THE ARTICLES DEFINE THE DUTIES, THE RIGHTS AND THE POWER OF 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.

THE ARTICLES DEFINE THE DUTIES, THE RIGHTS AND THE POWER OF 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.

1.     INTRODUCTION

Company is made by law where each organization has own identity. It is a common term which is an association of a number of directors and shareholders, formed for some common purpose and registered according to the law relating to companies. Lord Justice Lindley[1] defines, “By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share[2]”. Law or the Company Act gives clear guideline about how the organization can be managed and executed.  However, company can’t run by itself. There are group of directors, chairman, managing director – top level executors to run the company. This research is going to talk about what duties, power and rights they have as board of directors to run the company.

2.     FORMATION OF A COMPANY

According to Company Act 1994[3], “Any seven or more persons or, where the company to be formed will be a private company, any two or more persons associated for any lawful purpose may subscribing their names to a memorandum of association and otherwise with the requirements of this Act in respect or registration form an incorporated company, with or without limited liability. – Section 5”. So the documents and registration is must required no matter whether it is a private company or a public one.

There are many steps we need to follow to form a company successfully which are given below.

Figure 1: Steps of Formation of a Company

The very first stage is the promotional stage where the promoter thinks to form a company for specific purpose. They have to take necessary decisions regarding company name, address, types of the company, what they are going to do, authorized and paid-up capital, how they collect the paid-up capital, etc. They have to collect name clearance from the authorized registrar. Now it is the time to prepare the documents like – memorandum of association[4] and articles of association[5]. Then the promoters have to submit all the documents to the registrar’s office to authorize the company under the company act. Finally, registrar office gives the certificate of incorporation and the certificate of commencement. Company Act 1994 Sec 23(1)[6] states, “On the registration of the memorandum of a company the Registrar shall certify under his hand that the company is incorporated”. After successful completion of all these documents and registration, a company can starts its operation.

3.     MEMORENDUM AND ARTICLES OF ASSOCIATION

The most important documents to form and run a company are the memorandum of association and the articles of association. Without these two documents no company can be formed and registered.

A.     Memorandum of Association

It is the main document that governs the relationship between the company and the outside. It is one of the documents required to incorporate a company in many common law jurisdictions of the Commonwealth. Bangladeshi Company Act 1994 sec – 2(1-n)[7] states, “Memorandum means the memorandum of association of a company as originally framed or as altered in pursuance of the provisions of this Act”. It is not cleared from the act but Lord Cairns defined it more carefully in a case[8]. He said, “The Memorandum of Association of a company is its charter and defines its limitation of the powers of the company, established under the Act”. Memorandum of Association contains different clauses which are –

Ø      Name clause Ø      Situation and address clause
Ø      Object clause Ø      Capital clause
Ø      Liability clause Ø      Consent clause

So, the memorandum contains all these fundamental conditions upon which alone the company is to be incorporated.

B.     Articles of Association

It is the second most important document that is required to run the company perfectly. It includes internal rules and regulations of a company which directly describes the duties, rights, power and responsibilities of the directors; nature and the process of the business; and the changing of internal management rules and nature. Lord Cairns also agreed with this definition of Articles of Association.

There is a significant relation between Memorandum and the Articles of Association. Lord Cairns in Riche, described the relationship between the memorandum and the articles in this language: “The memorandum is as it were, the area beyond which the actions of the company cannot go; inside the area, the shareholders may make such regulations for their own government as they think fit[9]“.

ü      The Articles are subordinate to Memorandum.

ü      The Memorandum must be read in conjunction with the Articles.

ü      The terms of the Memorandum cannot be modified or controlled by the Articles.

Laws alone can not secure freedom of expression; in order that every man present his views without penalty there must be spirit of tolerance in the entire population.

–          Albert Einstein (1879 – 1955)

4.     LEGAL EFFECT OF THE ARTICLES

We know Articles of Association contains internal rules and regulations. It has same importance as memorandum of association. The legal effects are –

ü      It is one kind of contract between the company and the shareholders. After the registration it is assumed by the act that company and the shareholders both agreed with all the conditions of Articles of Association. Both parties must are oblige to maintain the conditions. If necessary it can be enforced by law.

ü      If any party breaks any condition then any party can take legal action against other party for breaking the rules of Article of Association.

ü      If any shareholder has the liability to the company according to the Article of Association then s/he must pay that liability.

ü      It is a document that is open for all who are linked with the company.

