[(1875) LR 7 HL 653]. “The Article of Association are subsidiary to the Memorandum of Association(MoA). The AoA define the duties, the rights and the powers of the 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, and the mode and form in which changes, from time to time, in the internal regulations of the company may be made”.
The AOA (Article of Association) of a company consists of the norms, bye-laws, rules, and regulations for the management of internal affairs and of a Company. It has rules for the proper governance of the Company. Thus they define how the Board of Directors, individual directors, employees, etc. must conduct themselves in the management of the company.
Articles of Association (AOA), are one of the mandatory documents required to be submitted to the registrar’s office during the initial steps for company registration. All types of companies require Articles of Association. Articles of association along with the Memorandum of Association, together with outline the constitution of the Company.
AOA also acts as guidelines for the directors of the Company, stating their authority and duties. They are also relevant to potential investors as they set out the rules and regulations of the Company.
The articles of association, much to the satisfaction of the shareholders, places restrictions on the company’s powers. This ensures that the directors won’t make investments without consulting the shareholders.
In Naresh Chandra Sanyal vs Calcutta Stock exchange Association Ltd (AIR 1971 SC 422), the Supreme Court said that “the articles of association also establish a contract between the company and the members and between the members inter se. This contract governs the ordinary rights and obligations incidental to membership in the company”.
The Articles of Association are very important for the functioning of various organizations. Any act or decision in conflict with the articles of association can be declared as ultra vires and hence void. Also any act or decision contrary to the Articles of association Companies Act, 2013 are automatically void.
Articles of Association will bind the following
- Members of the company
- Company to the Members
- Members to Members
- Company to outsiders
The law assumes that any outsiders dealing with the company have read the articles of association.
The articles shall address the following
- Liability of members;
- Duty of the directors
- Directors’ meetings, voting, delegation to others, and conflicts of interest;
- Record book of all the decisions taken by directors.
- Appointment and removal of directors;
Shares, unless by a company limited by a guarantee
(a) issuing shares;
(b) different share classes;
(c) Share certificates;
(d) share transfers;
• Dividends and other distributions to members;
• Members’ decision making and attendance at general meetings;
• Means of communication;
• Use of the seal, if applicable; and
• Directors’ indemnity and insurance.
The following entities must have Articles of Association
- Unlimited Company
- Company Limited by Guarantee
- Private Company Limited by shares
- Public Company limited by shares
Companies can frame their own articles of association or use the model articles of association provided in respective forms specified in Table F, G, H, I, and J in Schedule I of the Companies Act 2013.
Articles of association can be amended by way of addition, deletion, modification, substitution, alteration, or by any other way. It can be done by an agreement of all the members in the case of a private limited company, in accordance with rules under the articles of association, and by a special resolution in the case of a public company and then filing Form MGT-14 with the Registrar along with a copy of the amended Articles of Association.
Articles of Association can also contain provisions for entrenchment. Entrenchment means that specified provisions of the articles may be altered only if conditions or procedures are more restrictive than those applicable in the case of a special resolution. That means making it more difficult to amend the articles of association by making the amendment procedure harder than passing a special resolution or impossible. This can be done at the time of incorporation or by an amendment.