AOA or Articles of Association is rightly known as the ‘rule book’ of the company. The AOA lays down all the rules and objectives of the company which one must adhere to it.
In this content, we will know about Articles of Association and their importance regarding the company.
What are Articles of Association?
When a company is formed, certain rules and regulations are laid down along with the objectives of the company’s operations and its purpose. These laws regulate the internal affairs of a company. There are two important sets of documents that define these objectives and govern the functioning of the company and its directors or internal affairs. These documents are Articles of Association (AOA) and Memorandum of Association (MOA). Here, we will discuss in detail the Articles of association.
Articles of Association contain the by-laws that regulate the operations and functioning of the company like the appointment of directors and handling of financial records to name a few. Let’s imagine the company as a machine. The articles of association then can be considered the user’s manual for this machine. It defines the operations that the machine is supposed to perform and how to do that on a day-to-day basis.
Definition of Articles of Association of a Company
As per Section 2 (5) of the Companies Act, 2013, Articles of Association have been defined as
“The Articles of Association (AOA) of a company originally framed or altered or applied in pursuance of any previous company law or this Act.”
Objectives of the Articles of Association
Sec 5 of the Companies Act, 2103 states that the Articles of association:
They do not prevent a company from including additional matters in the AOA or from doing any alterations as may be considered necessary for the functioning of the company affairs.
Contents of the Articles of Association
The AOA contains the rules and by-laws for the following;
Share capital:
Rights of various shareholders, share certificates, payment of a commission, etc.
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Lien of shares
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Calls on shares
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The process for the transfer of shares
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Transmission of shares
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Forfeiture of shares
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Surrender of shares
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Process for conversion of shares to stocks
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Share warrants
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Alteration of capital: Increase, decrease, or rearrangement of capital
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General meetings and proceedings
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Voting rights of members
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The appointment, remuneration, qualifications, powers of directors, etc.
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Proceedings of the boards of directors’ meetings
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Dividends and reserves
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Accounts and Audits
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Borrowing Powers of the company
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Provisions relating to the winding up of the company
Forms of Articles of Association (AOA)
The forms for Articles of Association (AOA) in tables F, G, H, I, and J for different types of companies have been mentioned under Schedule I of the Companies Act, 2013. AOA must be in the respective form.
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Table F- AOA of a company limited by shares
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Table G- AOA of a company limited by guarantee and having a share capital
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Table H- AOA of a company limited by guarantee and not having a share capital
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Table I- AOA of an unlimited company and having a share capital
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Table J- AOA of an unlimited company and not having a share capital
Difference Between Memorandum and Articles of Association
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Parameters of Difference Between MOA and AOA |
MOA |
AOA |
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The Purpose |
The purpose of the Memorandum of Association is to define the objectives of a company and the conditions for its incorporation. |
It defines the rules and regulations that govern the internal management of the company for achieving its objectives. |
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Parties Concerned |
It defines the relationship of the company with the external parties |
It defines the relationship between the members of the company amongst themselves and with the company |
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Alteration |
MOA can be altered only under special conditions |
AOA can be altered by passing a special resolution |
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Contents |
MOA must contain all the six clauses of the Memorandum of Association as specified under the companies act |
AOA can be framed as per the discretion of the company |
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Ratification |
Any acts beyond the scope of the MOA are considered ultra-vires and void. Such acts cannot be ratified by the unanimous votes of the shareholders. |
Acts that are ultra vires the AOA company but are not ultra-vires MOA can be ratified by a special resolution of the shareholders. |
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Registration |
It is mandatory to register the MOA with the registrar of companies at the time of the company registration |
The filing of the AOA is not mandatory. The company may or may not file it. |
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Subsidiary |
MOA is a subsidiary of the Companies Act |
AOA is a subsidiary of both the Companies Act as well as the MOA |
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Obligatory |
Every company must have an MOA |
A public company limited by shares can opt to have Table A in place of AOA |
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Section Under the Companies Act |
Memorandum of Association meaning has been stated under Sec 2(56) of the Companies Act |
Articles of Association meaning has been stated under Sec 2(5) of the Companies Act |
Solved Questions on Articles of Association
1. What are the conditions for the provisions of entrenchment in the AOA?
Ans: The provisions for entrenchment provide specific provisions in the AOA that can be altered if certain conditions are complied with. These conditions are usually more restrictive than those applicable for a special resolution. The provisions for entrenchment can be added on the formation or after an amendment. However, in both cases, the company must give notice to the Registrar of the same.
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The inclusion of the provisions for entrenchment can be done:
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At the time of formation of the company
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By amending the Articles with approval from all members of the company.
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In the case of a public limited company, it can be done with a special resolution.
2. Can the AOA be altered?
Ans: Section 31 of the Companies Act states that the Articles of Association can be altered at any time by a special resolution. A copy of the same must be filed with the Registrar of Companies. However, this power of alteration is subject to two restrictions:
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The alteration must be under the provisions of the Act
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The alteration is subject to conditions stated in the MOA
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Any alteration that converts a public company into a private company must be approved by the Central Government.
3. Can the AOA go beyond the scope of the MOA?
Ans: MOA and AOA are two key documents that come into being at the time of the company formation. The Articles of Association are subsidiaries not just to the company but also to the Memorandum of Association of a company. The MOA is a fundamental constitutional document of the company. Any articles that go beyond the Memorandum of Association are deemed ultra vires.