Articles of Association of a Company

This article majorly delves into the discussion of the meaning of Articles of Association. It also emphasizes the importance of AoA and the points to be taken into account while drafting the document. It also begins with discussing the other documents like Memorandum of Association and the basic difference between both of them. It also delves into the amendments in the document and the procedure to be followed for the same.
Estimated Reading Time: 10 minutes

Introduction

This article majorly delves into the discussion of the meaning of Articles of Association (hereinafter referred as “AoA”) . It also emphasizes the importance of Articles of Association and the points to be taken into account while drafting the document. It also begins with discussing the other documents like Memorandum of Association (hereinafter referred as “MoA”) and the basic difference between both of them. The article aims to take into account all the major legal aspect of the document. It also delves into the amendments in the document and the procedure to be followed for the same.  The article has been initiated with the meaning of the document and a short description of a company.

A company has vast operations which are needed to be carried out while conducting business and there is a need of certain regulations to meet off the objective set by the company and to regulate the conduct of persons employed or working for the company, directly or indirectly. The AoA serves this purpose and is a document of paramount importance as it deals with the internal administration of the affairs of the company. It also helps in complying and corresponding the acts of the company with the object of the company envisaged in the company’s MoA. Articles of Association is generally considered subordinate to MoA of the company.[1] The document generally provides the company with rules relating to calls, forfeiture of shares, qualification of directors, determination of powers and duties of auditors etc.

It is a document which is also referred as the company’s rule book and is drafted along with a MoA at the time of incorporation. The major feature of the document is to establish the relationship between the shareholders of the company and the directors of the company. It further entails the rights and duties of both the shareholders and directors of the company. It also ensures to govern the conduct of the company and its director while conducting business with third parties or with the shareholders and investors of the company. It also aids in putting a certain limitation on the actions of the director and thereby ensuring that certain acts of the company are done with the prior approval of shareholders. It also ensures that there is no suppression by the directors on shareholders. An AoA is a public document of the company which can be provided for perusal or scrutiny to the public.

Importance of Articles of Association

To understand and comprehend the significance of AoA in the affairs of the company it is quint-essential to peruse the provisions of Section 10 of the Companies Act, 2013 (hereinafter referred as “the Act”). It reiterates that after the registration of MoA and AoA the document shall stand to bind on the company and the members of the company to the same extent as is a covenant entered by them. The provision aims to articulate that after registration of the afore-said documents, it shall act as an agreement signed by the members which they shall comply in all circumstances. In pursuance to the said provision of the Act, the important aspects of AOA in the company’s governance are hereinafter mentioned:

  1. The members of the company are bound to the company through the provisions mentioned in AoA and they shall also comply with the AoA in relation to their acts on behalf of the company and as a member of the company.
  2. Akin to the restrictions on the acts of the members towards the company, the company is also liable to comply with AoA while dealing towards its members and binds it towards its members.
  3. The AoA binds the members and company towards each other, but the document cannot be used for binding any of them to the third party. An outsider cannot give effect to the AoA.
  4. An AoA also binds the members of the company to each other. It is the instrument which defines the rights and liabilities of members towards each other.

Contents of Articles of Association

There are certain quintessential and necessary points which shall be kept in mind while drafting an AoA for a company. It is well established that there are certain provisions which shall necessarily be included while drafting the AoA of a company. Some of them are as follows:

  1. Name of the Company: The AoA shall necessarily contain the name from which the company is being addressed and the name which is used for transacting business in daily affairs. It shall be kept in mind that if the company is a private company then it shall include the words “limited liability company” or the abbreviation “limited or ltd.”[2] The AoA shall also include all such names which the company uses and if the company writes its name in two different languages then that shall also be included.
  2. Company’s Place of Business: The AoA shall also contain the name of the place where the registered office of the company has been incorporated. The company shall be conducting business at various places, but the registered office of the company is generally situated at one place and the name of the same is necessary to be included. It is also necessary as the general meeting are mostly conducted at the place of registered office and if there is any legal action to be taken against the company then the same shall be brought before the Court of the municipality in which the registered office of the company is situated.
  3. Company’s Area of Business: The AoA shall also include the fields or the areas in which the company conducts its business which has been legally pursued in the form of a limited liability company. At this juncture, the company shall keep in mind that while adding any field of business the same shall be registered by the company. The field in which the company operates becomes important when the assets of the company are being evaluated and when the questions arise in regards to the competence of the company. Narrow definitions of each field of business in which the company operates shall also be mentioned in the company’s AoA.
  4. Share Capital: The share capital of the company shall also be mentioned in its AoA. The company can either include the minimum number of shares or the maximum number of shares. It shall be mentioned by both a public company and a private limited company. When the share capital is mentioned with both minimum and maximum share capital then the company can change the share capital without amending the AoA of the company.
  5. The nominal value of shares and the number of shares: The AoA shall also consist of the nominal value of the shares of the company. The nominal value shall be defined in the AoA and all the shares must have nominal share value.
  6. Strength of members of the company: The AoA shall essentially contain the number of members of the company thereby enlisting the number of directors and auditors of the company. The term of the office of the directors, as well as auditors, shall also be present in the AoA. The number of members can also be iterated in the AoA in minimum and maximum numbers. The name of auditor or auditors (if more than one has been appointed) shall be mentioned in the AoA.
  7. Notice of General Meeting: The AoA shall also deliberate on the point regarding serving and the manner of serving of notice of a general meeting of the company. The manner shall be such that the notice shall be served before the date of general meeting.
  8. The accounting period of the company: The AoA shall also contain the time which shall be considered as accounting period in a calendar year. The accounting year can be shorter or longer than the calendar year and the longest accounting year can be of 18 months.
  9. The clause of entrenchment: The entrenchment clause in the AoA is present to bestow firm position to certain provisions envisaged in it to make any change in that particular clause difficult or mostly impossible. The clause also was not recognized by the Companies Act, 1956 but the same has been identified in the amended act of 2013.

