Section 19: Companies Act- Incorporating companies and compliances in India
Section 19 of the Companies Act, 2013 deals with the Articles of Association of a company. It specifies that every company shall have Articles of Association, which contains regulations for the company's internal management.
Relevant Case laws and Rules:
Table A: This is a model set of Articles of Association provided in the First Schedule of the Companies Act, 2013. It contains standard regulations for the internal management of a company, and companies can adopt these Articles of Association by reference.
Burland v. Earle: In this case, the court held that the Articles of Association are a contract between the company and its members, and also between the members themselves.
Re: Richmond Gate Property Co.: In this case, the court held that the Articles of Association cannot be altered in a way that conflicts with the provisions of the Companies Act or any other law.
Companies (Incorporation) Rules, 2014: These rules provide guidelines for the incorporation of a company and specify the requirements for the Articles of Association, including the format and content of the document.
Companies (Management and Administration) Rules, 2014: These rules specify the requirements for the maintenance and inspection of the Articles of Association, as well as the procedure for altering the same.
Re: Duomatic Ltd.: In this case, the court held that a resolution passed by all members of the company, even if not in accordance with the Articles of Association, can be binding on the company.
Companies (Amendment) Act, 2015: This amendment introduced the concept of "one person company" and "small company" and specified that such companies may have simplified Articles of Association.
Additionally, the Articles of Association should be drafted carefully to ensure that they meet the company's specific needs and goals. They should cover a range of issues such as the appointment and removal of directors, their powers and duties, the conduct of general meetings, the issuance and transfer of shares, and other operational and administrative matters.
It is important for companies to understand that the Articles of Association form a contract between the company and its members and between the members themselves. Therefore, any breach of the Articles of Association can lead to legal action by the aggrieved party.
The Companies Act, 2013 provides for the adoption of Table A Articles, which are standard Articles of Association that can be adopted by companies. However, it is recommended that companies customize the Articles of Association to meet their specific needs and goals.
Lastly, companies should ensure that their Articles of Association are easily accessible to their members and stakeholders. The Companies (Management and Administration) Rules, 2014 specifies that the Articles of Association must be open to inspection by any member of the company without charge. This will ensure transparency and prevent any disputes or misunderstandings regarding the company's internal management.
In conclusion, the Articles of Association play a crucial role in the internal management of a company, as they contain regulations for the company's operation and governance. Companies must ensure that their Articles of Association are compliant with the Companies Act and other relevant rules and regulations. Any alteration to the Articles of Association must be done in accordance with the provisions of the Companies Act and the company's Memorandum of Association. Companies must also ensure that they comply with the Companies (Incorporation) Rules, 2014, and Companies (Management and Administration) Rules, 2014, among other relevant rules and regulations. By doing so, companies can ensure that they are operating within the legal framework and avoid any legal or regulatory issues.
By Siddharth Dalmia
The StartUp Sherpa
+91-9971799250
dalmiasiddharth1994@gmail.com
