. Section 14(3) provides that any alteration of the articles so registered shall, subject to the provisions of the Act, be valid as if it were originally contained in the articles.
The amending power is wide but it is fenced by limits drawn from the case law. The alteration must be made bona fide for the benefit of the company as a whole. It must not be inconsistent with the Act or with the conditions in the memorandum — the subordination principle of Guinness v. Land Corporation of Ireland applies to amendments as much as to the original articles. By force of Section 6, which gives the Act overriding effect, an altered article repugnant to the Act is void to the extent of the repugnancy. And no alteration may increase the liability of a member to contribute to the share capital or otherwise pay money to the company unless that member agrees in writing. An alteration that satisfies these limits is good even if it operates harshly on a dissentient minority; one that is a fraud on the minority, or that is not genuinely directed to the company's interest, may be struck down.
Typical contents of a set of articles
Although the Act leaves the drafting largely to the company, a working set of articles characteristically deals with a recognised list of subjects, and an examiner expects familiarity with the catalogue. The articles ordinarily provide for the amount of share capital and the different classes of shares; the rights of each class and the procedure for varying those class rights; the allotment, calls, forfeiture, surrender, transfer and transmission of shares; the conversion of shares into stock; the issue of share certificates; and any lien the company has over shares. They then turn to the membership and governance machinery: the alteration of capital, the borrowing powers of the company, and the rules for general meetings — notice, quorum, the chairman, voting, polls and proxies.
The directorial provisions form the next block: the appointment, qualification, remuneration, powers, duties and disqualification of directors; the conduct of board meetings; the appointment of a managing director or manager; and the use of the common seal. The articles also regulate the declaration and payment of dividends, the creation of reserves, the keeping of accounts and their audit, the capitalisation of profits, and finally the procedure on winding up. Two points are worth carrying into the exam hall. First, where the articles create different classes of shares, the rights attached to a class can be varied only in accordance with the variation-of-class-rights machinery, and a member of an affected class who did not consent has a statutory right to apply to have the variation cancelled. Second, the articles must always be read subject to the Act: any regulation that purports to dilute a protection the Act confers — for instance, the right of members to requisition a meeting or to remove a director by ordinary resolution — is void to that extent under Section 6.
Constructive notice of the articles
The articles, once registered, are a public document. They are filed with the Registrar and may be inspected by any member of the public on payment of the prescribed fee. From this public character the courts derived the doctrine of constructive notice: every person dealing with the company is deemed to have read the memorandum and the articles and to have understood their contents in their proper meaning, whether or not he has in fact read them. He is treated as knowing the company's powers and the extent to which those powers have been delegated to the directors and other officers.
The doctrine cuts against the outsider. If the articles disclose a limitation on the company's or a director's authority, a person who deals with the company in disregard of that limitation cannot plead ignorance: he is fixed with notice of it and contracts at his peril. The classic illustration is the deed executed without the seal the articles require, or the loan taken from a director where the articles cap directors' lending power — in each case the outsider is presumed to know the restriction the articles contain. Constructive notice is thus a doctrine that protects the company against outsiders, and it is the natural counterpart of the public filing of the constitutional documents. Its full reach, and the criticism it attracted as an unrealistic fiction, are taken up in the dedicated chapter on the doctrine of constructive notice and indoor management.
The doctrine of indoor management
Constructive notice, applied without qualification, would make commerce with companies hazardous: an outsider would have to verify not only that a transaction is permitted by the articles but that every internal procedural step the articles require has actually been taken. To temper that harshness the courts developed the doctrine of indoor management — the rule in Royal British Bank v. Turquand, (1856) 119 ER 886, often called the rule in Turquand's case. The rule provides that a person dealing with the company, having satisfied himself that the proposed transaction is not inconsistent with the memorandum and the articles, is not bound to enquire into the regularity of the company's internal proceedings. He is entitled to assume that whatever the articles require to be done internally — a resolution, a quorum, a sanction — has in fact been done.
The facts of Turquand map the rule precisely. The articles authorised the directors to borrow on bond such sums as should be authorised by a resolution of the company in general meeting. The directors gave a bond to the bank without any such resolution having been passed. When the company resisted repayment on the ground of the missing resolution, the court held that the bank could recover: the lender was entitled to assume that the resolution required by the articles had been duly passed, that being a matter of indoor management into which it had no obligation to enquire. Constructive notice tells the outsider what the articles permit; indoor management relieves him of the burden of policing whether the company has internally complied. The two doctrines are complementary halves of a single scheme — one protecting the company, the other protecting those who deal with it in good faith.
Exceptions to indoor management
The protection of Turquand's case is not unconditional. It is lost in several well-recognised situations, each of which restores the rigour of constructive notice. The first is knowledge or suspicion of irregularity. A person who actually knows that the internal procedure has not been complied with, or who in the circumstances ought to have suspected an irregularity and made enquiry, cannot shelter behind the assumption of regularity; the rule protects the honest and unsuspecting, not those who shut their eyes.
The second exception is forgery and fraud. An act that is void ab initio — a forged share certificate, a forged document executed in the company's name — confers nothing, and the rule of indoor management does not validate it; the company is not bound by a forgery merely because the outsider assumed regularity. The third exception is ignorance of the articles. A person who has not consulted the memorandum and articles at all, and who therefore cannot have relied on them, is not entitled to invoke the indoor-management presumption: the rule assumes that the outsider knows what the articles permit and is excused only from checking the internal mechanics. A fourth, allied limitation arises where the transaction is itself one that ought to have put the outsider on enquiry — an unusual or suspicious dealing, particularly one for the apparent private benefit of an officer — in which case the outsider is expected to verify the officer's actual authority. Within these boundaries, the rule in Turquand's case remains the everyday lubricant of dealings with companies, allowing third parties to transact without auditing the company's internal housekeeping.