5.     FORMS AND CONTENTS OF ARTICLES

According to under section 18 of Company Act 1994, any company whose liability is limited can have the sample schedule 1 as their Article of Association. However, for the company whose liability is not limited they have to have a separate Article of Association. Under sec 19 of Company Act 1994[10], it has been stated regarding how an Article should be formed.

[“Articles shall –

ü      Be printed;

ü      Be divided into paragraph numbered consecutively; and

ü      Be signed by each subscriber of the memorandum, who shall add his address and description in the presence of at least two witness who shall attest the signature.”]

There are many issues that need to be discussed in the Articles of Association. Those issues should be very specific and very straight forward. The contents of Articles of Association are discussed below.

Share Related Issues

ü      Share capital, rights of shareholders, payment of commissions, share certificates;

ü      No of share; Share price; Selling of a share;

ü      Lien on shares; Calls on shares; Transfer of shares;

ü      Transmission of shares; Forfeiture of shares;

ü      Conversion of shares into stock; Share warrants;

Capital Related Issues

ü      Alteration, of capital; Authorized capital;

ü      Types of the capital; Rules for reforming capital;

Meeting Related Issues

ü      Call up an AGM, EGM or any other meeting;

ü      General meetings and voting rights of members;

ü      Appointment and remuneration of directors, board of directors, managers and secretary;

Dividend/Profit Related Issues

ü      Dividends and reserves;

ü      Accounts and audit and borrowing powers;

ü      Capitalization of profits;

Winding-up Related Issues

ü      Winding up;

ü      Distribution of the liabilities-assets after winding up

Figure 2: Two Main Phase to form The Company

6.     GOVERNING BODY/BOARD OF DIRECTORS

Managing a company is quite different from any other types of business. Though shareholders are the real owner of a company, but they can’t be that much active in operation. Their contribution is very limited. However, board of directors (also referred as the governing body) work as agent of the shareholder they has the highest power to run the company. Now the question is – who are the directors? According to the Company Act 1994[11], “Director includes any person occupying the position of director by whatever name called”. [sec. 2(f)]. The board of the directors plays the most vital role in a company. All the executions are taken care by the board of directors. For public limited company there should be minimum 3 directors and 2 directors for the public limited company.

Even when laws have been written down, they ought not always to remain unaltered.”

–         Aristotle (384 BC – 322 BC), Politics

7.     LEGAL POSITIONS OF THE DIRECTORS

Legal position of the directors can be categorized into three parts.

A.     Director as Agent

Every company has its own entity by the law. But a company can’t do anything by itself. That’s why it needs agents who help to do necessary works. Directors play a vital role for the company for which we can identify them as the agent of the company. Cairns L. J.[12] agreed with the idea and said:

“What is the position of the directors of a public company? They are merely agent of the company. The company itself cannot act in its own person, for it has no person, it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent, for wherever an agent is liable those directors would be liable, where the liability would attach to the principal, and the principal only, the liability is the liability of the company”.

B.     Director as Trustee

Directors are the trustee of a company as they maintain everything and monitoring all the activities for the company. In this case, Ramaswamy Iyer Vs. Brahmayya & Co[13] directors are identified as trustee. Though directors are the trustee but there are some limitations.

C.     Director as Employee

By law, directors can’t be defined as the employee of the company. Though, any directors can be employee by signing a contract between him/r and the company. There are no restrictions in this case by law. So any directors can also be the Managing Director of the company. Lord Selborne[14] said, “The directors are the mere trustees or agents of the company, trustee of the company’s money and property, agents in the transactions which they enter into on behalf of the company”.

“Law stands mute in the midst of arms.”

–          Cicero (106 BC  – 43 BC), Pro Milone

8.     POWER OF DIRECTORS

The powers of the directors are clearly defined by the Article of Association. Directors apply their power by the proper authorization of the Memorandum of Association of the company. They have also some power beyond the Article of Association. Generally directors take decisions in the meeting which must be validated by the shareholders. The powers of the directors defined in the Article of Association are –

ü      Defined company’s general rules and regulation

ü      Issue shares and give to the shareholders

ü      Share cancellation

ü      Issue debenture or take loan from any other source if necessary

ü      Take decisions for the company

ü      Issue dividend

ü      Have general reserve

ü      Sign contracts with the third party for the company

ü      Maintain financial accounts of the company

ü      Give loan or invest in any other source

ü      Give lease any parts of the company or the full parts

ü      Select the Managing Directors and define his/r responsibility

ü      Give notice for general meeting or any meeting according to the Company Act 1994.

If it’s necessary then the governing body can decentralize their power to the Managing Director. Then the Managing Director will be the person who manages all the section of the company.

