ARTICLES OF ASSOCIATION :
Ø These are internal
regulations of the Company.
Ø Play a subsidiary part of
MOA.
Ø Define duties, rights and
powers of governing body as between themselves and Company at large and mode
and form of business of Company to be carried on.
Ø It is optional for a
public Company limited by shares to register articles and compulsory for other
types of Company
Relationship between MOA and AOA.
¨ Articles subsidiary to
memorandum- Articles accept memorandum as charter of incorporation – Ashbury
Railway carriage case
¨ MOA and AOA be read
together but terms of MOA cannot be modified or controlled by articles-
Mudialliar’s Case – Articles cannot extend the scope of MOA ; Birla investments
vs CCI- Articles cannot supersede the objects of MOA.
¨ Alteration of articles is
subject to express or implied prohibition by MOA- Andrews v. Gas Motor Co.
Contents of Articles:
1.
Different classes of shares and their rights.
2.
Forfeiture of shares and their re issue.
3.
Transfer and transmission of shares
4.
Alteration of share capitals
5.
Payment of under writing commission of shares and debentures
6.
Re organization of share capital
7.
Appointment, power, duties and remuneration of MD, director,
manager or secretary and auditors
8.
General meetings and board meetings
9. Winding up
Alteration of articles- By special resolution
cannot be negatived by contract
Limitation on Alteration: Alteration of pointers
should be
§ Not inconsistent with
Company Act or any other law in force
§ Not inconsistent with
condition of MOA
§ Not inconsistent with
order of CLB to remedy, oppression and mismanagement.
§ Bonafide for benefits of
Company as a whole
§ Not constitute a fraud on
minority.
§ Cannot justify a breach of
contract
PROMOTERS: Meaning: It is a person who undertakes
to form a Co. with reference to a given project and takes necessary steps to
accomplish that purpose. In other words
a promoter means a person
o
Originates
the scheme for formation of Company
o
Prepares
, executes and registers MOA and AOA
o
Finds
the first directors
o
Settles
the terms of preliminary contracts and prospectus
o
Advertises
and circulates the prospectus, placing the capital
Duties of promoters:
¨
To act as a fiduciary agent-
To act in good faith towards Company (Erlanger case)
¨
To disclose to Company his position, profit and interest in
property which is the subject of sale and purchase by the Company.
¨
Not to make any profit out of the promotion of Co. without
disclosing it to the Co.
Liability of promoters:
Ø Rescission of contract by
Company in case of breach of trust provided agreement not ratified after
finding out non disclosure of misrepresentation or recovery of secret profits.
Ø If rescission not
possible, Company entitled to claim damages against promoters
Ø Promoters also liable to
damages for fraud if party to a willful false statements.
Ø In case of winding up
promoter liable for misfeasance or breach of trust.
Pre- Incorporation Contracts:
Contracts which the promoters enter into for the Company before
incorporation are called pre-incorporation contracts.
Legal Position
English law
·
A Company cannot enter into a contract before its
incorporation because it does not exist at that time as a legal person
·
The Company cannot even ratify such contracts although it can
enter into a fresh contracts after its incorporation.
Indian position :
¨ Pre incorporation
contracts not legally binding upon the Company as before incorporation, Company
is a non entity.
¨ Company also not entitled
to sue on a pre incorporation contract
¨ S. 19 (e) of specific
relief Act 1963 provides that specific performance may be enforced against a
Company where the promoters have entered into a contract for the purposes of
Company and contract warranted by the terms of its incorporation. Example: by
inclusion in the AOA
The expression warranted by the terms of incorporation means
within the scope of Company objects as stated in the MOA.
The term for the purposes of Company means such contracts are
necessary for incorporation and working of Company eg: printing of MOA articles
¨
Section 19(h) of the specific relief Act provides that
specific performance of such contract may be enforced by the Company provided
contract accepted and such acceptance communicated to other party to contract.
Case
Law: Erlanger Vs New Som Lrero Phosphate
Company ( All ER).
Erlanger
a paris banker with one other person purchased an island containing phosphate
mines for 55,000. They formed a company to purchase a lease of island and work
the mines.
Erlanger
named five directors of which two were abroad and remaining three were under
complete control of Erlanger. These three directors purchases island for
company for 10,000. A prospectus stating that contract for purchase of island
entered into was issued .
At
the ordinary GM, objection was raised about the purchase , matter investigated
and truth was revealed. The company failed and promoter was sued for refund of profit
made.
The
Court observed promoter is not prevented from selling his own property to
Company but must sell through the medium of BOD who can do exercise and
intelligent judgment on the transaction.
Promoters
of Company stand undoubtedly in a fiduciary position. if the company on coming
into existence purchases property of promoters , it is incumbent upon the
promoters to take care that in forming company they provided with BOD to decide
whether purchase ought or ought not to be made.
The
Company was held authorized to recover the balance from vendors of island who
were the promoter of the Company. Promoter
owes a duty of disclosure to the Company.
CHARITABLE CONTRIBUTIONS
Political Contributions :
DIVIDEND
BORROWING POWER OF COMPANY DEBENTURE AND CHARGE
Allotment of shares
LAW OF PROSPECTUS IN COMPANY LAW
Relationship between MOA and AOA.
DOCTRINE OF ULTRA VIRES
CONVERSION OF PRIVATE Company TO PUBLIC Company
KINDS OR TYPES OF COMPANIES
COMPANY LAW:-Characteristics of Company
