The Court, however, dismissed the directors’ argument and compelled them to buy Rayfield’s shares at a fair value. Articles prescribe details within those parameters. In Wood v. Odessa Waterworks Co, (1889) 42 Ch D 636 case, issues were whether the memorandum and articles could constitute a contract between not just the company and its shareholders but also among shareholders and whether a minority shareholder could prevent a company from acting in a particular way. Alteration of Articles shall be discussed in upcoming articles. It is defined in 2(5) of the Companies Act, 2013. In Ashbury Railway Carriage and Iron Co. v. Riche, (1875) LR 7 HL 653 case, the Court observed: “the articles defined duties, the rights and the powers of the governing body as between themselves and the company at large, and the mode and the form in which the business of the company is to be carried on and the form in which changes in the internal regulations of the company may from time to time be made.”. In the matter of Hickman v Kent,14 the approach taken by Stirling J was supported by Astbury J in his finding that a company’s articles did not constitute a contract between company and an outsider.15 In Re Saul & Sons,16 the articles were accepted to be contractual terms which determine the relationship between shareholders. The Court held that the articles related to relationship between the plaintiff as a member and the defendants not as directors but as members of the company. However, instead of paying the dividend to the shareholders in cash a resolution was passed to give them debenture bonds. Yes, the members of the company are bound by the memorandum and articles in dealing with the company, because articles constitute a contract between each member and company. Continue Reading. Before CA 1985 and CA 2006, there was one case which firmly established the effect of a company’s constitution on a company and its members – the case of Wood v Odessa Waterworks Co.4 This was a significant case which answered the fundamental question of whether the memorandum and articles of a company constituted a contract between members/shareholders. They may be described as the internal regulations of the company governing its management and embodying the powers of the directors and officers of the company as well as the rights of the shareholders. The Court held that the articles related to relationship between the plaintiff as a member and the defendants not as directors but as members of the company. The constitution of a company is generally accepted as a contract between a company and its members. 2 How dividends are distributed however varies depending on the actual provisions of a company’s article of association.3. Articles of Association generally prescribe the relation between shareholders and the Board of Directors, the relation among shareholders, and Directors themselves. 1 Dignam and Lowry, Company Law (8th edn, OUP 2014) 159. The director concerned claimed a declaration that he was still a director of the company. Stile Odessa. The plaintiff remained in adherence to the articles and informed the directors. On breach of the articles of association, a member may thus, sue the company, just as the company may sue its members to enforce and also restrain any breach of the articles of the company. Add to My Bookmarks Export citation. 21 Rayfield v Hands 1960 Ch.d 1(the observation of Vaisey J). Eley had not been employed as a member and the termination of work as a solicitor did not affect Eley’s status as a member of the company. It contains power and objects of the company. Contents of Articles of Association of a limited company is prescribed in Table-F of the Companies Act, 2013. 10 Halsbury’s Laws of England, The Company Constitution (2009) 246. Wood v Odessa Waterworks (1889) 42 Ch D 636. Generally, the contents of AOA are as follows: The word entrench means to establish an attitude, habit, or belief so firmly that change is very difficult or unlikely. Thus, when Borland went bankrupt, his trustee expressed his wish to sell these shares at their original value and contended that he could do so since he was not bound by the articles. It establishes the regulations for working within that area. It gives provisions for the company’s inner workings such as the manner of making calls, director’s/employees qualifications, powers and duties of auditors, forfeiture of shares, dividend policy, etc. In Shuttleworth vs Cox Bros and Co (Maidenhead)  1 Ch 154 case, the company’s articles provided for five people to be its directors for life unless disqualified in any of six specified ways. The different forms of Articles of Association prescribed under Companies Act, 2013 are as follows: According to Section 5 (1) of the Companies Act, 2013, the articles must include the regulations of for the company’s management along with the matters directed by the Central Government. The Memorandum and Articles do not constitute express contract between the members of the company. The directors, however, contended that they were not bound to pay for his shares and the articles could not impose this obligation on them. In this article, we shall discuss the binding force of articles of association between company and member and amongst members. ARTICLES OF ASSOCIATION Wood v. Odessa Waterworks Company  42 Ch. Schedule I of the Companies Act, 2013 provides forms for AOA in tables F, G, H, I and J for different types of companies. It prescribes the relation between shareholders and the Board of Directors, the relation among shareholders, and Directors themselves. It governs internal management of the company. The provisions of the articles are binding on the members as well as the company.