”Where you find the laws most numerous, there you will find also the greatest injustice.”

–          Arcesilaus

9.     RESTRICTION ON POWERS OF DIRECTORS

Though the Board of the Directors is the most powerful body of the company, they have some restriction on their powers according to the Company Act 1994.

ü      A director can’t transfer his/r power to any other person.

ü      Directors can’t take any loan from the company except it’s a bank. He also can’t give personal guarantee to any other directors for their loan.

ü      Except with the consent of the directors, a director of the company, or the firm of which he is a partner or any partner of such firm or the private company of which he is a member or director, shall not enter into any contract for the sale, purchase or supply of goods and materials with the company.

ü      The directors of a company or of a subsidiary company of a public company shall not, except with the consent of the company concerned in general meeting

§         Company can’t sell or transfer any factory

§         Remit any debt due by a director.

10.           FUNCTIONS OF A BOARD OF DIRECTORS

The functions of the board of the directors according to the Articles of Association are –

ü      Define, implement and monitor company’s rules and regulation.

ü      Make sure that all the works have done properly under the Company Act 1994.

ü      Make sure that shareholders have their rights properly

ü      Call up AGM, EGM or any other meetings for the shareholders

ü      Keep and save papers, accounts according to the Articles of Association

ü      If any directors leave in between two AGM, then look for a new director

ü      Manage the appointments new employees, transfer or dismissal activities

ü      Define the targets of the company and go according to the target

ü      to achieve the goal of the company, appoint the Managing Director, General Manager or any other manager

ü      Authorize the budgets for the company

ü      Give dividends

ü      Give information about the company in a shareholders meeting

ü      Analyze what company achieves so far

ü      Make sure that all the accounts are maintained under the Company Act 1994

ü      Have contract with other party for the company

ü      Issue shares and maintain share related all the activities

ü      Invest in other source to achieve the best output from the capital

ü      Debenture issue and take loan from other source.

11.           HOW ARTICLES DEFINE DUTIES, RIGHTS AND THE POWER OF GOVERNING BODY

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as “the board.”

According to Wikipedia[15], A board’s activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization’s bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. The board is elected by the stockholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e.g., a university, the board is the supreme governing body of the institution.

Typical duties of boards of directors include –

ü      Governing the organization by establishing broad policies and objectives;

ü      Selecting, appointing, supporting and reviewing the performance of the chief executive;

ü      Ensuring the availability of adequate financial resources;

ü      Approving annual budgets;

ü      Accounting to the stakeholders for the organization’s performance.

The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.

The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom and many other countries. Together with the memorandum of association, they constitute the constitution of a company. The Articles of Association is the main thing that shows the path to the director about how they run the company. The issuing of shares (also called stock)[16], valuation of intellectual rights, the appointments of directors[17], directors meetings[18], management decisions[19], transferability of shares[20], special voting rights of a Chairman, and his/her mode of election, the dividend policy[21], winding up – the conditions, notice to members, confidentiality of know-how and the founders’ agreement and penalties for disclosure, first right of refusal[22] – actually everything is directly discussed in the Articles of Association.

“It was the boast of Augustus that he found Rome of brick and left it of marble. But how much nobler will be the sovereign’s boast when he shall have it to say that he found law… a sealed book and left it a living letter; found it the patrimony of the rich and left it the inheritance of the poor; found it the two-edged sword of craft and oppression and left it the staff of honesty and the shield of innocence.”

–                      Henry Brougham (1778 – 1868)

12.           CONCLUSION

According to corporate legislation, every incorporated firm must have and work by. And which, along with memorandum of association, forms the constitution of a firm. Also called articles, it is a contract (1) between the members (stockholders, subscribers) and the firm and (2) among the members themselves. It sets out the rights and duties of directors and stockholders individually and in meetings. As Articles of Association has certain rules and regulation, the directors can’t do anything that is prohibited by the Articles. So, the duties, rights and the power of the directors are clearly bound by the Articles, by the Company Act. What the directors will do must be matched with the Articles. If any decisions or anything has been done that is not authorized by the Articles will not be valid by the law.

So, we can agree with the topic that the articles define the duties, the rights and the power of 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.

13.           BIBLIOGRAPHY

Ø      Articles of Agreement Law & Legal Definition

Ø      Company.” Crystal Reference Encyclopedia. Crystal Reference Systems Limited.

Ø      Companies Act 2006

Ø      Companies House retrieved from http://www.companieshouse.gov.uk/infoAndGuide/companyRegistration.shtml

Ø      Griffin, S. Company Law. “Fundamental Principles”.  4th Edition.