Procedure for Amendment of Articles of Association

Section 13 of the Act read with Rule 29 of Companies (Incorporation) Rules, 2014 articulates that any alteration that is required to be made shall be done in compliance with the provision of Section 14 of the Act and also with any other provision which may be required by the MoA. It shall be noted here that the AoA shall always comply with the provisions mentioned under Act and MoA. A company can amend its AoA through addition, modification, deletion, substitution, or any other way. Steps for amendments in AoA are as follows:

  1. To initiate the amendments in the AoA of a company the company first needs to convene a board meeting for an alteration in the company’s AoA. The notice of the same shall be sent before seven days of the meeting.
  2. Coming to the board meeting, the resolution regarding the same shall be passed in the board meeting. A special resolution shall be passed for fulfilment of this purpose. After that, the venue, date and time shall be decided by the board members for convening a general meeting and the notice should be sent to members for the same. The notice shall further contain date, time and venue of the meeting and shall also contain a statement describing the business to be transacted in the meeting.
  3. The third step is to convene a general meeting along with checking the quorum. A special resolution shall be passed for the alteration in AoA.
  4. Within 30 days of passing the resolution, the company shall file Form No. MGT-14 with the registrar along with following other documents viz. certified copies of the special resolution along with explanatory statement and copy of the notice of the meeting which was sent to members and all other annexures. Also, a printed copy of altered AoA shall be filed with the afore-mentioned form. Form No. MGT-14 is for filling of resolution and agreements to the registrar under Section 117 of the Act.
  5. Now, the part of registrar comes into play. They shall then register the amendment in the AoA and shall issue a certificate in this regard which shall be the conclusive proof that all the requirements have been fulfilled by the company. After the process comes to an end, the company shall incorporate the amendments made and approved by the registrar in all the copies of the AoA.[3]

Difference between AoA and MoA

The MoA and AoA have certain differences between them. The two most important documents differ from each other in the following ways:

  1. MoA is the document which contains all the fundamental information required for incorporation of a company whereas the objective behind the drafting of AoA is to possess a document which contains the bye-laws for the company and is used for the governance of the company.
  2. It is mandatory in the case of MoA to get registered during the time of incorporation while the AoA may or may not be registered during the time of incorporation.
  3. MoA is a kind of a charter which puts limitation and restrictions on the company or the organization while conducting their business whereas AoA is the document which bestows rights and liabilities of the members and the organization while they conduct business.
  4. MoA is considered to be the supreme document and shall only comply with the prevailing Companies Act in the country whereas AoA is a document which is subordinate, and which shall always be in compliance with prevailing Company laws of the country and also with the MoA of the company.
  5. The AoA cannot override or undertake any act which is in contravention to MoA whereas MoA can contain provisions in contravention with AoA and in such situations, AoA shall be amended in accordance with MoA.
  6. MoA shall compulsorily contain the six clauses in it whereas the AoA shall contain provisions in accordance with decisions taken by the company.
  7. The MoA of the company cannot be amended and given effect retrospectively whereas the AoA of the company can be amended with retrospective effect.
  8. It is an obligation to draft MoA for all the companies whereas the companies can adopt Table A in place of AoA.
  9. MoA defines the relation of a company with outsiders whereas the AoA of the company describes the relationship between the members of the company and the company.
  10. The Acts done beyond the object clause of the MoA are ultra vires whereas the acts done against the AoA of the company can be ratified by the shareholders by passing a special resolution.[4]

Conclusion

The article has been drafted to give reader information regarding all the aspects related to the AoA. The article also describes the importance of drafting of such a document and addresses the aspect of the paramount importance of Articles of Association i.e. the procedure of amendments in the document. It also gives an elaborative list of topics which shall necessarily be mentioned and described in an AoA. The article gives an overview on the difference between the MoA and AoA which are the two most important documents for working of the company and plays an important role in the establishment, internal governance and conduct of the company in conducting day to day business. The article peruses all the important aspects of the AoA of the company and can be perused for gaining such knowledge about the Articles of Association.


[1] MD SahabuddinMondal, AoA, http://www.legalservicesindia.com/article/2313/Articles-of-Association.html

[2]Ibid

[3]DiveshGoyal, Procedure for Alteration in AoA under Act, https://taxguru.in/company-law/procedure-alternation-article-companies-act-2013.html

[4]Difference Between MoA and AoA, https://keydifferences.com/difference-between-memorandum-of-association-and-articles-of-association.html

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