Memorandum contains the area beyond which company cannot go; within that area the shareholders may make such regulations for their internal working as they think fit. Articles can be used to explain the objects laid down by the Memorandum, but never to extend them. They cannot modify the provisions of the Memorandum.
Memorandum contains conditions for the use of the creditors, shareholders and the outside public. Articles constitute a contract between the company and its members in the capacity of members. It is difficult to alter the clauses of the Memorandum.
But the articles can easily be altered by passing a special resolution and may even be altered retrospectively. Unlike Memorandum, articles need not be construed too meticulously.
Forms of the Articles:
Schedule I to the Companies Act contains certain model forms of Articles for different types of companies:
Table A for articles of a limited company having share capital.
Table B for articles of a company limited by guarantee and not having share capital.
Table D for articles of a company limited by guarantee and having.
Table E for articles of an unlimited company.
A company may adopt any one of the above forms as may be applicable or in a form as near thereto as circumstances permit. These forms are intended as models and a company may make adjustments in the form as per its requirements. (Sec. 29)
Articles of Association are to be printed, divided into paragraphs, each provision generally consist of one regulation, serially numbered and agreed by each subscriber to the Memorandum in the presence of at least one attesting witness with their addresses and occupations. (Sec. 30)
Contents of Articles:
The articles of Association of a company usually deal with the following matters:
(i) Adoption, exclusion, total or partial of Table A.
(ii) Definition of important terms and phrases.
(iii) Share capital and rights attached to different classes of shares,
(iv) Procedure as to making of calls and forfeiture of share.
(v) Appointment of managerial personnel e.g., directors, managing directors etc., their rotation, powers and duties.
(vi) Rules as to-
(a) Transfer and transmission of shares
(b) Issue of share warrants
(c) General meetings
(d) Common seal of the company
(e) Dividend, reserves and capitalisation of profits
(f) Accounts and audit
(g) Lien on shares
(h) Remuneration of managerial personnel
(i) Issue of redeemable preference shares
(j) Paying commissions and fixing rate thereof
(k) Paying interest out of capital
(l) Winding up of the company.
Regulations contained in the Articles of Association must not go beyond the powers of the company as laid down by the Memorandum of Association nor violate any of the requirements of the Companies Act. All clauses in the Articles ultra-vires the Memorandum or the Act shall be null and void.