Ø      http://www.nestle.com/MediaCenter/MediaLibrary/Documents/Documents.htm?GUID=D0ABBAF1-E3DE-438C-BD3A-937CE90718C9

Ø      Joint Stock Companies Act 1856 – Table B

Ø      Kenny, C. S. A Selection of Cases Illustrative of the English Law of Tort”.

Ø      Legal Service India.com. “Origin and Evolution of the Modern Company Law” retrieved from, http://www.legalserviceindia.com/articles/eocindia.htm

Ø      Pettet’s Company Law. “Company and Capital Markets Law”. 3rd Edition.

Ø      Rajput Brotherhood Article Library. “Articles of association : A detail note on the contents of the articles of association of a company” retrieved from, http://www.rajputbrotherhood.com/articlelibrary/201011124940/articles-of-association-a-detail-note-on-the-contents-of-the-articles-of-association-of-a-company.html

Ø      Taylor, C. “Law Express: Company Law first edition”.

Ø      The Companies (Bangladesh) Act, 1994.

Ø      The Gemini Geek, “What Is Joint Stock Company?“ retrieved from, http://www.thegeminigeek.com/what-is-joint-stock-company/.

Ø      Wikipedia. “Memorandum of Association” retrieved from, http://en.wikipedia.org/wiki/Memorandum_of_association

Ø      Wikipedia. “Articles of Association” retrieved from, http://en.wikipedia.org/wiki/Articles_of_association

Ø      Wikipedia. “Board of Directors” retrieved from, http://en.wikipedia.org/wiki/Board_of_directors

Ø      Wild, C, Weinstein, S, “Smith and Keenan’s Company Law” 14th Edition.

Ø      Under the law prior to the 2006 Act, in the event of any inconsistency between the memorandum and the articles, the memorandum usually prevailed: see Ashbury v Watson (1885) 30 Ch D 376.

Ø      Vakilno1, retrieved from http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

“Let me not be understood as saying that there are no bad laws, nor that grievances may not arise for the redress of which no legal provisions have been made. I mean to say no such thing. But I do mean to say that although bad laws, if they exist, should be repealed as soon as possible, still, while they continue in force, for the sake of example they should be religiously observed.”

–          Abraham Lincoln (1809 – 1865)

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[1] Sir Nathaniel Lindley, Baron Lindley SL PC FRS (29 November 1828 – 9 December 1921), English judge, second son of the botanist John Lindley, was born at Acton Green, London.

[2] http://www.thegeminigeek.com/what-is-joint-stock-company/

[3] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[4] According to Wikipedia – The memorandum of association of a company, often simply called the memorandum (and then often capitalised as an abbreviation for the official name, which is a proper noun and usually includes other words), is the document that governs the relationship between the company and the outside. It is one of the documents required to incorporate a company in the United Kingdom, Ireland and India, and is also used in many of the common law jurisdictions of the Commonwealth.

[5] According to Wikipedia – The term articles of association of a company, or articles of incorporation, of an American or Canadian Company, are often simply referred to as articles (and are often capitalized as an abbreviation for the full term). The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom and many other countries.

[6] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[7] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[8] Ashbury Railway Carriage and Iron Co. Ltd. Vs. Riche [(1887) 7.H.L. 63]

[9] Collected from a book, A selection of cases illustrative of the law of contract : (based on the collection of G.B. Finch), written by – Kenny, Courtney Stanhope, 1847-193

[10] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[11] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[12] Judge of the case – Fargusion Vs. Wison [(1866) L.R. 2 ch. App. 77, 79]

[13] 1966 – comp. L. J. 107 (Mad)

[14] Judge of the case G. E. Rly. Vs. Turner [(1892) L. R. 8. Ch. 149]

[15] Source – http://en.wikipedia.org/wiki/Board_of_directors

[16] different voting rights attached to different classes of shares

[17] which shows whether a shareholder dominates or shares equality with all contributors

[18] the quorum and percentage of vote

[19] whether the board manages or a founder

[20] assignment rights of the founders or other members of the company do

[21] a percentage of profits to be declared when there is profit or otherwise

[22] purchase rights and counter-bid by a founder

THE ARTICLES DEFINE THE DUTIES, THE RIGHTS AND THE POWER OF 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.

THE ARTICLES DEFINE THE DUTIES, THE RIGHTS AND THE POWER OF 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.

