Basic Requirement of Articles of Association

ARTICLES OF ASSOCIATION

Articles of association are the second document which has to be registered along with the memorandum of articles of a company in case of some companies. Companies which must have articles of association are:

1. Unlimited Companies

2. Companies limited by guarantee and

3. Private Companies limited by shares

This document contains rules, regulations and bye-laws for the overall administration of the corporate. They may be described because the internal regulation of the corporate governing its management and embodying the powers of the administrators and officers of the corporate also as the powers of the shareholders. They lay down the mode and therefore the manner during which the business of the corporate is to be conducted.

(1) Share capital, different classes of shares of shareholders and variations of their rights

(2) Allotment of shares

(3) Calls on shares

(4) Issue of share certificates

(5) Issue of share warrants

(6) Transfer of shares

(7) Transmission of shares

(8) Alteration of share capital

(9) Borrowing power of the corporate

(10) Rules regarding meetings

(11) Voting rights of members

(12) Accounts and audit

(13) Directors, their appointment and remuneration

(14) Payment of interest out of capital

(15) Common seal

(16) Winding Up.

Object of registering a memorandum of association:

•It contains the object for which the company is formed and therefore identifies the possible scope of its operations beyond which its actions cannot go.

•It enables shareholders, creditors and all those who deal with company to know what its powers are and what activities it can engage in.

•A memorandum may be a public document under Section 399 of the businesses Act, 2013. Consequently, every person entering into a contract with the company is presumed to have the knowledge of the conditions contained therein.

•The shareholders must know the needs that his money are often employed by the corporate and what risks he’s taking in making the investment.

•A company cannot depart from the provisions contained within the memorandum however imperative could also be the need for the departure. It cannot enter into a contract or engage in any trade or business, which is beyond the facility confessed thereon by the memorandum. If it does so, it would be ultra vires the company and void.

CONTENTS OF AOA

Provisions for entrenchment :-

(a) The articles may contain the provisions for entrenchment(to protect something), i.e. certain specified provisions of the articles can be altered only by complying with such conditions or procedures as are more restrictive than those as are applicable in case of a special resolution.

(b) The provisions for entrenchment may be made —

(i)at the time of formation of the company; or

(ii)by an amendment of articles, with the consent of all the members, in the case of a private company; or

(iii)by an amendment of articles, by passing a special resolution, within the case of a public company.

(c)Where the articles contain the provisions for entrenchment, the company shall give notice of such provisions to the Registrar, in such form and manner as may be prescribed.

(d) The notice to the Registrar shall tend regardless of the very fact on whether the provisions for entrenchment were contained within the articles at the time of formation of the company or were included in the articles afterwards, by way of an amendment.

ALTERATION OF ASSOCIATION UNDER THE COMPANIES ACT, 2013

The Companies Act, 2013 lays down that according to the provisions of this Act and the conditions contained in the memorandum of a company, a company can alter its articles by special resolution. Such alterations may include alterations having the effect of conversion of a private company into a public company or a public company into a private company. The proviso says that if a private company alters its articles and removes the restrictions and limitations required for a private company, the company from the date of such alteration ceases to be a private company. The proviso further provides after the Companies (Amendment) Act, 2019 that any alteration having the effect of conversion of a public company into a private company will not be valid unless it is approved by an order of the Central Government on an application made in this respect. It also provides that on the date of commencement of Companies (Amendment) Act, 2019, any application pending before the National Company Law Tribunal shall be disposed of by the Tribunal in accordance with the provisions applicable thereto before such commencement.

Every alteration of the articles under section 14 of the Companies Act, 2013 and a copy of the order of the Central Government approving the alteration shall be filed with the Registrar, alongside the printed copy of the altered articles. The 2013 Act lays down a very important point regarding the alteration of the articles of a company and that is that any alteration of the articles registered under the sub-section (2) of the section 14 should be valid as if it were originally present in the articles.

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You may also like to read:

Key Managerial Persons in a Company 2

Classification of a Company – Liability

Judicial Interpretation – Corporate Veil (2)

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