Articles of Association: Everything You Need To Know

Priyanshi Shah August 29, 2020January 16, 2023 0 Comments

Everything you should know about Articles of Association, Definition, (Contents)Clauses of Articles of Association, and How to Alter the AOA.

What is Articles of Association?

The articles of association (AOA) is all about the rules and regulations regarding how to manage the company internally. In short, it sets the limit of the internal functions of the companies which include the powers, duties of managers, officers, and board of directors.

Normally all the companies prepare their own Articles of Association as all companies have different rules and regulations. If in any case companies do not want to prepare Articles of Association, then they can select one article of association under Table F of Companies Act. In Table F of companies Act – model sets of Articles of Association are given. The companies can select any one form from these sets. Articles of association should be compulsorily signed by all the directors of the company. It must be duly verified by any two witnesses with their respective signatures.

Articles of Association is also known as bye-laws of the Company as it is related to the functions of companies or Doctrine of Indoor management. As per section 2(5)-articles the Articles of Association are originally framed or as altered from time to time.

Definition:

The articles of association act as a legal document together with the memorandum of association as a constitution of the company.

Contents:

Contents of Articles of Association is related to the rules and regulations of the company as it makes sure that the company works as per their interest because working against the article later requires two-third of majority votes at the general meeting.

Clauses of Articles of Association:

1. Directors

The Articles of association involves the procedure of appointing the directors, as well as allotting powers, duties, and remuneration of directors and also the procedure of removal or resignation of directors.

2. Shareholders

The AOA specifies the rights of each class of shareholders and their rights i.e. Voting power, ownership, transfer ownership, dividend, etc.

3. Lien on shares

The company cannot transfer the shares if it does not pay the debt.

4. Allotment and forfeiture of shares

The AOA involves the procedure of how to allot the shares to the shareholders and if the shareholders won’t pay the money till the time limit then the company makes call for asking about the money and if the shareholders does not pay the money then the company can forfeit i.e. cancel their shares.

5. Transfer and transmission of shares

If the shareholder desire to transfer the shares he/she has to follow the rules mentioned in the AOA. And it also includes the procedure of transmission of the share if the shareholder dies.

6. Share capital

The AOA specifies that the increase, alteration, and reduction of share capital can be done with the approval of shareholders.

7. Stock

The AOA provides the procedure and policies for the conversion of shares into stocks and vice versa.

8. General Meetings

It includes the way of conducting the general meetings and provision for the functioning of general meetings.

9. Auditing of accounts

It provides the provision and guidelines for auditing accounts as well as the transfer of money to reserves.

10. Borrowing of powers

It provides the provisions for the limit of borrowing powers of the company from the market or bank and the way of borrowings.

11. Issue of shares certificate

Provision for how, when, and where to issue shares certificate, and in case the company loses the shares certificate then the method of duplication of shares certificate is also mentioned.

12. Winding up the company

The company pays all the debt and the expenses before winding up. The provisions and procedures related to winding up the company are mentioned in the AOA.

Alteration of AOA:

Company may change its Articles of association by passing a special resolution, as per the following conditions:

The alteration must not be obstructive or against the provisions of the memorandum of association and companies act.
It must not result in breaking the contracts of the outsiders.
Must be in the interest or favorable for the company.
Should not result in increasing the liability of its members in any manner as it may result in loss.
If the alteration involves the conversion of a public company into a private company then the approval of the Central government is necessary then only the Articles of association can be altered.

Entrenchment Clause:

1. Contains provisions for entrenchment:

The article may contain the provisions for entrenchment to effect that specified provisions of the article may be altered only after meeting special conditions or procedures as that are more restrictive than those applicable in case of a special resolution.

2. Manner of inclusion of the entrenchment:

The provisions for entrenchment shall only be made on the formation of the company or by an amendment in the articles if agreed by all the of members of the company in the case of the private company and by a special resolution in case of a public company.

3. Notices to the registrar of entrenchment provision:

If the articles consist of the provision for entrenchment whether by the formation or an amendment the notice is to be filled to the registrar office and provision should be in proper form and manner as may be described.

Also Read: Memorandum of Association: Everything You Need To Know