1.     INTRODUCTION

Company is made by law where each organization has own identity. It is a common term which is an association of a number of directors and shareholders, formed for some common purpose and registered according to the law relating to companies. Lord Justice Lindley[1] defines, “By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share[2]”. Law or the Company Act gives clear guideline about how the organization can be managed and executed.  However, company can’t run by itself. There are group of directors, chairman, managing director – top level executors to run the company. This research is going to talk about what duties, power and rights they have as board of directors to run the company.

2.     FORMATION OF A COMPANY

According to Company Act 1994[3], “Any seven or more persons or, where the company to be formed will be a private company, any two or more persons associated for any lawful purpose may subscribing their names to a memorandum of association and otherwise with the requirements of this Act in respect or registration form an incorporated company, with or without limited liability. – Section 5”. So the documents and registration is must required no matter whether it is a private company or a public one.

There are many steps we need to follow to form a company successfully which are given below.

Figure 1: Steps of Formation of a Company

The very first stage is the promotional stage where the promoter thinks to form a company for specific purpose. They have to take necessary decisions regarding company name, address, types of the company, what they are going to do, authorized and paid-up capital, how they collect the paid-up capital, etc. They have to collect name clearance from the authorized registrar. Now it is the time to prepare the documents like – memorandum of association[4] and articles of association[5]. Then the promoters have to submit all the documents to the registrar’s office to authorize the company under the company act. Finally, registrar office gives the certificate of incorporation and the certificate of commencement. Company Act 1994 Sec 23(1)[6] states, “On the registration of the memorandum of a company the Registrar shall certify under his hand that the company is incorporated”. After successful completion of all these documents and registration, a company can starts its operation.

3.     MEMORENDUM AND ARTICLES OF ASSOCIATION

The most important documents to form and run a company are the memorandum of association and the articles of association. Without these two documents no company can be formed and registered.

A.     Memorandum of Association

It is the main document that governs the relationship between the company and the outside. It is one of the documents required to incorporate a company in many common law jurisdictions of the Commonwealth. Bangladeshi Company Act 1994 sec – 2(1-n)[7] states, “Memorandum means the memorandum of association of a company as originally framed or as altered in pursuance of the provisions of this Act”. It is not cleared from the act but Lord Cairns defined it more carefully in a case[8]. He said, “The Memorandum of Association of a company is its charter and defines its limitation of the powers of the company, established under the Act”. Memorandum of Association contains different clauses which are –

Ø      Name clause Ø      Situation and address clause
Ø      Object clause Ø      Capital clause
Ø      Liability clause Ø      Consent clause

So, the memorandum contains all these fundamental conditions upon which alone the company is to be incorporated.

B.     Articles of Association

It is the second most important document that is required to run the company perfectly. It includes internal rules and regulations of a company which directly describes the duties, rights, power and responsibilities of the directors; nature and the process of the business; and the changing of internal management rules and nature. Lord Cairns also agreed with this definition of Articles of Association.

There is a significant relation between Memorandum and the Articles of Association. Lord Cairns in Riche, described the relationship between the memorandum and the articles in this language: “The memorandum is as it were, the area beyond which the actions of the company cannot go; inside the area, the shareholders may make such regulations for their own government as they think fit[9]“.

ü      The Articles are subordinate to Memorandum.

ü      The Memorandum must be read in conjunction with the Articles.

ü      The terms of the Memorandum cannot be modified or controlled by the Articles.

Laws alone can not secure freedom of expression; in order that every man present his views without penalty there must be spirit of tolerance in the entire population.

–          Albert Einstein (1879 – 1955)

4.     LEGAL EFFECT OF THE ARTICLES

We know Articles of Association contains internal rules and regulations. It has same importance as memorandum of association. The legal effects are –

ü      It is one kind of contract between the company and the shareholders. After the registration it is assumed by the act that company and the shareholders both agreed with all the conditions of Articles of Association. Both parties must are oblige to maintain the conditions. If necessary it can be enforced by law.

ü      If any party breaks any condition then any party can take legal action against other party for breaking the rules of Article of Association.

ü      If any shareholder has the liability to the company according to the Article of Association then s/he must pay that liability.

ü      It is a document that is open for all who are linked with the company.

5.     FORMS AND CONTENTS OF ARTICLES

According to under section 18 of Company Act 1994, any company whose liability is limited can have the sample schedule 1 as their Article of Association. However, for the company whose liability is not limited they have to have a separate Article of Association. Under sec 19 of Company Act 1994[10], it has been stated regarding how an Article should be formed.

[“Articles shall –

ü      Be printed;

ü      Be divided into paragraph numbered consecutively; and

ü      Be signed by each subscriber of the memorandum, who shall add his address and description in the presence of at least two witness who shall attest the signature.”]

