This article is written by Calista Chettiar, a Second-Year BA. LL.B. (Hons.) student from NMIMS, School of Law, Bangalore.

 

INTRODUCTION:

A business’s incorporation procedure necessitates the existence of a written company constitution. The articles of association are the foundation of the company’s constitution since they outline the rules and regulations by which the Business is to be managed, as well as its primary goals. The relationship between the Company and its directors is spelled out in the contract. The Articles of Association are the fundamental rules and regulations of the firm, analogous to the “partnership deed” of a partnership. The Articles of Association override and govern the Memorandum of Association, which is referred to as the main document and gives up the overall circumstances of the Company, however, the Articles may be utilized to clarify any contradictions in the Memorandum. The Company’s Act supersedes any provisions in the articles or memorandum of organization.

 

SECTION 2(5) OF THE COMPANIES ACT OF 2013:

Articles of association mean the “articles of association of a company as initially constituted or as gradually evolved or implemented in line with any prior legislation or this act,” as stated in Section 2(5) of the Companies Act, 2013. Articles of Association must contain the following information in accordance with Section 5 of the Company’s Act of 2013:

1. Corporate governance rules and regulations.
2. Subjects that must be dealt with in accordance with the rules.

 

ARTICLES OF ASSOCIATION:

Along with the memorandum of organization, the Articles of Association (AOA) provide the company’s governing legal framework. It contains guidelines for conducting business within the corporation.

The purpose of the articles of association is to implement the goals set forth in the memorandum of association. They outline the organization’s goals and the procedures that must be followed when completing a certain activity. Everything you need to know about the company’s governing body, annual meetings, voting rights, board proceedings, etc. may be found in the articles of organization.

Shareholders and the company itself, as well as other shareholders, enter into agreements through the articles of association. Common provisions include stipulations for the distribution of shares, the payment of dividends, the auditing of financial records, and the allocation of voting rights to shareholders.

The articles of the association serve as a sort of operational manual for the firm, outlining the procedures that should be followed in order to carry out the company’s day-to-day tasks. This agreement is binding on the company’s shareholders and the company itself but has no bearing on any third parties. Hence, the firm is immune to any third-party claims.

 

PROVISIONS OF ARTICLES OF ASSOCIATION:

1. Capital stock, share call, share forfeiture, stock conversion, share transfer, share warrant, share surrender, and so on and so forth.
2. Meetings of the board of directors, including their membership, qualifications, appointment, compensation, and authority.
3. Shareholders’ ability to vote and conduct business at annual meetings.
4. Payouts, cash on hand, audits, financial statements, borrowing authority, and dissolution.

 

ARTICLES OF ASSOCIATION AS A CONTRACT:

An article of association is a contract between the Company and its shareholders that sets down the obligations of the company’s internal management and is filed with the registrar of companies as part of the process of incorporating the business. This agreement is legally enforceable on all current and future shareholders because it is a public document registered at the company’s registrar and controlled by the Company’s Act of 2013.

In the case of Naresh Chandra Sanyal vs. Calcutta Stock Exchange Association Ltd., the Supreme Court ruled that the articles of association constitute a contract not only between the company and its members but also between each individual member of the company. This agreement regulates the standard benefits and responsibilities of firm membership. 

 

COMPONENTS OF ARTICLES OF ASSOCIATION:

Typically, a company’s stock issuance, dividend distribution, and bookkeeping procedures will all be laid out in the articles of association. The purpose of the document is to inform the reader of the steps taken by the company on a daily, monthly, and annual basis to attain its objectives.

Although the specific language and contents of an article of association may differ from one jurisdiction to the next, the articles of association are universal in nature. In a nutshell, it consists of the following:

1. Name of the Corporation – To become a recognized business entity, a corporation must choose a formal name. The articles of incorporation should include this provision. You can tell if a business is a corporation by adding “Inc.” or “Ltd.” to its name. It is important to keep in mind that different countries have different regulations for company names because of this.

Names containing the words “government” or “church” are off-limits because of the potential for public confusion. Offensive and profane language is also forbidden.

