Articles of Association is a document made for the internal affairs of a company. It tells about the rules and bye-laws of the company. It helps in the management of a company and the attainment of the object as mentioned in the memorandum. The Articles of Association (AoA) establish the whole working process of the company rules and regulations with its employees. It can never act above the memorandum. Memorandum of Association will always have a higher place than Article of Association.
Meaning and Definition of Articles of Association
Articles of Association, also known as a “rule book of the company“, mention all the rules and regulations that must be followed to maintain decorum. AoA of the company also specifies the mode or the approach of amendment in any of the procedures followed in the company.
Section 2(5) of the Companies Act, 2013 provides that the Articles of Association of a company are originally drafted. They can also be revised from time to time or implemented according to the current Company Law or any previous Company Law Act. The Articles of Association of a company also contain regulations for the management or administration of the company.
Components of Articles of Association
As we have studied, Articles of Association in Company Law specifically talk about the rules, regulations, and internal affairs of the company, such as the manner through which a corporation issues shares, distributes dividends, and maintains financial data.
After reading the AoA of a company, a person can have a clear idea about the working of a company. Articles of Association are although similar everywhere but can have certain variations. In general, the components of articles of Association are:-
Let us briefly learn more about the components of AoA.
1. Company name.
The name of the company shall be included in the articles of the company. In the case of a private company, the company must use ‘Private Ltd‘ as a suffix. And if it is a public company, it must use ‘Ltd‘ as a suffix. The company shall not use any such word in its name that depicts it having any relation with any government entity.
2. Purpose of the company.
Every company is incorporated for a particular reason or purpose, and a company must mention the reason for its incorporation in the Articles of Association of the company.
3. Share capital.
The Articles of Association also state the number and type of share capital comprising a company. The capital of a company is usually made up of at least one type of common stock.
4. Organization of the company.
Articles of Association also has details about the company’s organisation, be it the registered address of the company, number of directors, details of the key managerial person, capital of the company, etc.
Contents and Model of Articles of Association
Section 5 of the Companies Act, 2013 provide the contents and models of the Articles of Association. It lays down certain laws enriched in the articles of the company. Let us read about them.
- Contains regulations.
- Inclusion of matters.
- Forms of articles.
- Model articles.
- Company registered after the commencement of this Act.
The articles of a company shall contain the regulations for the management and administration of the company.
Inclusion of matters.
The Articles of Association include the items that are required by the rules of the company. A company’s articles may also include any additional information that is deemed important for its administration.
Contain provisions for entrenchment: The articles may include provisions for entrenchment (to safeguard something), stating that certain provisions of the articles may be changed only if certain requirements or procedures, such as those that are more stringent (strict, rigid) than those that apply in the event of a special resolution, are met or followed.
Manner of inclusion of the entrenchment provision: Entrenchment provisions are made only on the formation of a company or for amendment of articles by all the company members. In the case of a private company and a public company, the amendment takes place by a special resolution.
Notice to the registrar of the entrenchment provision: The company has to give notice to the registrar in the prescribed manner wherever the articles contain entrenchment provisions which either were made at the time of formation or by amendment of the company.
Forms of articles.
A corporation’s articles must be in the forms provided in Tables F, G, H, I, and J of Schedule I of the Companies Act, 2013, as applicable to the company.
A company can adopt regulations contained in the model articles either all or any one of them as may be applicable.
Company registered after the commencement of this Act.
Suppose there is any company that is registered after the beginning of the Companies Act, 2013. Now, the company will be incorporated as per the regulations included in the Companies Act. And such regulations cannot be amended or excluded by the company’s registered articles (MOA and AOA). Those regulations shall apply in the same manner and extent as if they were contained in the registered articles of that company.
Conflict Between MOA or AOA
As per section 6 of the Companies Act, 2013, Articles of Association shall not contain anything contrary to the company’s Memorandum of Association. And if the articles have anything contrary, then such a provision will be considered void.
Suppose the company’s incorporation took place through any fraudulent act or by showing some false documents or misleading documents. In that case, every person shall be liable for such an act under section 447 of the Companies Act, 2013.