There are many issues that need to be discussed in the Articles of Association. Those issues should be very specific and very straight forward. The contents of Articles of Association are discussed below.

Share Related Issues

ü      Share capital, rights of shareholders, payment of commissions, share certificates;

ü      No of share; Share price; Selling of a share;

ü      Lien on shares; Calls on shares; Transfer of shares;

ü      Transmission of shares; Forfeiture of shares;

ü      Conversion of shares into stock; Share warrants;

Capital Related Issues

ü      Alteration, of capital; Authorized capital;

ü      Types of the capital; Rules for reforming capital;

Meeting Related Issues

ü      Call up an AGM, EGM or any other meeting;

ü      General meetings and voting rights of members;

ü      Appointment and remuneration of directors, board of directors, managers and secretary;

Dividend/Profit Related Issues

ü      Dividends and reserves;

ü      Accounts and audit and borrowing powers;

ü      Capitalization of profits;

Winding-up Related Issues

ü      Winding up;

ü      Distribution of the liabilities-assets after winding up

Figure 2: Two Main Phase to form The Company

6.     GOVERNING BODY/BOARD OF DIRECTORS

Managing a company is quite different from any other types of business. Though shareholders are the real owner of a company, but they can’t be that much active in operation. Their contribution is very limited. However, board of directors (also referred as the governing body) work as agent of the shareholder they has the highest power to run the company. Now the question is – who are the directors? According to the Company Act 1994[11], “Director includes any person occupying the position of director by whatever name called”. [sec. 2(f)]. The board of the directors plays the most vital role in a company. All the executions are taken care by the board of directors. For public limited company there should be minimum 3 directors and 2 directors for the public limited company.

Even when laws have been written down, they ought not always to remain unaltered.”

–         Aristotle (384 BC – 322 BC), Politics

7.     LEGAL POSITIONS OF THE DIRECTORS

Legal position of the directors can be categorized into three parts.

A.     Director as Agent

Every company has its own entity by the law. But a company can’t do anything by itself. That’s why it needs agents who help to do necessary works. Directors play a vital role for the company for which we can identify them as the agent of the company. Cairns L. J.[12] agreed with the idea and said:

“What is the position of the directors of a public company? They are merely agent of the company. The company itself cannot act in its own person, for it has no person, it can only act through directors, and the case is, as regards those directors, merely the ordinary case of principal and agent, for wherever an agent is liable those directors would be liable, where the liability would attach to the principal, and the principal only, the liability is the liability of the company”.

B.     Director as Trustee

Directors are the trustee of a company as they maintain everything and monitoring all the activities for the company. In this case, Ramaswamy Iyer Vs. Brahmayya & Co[13] directors are identified as trustee. Though directors are the trustee but there are some limitations.

C.     Director as Employee

By law, directors can’t be defined as the employee of the company. Though, any directors can be employee by signing a contract between him/r and the company. There are no restrictions in this case by law. So any directors can also be the Managing Director of the company. Lord Selborne[14] said, “The directors are the mere trustees or agents of the company, trustee of the company’s money and property, agents in the transactions which they enter into on behalf of the company”.

“Law stands mute in the midst of arms.”

–          Cicero (106 BC  – 43 BC), Pro Milone

8.     POWER OF DIRECTORS

The powers of the directors are clearly defined by the Article of Association. Directors apply their power by the proper authorization of the Memorandum of Association of the company. They have also some power beyond the Article of Association. Generally directors take decisions in the meeting which must be validated by the shareholders. The powers of the directors defined in the Article of Association are –

ü      Defined company’s general rules and regulation

ü      Issue shares and give to the shareholders

ü      Share cancellation

ü      Issue debenture or take loan from any other source if necessary

ü      Take decisions for the company

ü      Issue dividend

ü      Have general reserve

ü      Sign contracts with the third party for the company

ü      Maintain financial accounts of the company

ü      Give loan or invest in any other source

ü      Give lease any parts of the company or the full parts

ü      Select the Managing Directors and define his/r responsibility

ü      Give notice for general meeting or any meeting according to the Company Act 1994.

If it’s necessary then the governing body can decentralize their power to the Managing Director. Then the Managing Director will be the person who manages all the section of the company.

”Where you find the laws most numerous, there you will find also the greatest injustice.”

–          Arcesilaus

9.     RESTRICTION ON POWERS OF DIRECTORS

Though the Board of the Directors is the most powerful body of the company, they have some restriction on their powers according to the Company Act 1994.