1. Purpose of the Corporation – There is always a deliberate goal behind the formation of a company. The primary motivation for doing anything is the expectation of financial gain through contributing to the common good. The articles of association should state the organization’s raison d’etre explicitly.

In certain places, a company’s stated mission might be as broad as “management,” but in others, it must be more specific, such as “the operation and expansion of a restaurant chain.”

1. Share Capital of the Corporation – The number and sort of shares that make up a company’s capital will be specified in the articles of association. Its capital structure almost always includes some type of common shares. In addition, numerous forms of preferred stock are included.

If stock information is included in the articles of the organization, then the stock may be issued by the company to meet financial obligations.

1. Organization of the Corporation – Information such as the company’s registered office, number of directors and staff, and founding shareholders are all included in this document.

Depending on the nature of the company and the laws of the relevant country, this section may also include legal counsel and auditors.

1. Meetings of the Shareholders of the Corporation – Shareholder meetings includes provisions for the initial general meeting of shareholders. This section also governs subsequent annual shareholder meetings and includes information on notice, motions, and voting.

 

ALTERATIONS TO THE AOA:

Changing the Articles shouldn’t give permission to do anything against the law. They should serve the company’s best interests. They must not result in a violation of the agreement with the outside parties. Below are the rules for editing existing articles:

By an extraordinary resolution, a corporation can update its articles. It’s vitally important to check that changing the AOA won’t violate the Companies Act or the Memorandum of Association. Within 30 days of their passage, copies of all special resolutions to amend the Articles must be sent to the Registrar.

1. The Companies Act must be able to accommodate the proposed change.
2. It is important that the terms of the Memorandum of Agreement not be broken by the proposed change.
3. Third, the proposed change must not advocate for something against the law.
4. The fourth criterion is that the change must be in the best interests of the business.
5. Fifth, the proposed change must not raise the legal responsibility of current members.
6. Only a special resolution will allow for changes to be made.
7. Changes can be made retroactively.
8. The Court shall have no authority to direct any amendment to the Articles of Association. 

 

PROCEDURE OF ALTERATION OF AOA:

Have a Board Meeting – To start, call a meeting of the Board of Directors to determine which article need revision. The change does not refer exclusively to the existing articles. Any articles may be added or removed as part of this process. A formal resolution is then adopted to reflect this.

 

Articles of Association amendments must be in accordance with the provisions of the Companies Act and the conditions set forth in the Company’s Memorandum of Association.

You must ensure that the modification does not result in an increase in the liability or expulsion of any member.

The general assembly to vote on the resolution has a set time, date, and location.

If your company’s stock is traded on a public exchange, you must notify the stock market of any amendments to the Articles of Organization immediately after they are distributed to shareholders.

Submit a Form MGT-14 to the ROC (Registrar of Companies).

The Articles of Association can now be updated across all available copies.

 

According to Lord Cairms’ analysis in Ashbury Railway Carriage Co. v. Riche, “The articles go on to specify the obligations, the rights, and the powers of the governing body between themselves and the company as a whole, as well as the manner and the format in which the company’s operations are carried out and the manner and the format in which the internal regulations of the company may periodically be modified.”

 

Every corporation has a document called the articles of association that outlines the policies and procedures that must be followed for the smooth and effective operation of the business. A few types of companies, including unlimited companies, companies whose shares are limited by guarantee, and private companies, are required to have articles of association. All of the significant topics necessary for the management and administration of the companies are included in the articles of association. If necessary, it may even be changed or amended by adhering to the processes outlined in the 2013 Companies Act.

 

REFERENCES:

https://blog.ipleaders.in/articles-of-association-under-indian-company-law/

https://www.vedantu.com/commerce/articles-of-association

https://www.investopedia.com/terms/a/articles-of-association.asp

https://www.mastersindia.co/blog/articles-of-association-aoa/

https://taxguru.in/company-law/articles-association-aoa-companies-act-2013.html

https://cleartax.in/s/company-moa-aoa-under-companies-act