Exam pointers and recurring distinctions
Several propositions recur with high frequency in judiciary and CLAT-PG papers, and they reward precise recall. First, the section numbers: the articles are defined in Section 2(5), governed by Section 5, given contractual force by Section 10, altered under Section 14, and made subject to the Act's overriding effect by Section 6. Entrenchment lives in Section 5(3) to 5(5); the model Tables F to J in Section 5(6) read with Schedule I. Second, the memorandum-versus-articles ranking: the memorandum is supreme, the articles subordinate; an ultra vires-the-memorandum act is void and unratifiable (Ashbury), an act merely beyond the articles is ratifiable.
Third, the contract under Section 10 binds in three directions — company to member, member to company, and member to member (Wood v. Odessa Waterworks) — but only in the capacity of member, so an outsider named in the articles cannot sue on them (Eley). Fourth, the alteration power under Section 14 cannot be contracted away, must be bona fide for the company as a whole, cannot increase a member's liability without written consent, and requires Tribunal approval for a public-to-private conversion. Fifth, the constructive-notice/indoor-management pair: the articles being public, outsiders have constructive notice of them, but the rule in Royal British Bank v. Turquand lets a bona fide outsider assume internal regularity — subject to the exceptions of knowledge or suspicion of irregularity, forgery, and ignorance of the articles. A candidate who can state these five clusters accurately, with the leading case attached to each, has the topic under control. For the wider statutory scheme, see the Companies Act notes hub, the chapter on incorporation procedure, and the foundational introduction to company law.
Frequently asked questions
What is the difference between the memorandum and the articles of association?
The memorandum of association is the company's charter — it defines the company's constitution, the scope of its powers, and its relationship with the outside world; the articles of association are the internal rulebook governing how those powers are exercised. The memorandum is the dominant instrument: the articles are subordinate to it and cannot enlarge or override it. The point was settled in Guinness v. Land Corporation of Ireland, (1882) 22 Ch D 349, where the Court of Appeal held that the memorandum contains the fundamental conditions on which alone the company is incorporated, while the articles are merely internal regulations. An act ultra vires the memorandum is void and cannot be ratified even by the whole body of shareholders, whereas an act merely beyond the articles can be ratified by an appropriate resolution. Where the two conflict, the memorandum prevails.
Are the articles of association a binding contract under the Companies Act 2013?
Yes. Section 10 of the Companies Act 2013 provides that the memorandum and articles, when registered, bind the company and its members to the same extent as if they had been signed by the company and by each member, and contained covenants on their part to observe all their provisions. This creates a statutory contract: the company is bound to each member, each member is bound to the company, and — as held in Wood v. Odessa Waterworks Co., (1889) 42 Ch D 636 — each member is bound to every other member in their capacity as members. The contract binds only in the capacity of member; it does not confer rights on an outsider, even one named in the articles, as Eley v. Positive Government Security Life Assurance Co., (1876) 1 Ex D 88, established when a solicitor named in the articles could not sue on them.
What are entrenchment provisions under Section 5(3) of the Companies Act 2013?
Entrenchment provisions, introduced by Section 5(3), allow the articles to specify that certain provisions may be altered only on conditions or procedures more restrictive than a special resolution — for instance, requiring unanimity or a higher super-majority. Under Section 5(4), such provisions can be made only on formation of the company, or later by amendment agreed to by all members in a private company or by special resolution in a public company. Section 5(5) requires the company to give notice of the entrenchment to the Registrar in the prescribed form. Entrenchment is a minority-protection device: it shields agreed safeguards from being swept away by an ordinary 75 per cent special-resolution majority.
What are the model articles in Tables F to J of Schedule I?
Section 5(6) provides that the articles shall be in the respective forms specified in Tables F, G, H, I and J in Schedule I, as applicable to the type of company. Table F applies to a company limited by shares; Table G to a company limited by guarantee and having a share capital; Table H to a company limited by guarantee and not having a share capital; Table I to an unlimited company having a share capital; and Table J to an unlimited company not having a share capital. Under Section 5(7), a company may adopt all or any of the regulations in the model articles applicable to it; and under Section 5(9), where it registers articles that do not exclude or modify the model regulations, those regulations form part of its articles by default.
How are the articles of association altered under the Companies Act 2013?
Section 14 empowers a company, by special resolution, to alter its articles, including an alteration having the effect of converting a private company into a public company or vice versa. The power is wide but not unlimited: the alteration must be bona fide for the benefit of the company as a whole, must not be inconsistent with the Act or the memorandum, and must not increase a member's liability without written consent. A conversion of a public company into a private company requires the approval of the Tribunal. Every altered set of articles, with any Tribunal order, must be filed with the Registrar within fifteen days, after which the altered articles are valid as if originally contained in them. A company cannot contract out of or fetter its statutory power to alter its articles.
What is the doctrine of indoor management and how does it relate to the articles?
Because the articles are a public document, every person dealing with the company has constructive notice of their contents. To soften that rule, the doctrine of indoor management — the rule in Royal British Bank v. Turquand, (1856) 119 ER 886 — allows an outsider who has satisfied himself that the proposed transaction is consistent with the articles to assume that the company's internal procedures have been duly complied with. In Turquand's case the directors borrowed on a bond without the resolution the articles required, yet the lender could recover, being entitled to presume the resolution had been passed. The protection is lost where the outsider knew of or suspected the irregularity, where there is forgery or fraud, or where he never examined the articles at all.