ü      A director can’t transfer his/r power to any other person.

ü      Directors can’t take any loan from the company except it’s a bank. He also can’t give personal guarantee to any other directors for their loan.

ü      Except with the consent of the directors, a director of the company, or the firm of which he is a partner or any partner of such firm or the private company of which he is a member or director, shall not enter into any contract for the sale, purchase or supply of goods and materials with the company.

ü      The directors of a company or of a subsidiary company of a public company shall not, except with the consent of the company concerned in general meeting

§         Company can’t sell or transfer any factory

§         Remit any debt due by a director.

10.           FUNCTIONS OF A BOARD OF DIRECTORS

The functions of the board of the directors according to the Articles of Association are –

ü      Define, implement and monitor company’s rules and regulation.

ü      Make sure that all the works have done properly under the Company Act 1994.

ü      Make sure that shareholders have their rights properly

ü      Call up AGM, EGM or any other meetings for the shareholders

ü      Keep and save papers, accounts according to the Articles of Association

ü      If any directors leave in between two AGM, then look for a new director

ü      Manage the appointments new employees, transfer or dismissal activities

ü      Define the targets of the company and go according to the target

ü      to achieve the goal of the company, appoint the Managing Director, General Manager or any other manager

ü      Authorize the budgets for the company

ü      Give dividends

ü      Give information about the company in a shareholders meeting

ü      Analyze what company achieves so far

ü      Make sure that all the accounts are maintained under the Company Act 1994

ü      Have contract with other party for the company

ü      Issue shares and maintain share related all the activities

ü      Invest in other source to achieve the best output from the capital

ü      Debenture issue and take loan from other source.

11.           HOW ARTICLES DEFINE DUTIES, RIGHTS AND THE POWER OF GOVERNING BODY

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as “the board.”

According to Wikipedia[15], A board’s activities are determined by the powers, duties, and responsibilities delegated to it or conferred on it by an authority outside itself. These matters are typically detailed in the organization’s bylaws. The bylaws commonly also specify the number of members of the board, how they are to be chosen, and when they are to meet. The board is elected by the stockholders and is the highest authority in the management of the corporation. In a non-stock corporation with no general voting membership, e.g., a university, the board is the supreme governing body of the institution.

Typical duties of boards of directors include –

ü      Governing the organization by establishing broad policies and objectives;

ü      Selecting, appointing, supporting and reviewing the performance of the chief executive;

ü      Ensuring the availability of adequate financial resources;

ü      Approving annual budgets;

ü      Accounting to the stakeholders for the organization’s performance.

The legal responsibilities of boards and board members vary with the nature of the organization, and with the jurisdiction within which it operates. For public corporations, these responsibilities are typically much more rigorous and complex than for those of other types.

The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom and many other countries. Together with the memorandum of association, they constitute the constitution of a company. The Articles of Association is the main thing that shows the path to the director about how they run the company. The issuing of shares (also called stock)[16], valuation of intellectual rights, the appointments of directors[17], directors meetings[18], management decisions[19], transferability of shares[20], special voting rights of a Chairman, and his/her mode of election, the dividend policy[21], winding up – the conditions, notice to members, confidentiality of know-how and the founders’ agreement and penalties for disclosure, first right of refusal[22] – actually everything is directly discussed in the Articles of Association.

“It was the boast of Augustus that he found Rome of brick and left it of marble. But how much nobler will be the sovereign’s boast when he shall have it to say that he found law… a sealed book and left it a living letter; found it the patrimony of the rich and left it the inheritance of the poor; found it the two-edged sword of craft and oppression and left it the staff of honesty and the shield of innocence.”

–                      Henry Brougham (1778 – 1868)

12.           CONCLUSION

According to corporate legislation, every incorporated firm must have and work by. And which, along with memorandum of association, forms the constitution of a firm. Also called articles, it is a contract (1) between the members (stockholders, subscribers) and the firm and (2) among the members themselves. It sets out the rights and duties of directors and stockholders individually and in meetings. As Articles of Association has certain rules and regulation, the directors can’t do anything that is prohibited by the Articles. So, the duties, rights and the power of the directors are clearly bound by the Articles, by the Company Act. What the directors will do must be matched with the Articles. If any decisions or anything has been done that is not authorized by the Articles will not be valid by the law.

So, we can agree with the topic that the articles define the duties, the rights and the power of 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.

13.           BIBLIOGRAPHY

Ø      Articles of Agreement Law & Legal Definition

Ø      Company.” Crystal Reference Encyclopedia. Crystal Reference Systems Limited.

Ø      Companies Act 2006

Ø      Companies House retrieved from http://www.companieshouse.gov.uk/infoAndGuide/companyRegistration.shtml

Ø      Griffin, S. Company Law. “Fundamental Principles”.  4th Edition.

Ø      http://www.nestle.com/MediaCenter/MediaLibrary/Documents/Documents.htm?GUID=D0ABBAF1-E3DE-438C-BD3A-937CE90718C9

Ø      Joint Stock Companies Act 1856 – Table B

Ø      Kenny, C. S. A Selection of Cases Illustrative of the English Law of Tort”.

Ø      Legal Service India.com. “Origin and Evolution of the Modern Company Law” retrieved from, http://www.legalserviceindia.com/articles/eocindia.htm

Ø      Pettet’s Company Law. “Company and Capital Markets Law”. 3rd Edition.

Ø      Rajput Brotherhood Article Library. “Articles of association : A detail note on the contents of the articles of association of a company” retrieved from, http://www.rajputbrotherhood.com/articlelibrary/201011124940/articles-of-association-a-detail-note-on-the-contents-of-the-articles-of-association-of-a-company.html

Ø      Taylor, C. “Law Express: Company Law first edition”.

Ø      The Companies (Bangladesh) Act, 1994.

Ø      The Gemini Geek, “What Is Joint Stock Company?“ retrieved from, http://www.thegeminigeek.com/what-is-joint-stock-company/.

Ø      Wikipedia. “Memorandum of Association” retrieved from, http://en.wikipedia.org/wiki/Memorandum_of_association

Ø      Wikipedia. “Articles of Association” retrieved from, http://en.wikipedia.org/wiki/Articles_of_association

Ø      Wikipedia. “Board of Directors” retrieved from, http://en.wikipedia.org/wiki/Board_of_directors

Ø      Wild, C, Weinstein, S, “Smith and Keenan’s Company Law” 14th Edition.

Ø      Under the law prior to the 2006 Act, in the event of any inconsistency between the memorandum and the articles, the memorandum usually prevailed: see Ashbury v Watson (1885) 30 Ch D 376.

Ø      Vakilno1, retrieved from http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

“Let me not be understood as saying that there are no bad laws, nor that grievances may not arise for the redress of which no legal provisions have been made. I mean to say no such thing. But I do mean to say that although bad laws, if they exist, should be repealed as soon as possible, still, while they continue in force, for the sake of example they should be religiously observed.”

–          Abraham Lincoln (1809 – 1865)

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[1] Sir Nathaniel Lindley, Baron Lindley SL PC FRS (29 November 1828 – 9 December 1921), English judge, second son of the botanist John Lindley, was born at Acton Green, London.

[2] http://www.thegeminigeek.com/what-is-joint-stock-company/

[3] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[4] According to Wikipedia – The memorandum of association of a company, often simply called the memorandum (and then often capitalised as an abbreviation for the official name, which is a proper noun and usually includes other words), is the document that governs the relationship between the company and the outside. It is one of the documents required to incorporate a company in the United Kingdom, Ireland and India, and is also used in many of the common law jurisdictions of the Commonwealth.

[5] According to Wikipedia – The term articles of association of a company, or articles of incorporation, of an American or Canadian Company, are often simply referred to as articles (and are often capitalized as an abbreviation for the full term). The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom and many other countries.

[6] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[7] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[8] Ashbury Railway Carriage and Iron Co. Ltd. Vs. Riche [(1887) 7.H.L. 63]

[9] Collected from a book, A selection of cases illustrative of the law of contract : (based on the collection of G.B. Finch), written by – Kenny, Courtney Stanhope, 1847-193

[10] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[11] According to Company Act 1994 of the People’s Republic of Bangladesh, source – http://www.vakilno1.com/saarclaw/bangladesh/companies_act.htm

[12] Judge of the case – Fargusion Vs. Wison [(1866) L.R. 2 ch. App. 77, 79]

[13] 1966 – comp. L. J. 107 (Mad)

[14] Judge of the case G. E. Rly. Vs. Turner [(1892) L. R. 8. Ch. 149]

[15] Source – http://en.wikipedia.org/wiki/Board_of_directors

[16] different voting rights attached to different classes of shares

[17] which shows whether a shareholder dominates or shares equality with all contributors

[18] the quorum and percentage of vote

[19] whether the board manages or a founder

[20] assignment rights of the founders or other members of the company do

[21] a percentage of profits to be declared when there is profit or otherwise

[22] purchase rights and counter-bid by a founder