“Articles of association refers to the bye-laws of the company for smooth functioning in internal management of the company. It carries rules and regulations for carrying out day-to-day operations. It is a supplementary document of a company. If any act done beyond the articles can be ratified by shareholders. In a corporate sector, a company article of association is also called articles of incorporation in some jurisdiction. A company’s article of association is a document which is filled with the memorandum of association.
The articles of association with the memorandum of association formed the company’s constitution. The preparation of article of association is not compulsory, a company may also adopt the ‘table f’ of the company act. AOA defines the internal relationship between the company and its members. The filing and alteration in article of association is easy and simple process, the approval of central government is not necessary. AOA is a subsidiary of the memorandum of association and companies act, 2013. The article of association is also a public document. The article of association tells how the company is governed, owned and managed”.
Articles of association contains rules and regulations regarding the management of a company’s internal affairs. It defines the powers and duties and rights of managers, officers and the board of directors. Generally all the company’s prepare their own article of association, if they not make so they can select any one article of association given in table F of the companies act. In Table F of the companies act there are 99 models sets of AOA are given. Company can select any one from these ninety nine sets. The article of association must be signed by all the directors of the company. It must be duly attested by two witness.
DEFINITION OF AOA:-
Under Section – 2 (5) in ‘The Companies Act’ 2013 AOA defines:-
“Article of association of a company is either originally framed or altered from time to time, in pursuance of this act or any other previous company law”.
PROVISION OF ENTRENCHMENT:-
“Provision of entrenchment is given under section 5 (3) of the Company’s Act’ 2013. This provision require more elaborate procedure in some clause to be followed to change or alter the AOA, whether already special resolution is passed by the shareholder. Entrenchment means to place someone or something in a very strong position that cannot be altered or changed easily. Entrenchment puts articles in a very strong position that cannot be changed easily, but special resolution requires to change the articles, ¾ of present and voting can amend the articles”.
Sub section 3 of section 5 provides the article may contain provision for entrenchment, the effect of those entrenchment are any specific provision of the articles, may be altered, only if, the condition or the procedure, which is more restrictive, other than the special resolution are met or compiled.
So generally, special resolution is enough to amend the articles but if articles have entrenchment provision, so special resolution + compliance with entrenchment required to amend the article. Entrenchment provision should be more restrictive than special resolution.
The companies act does not specify what could be the entrenchment provisions but it says entrenchment provision should be more restrictive than special resolution.
THE MAIN CONTENTS OF ARTICLE OF ASSOCIATION ARE:-
1.) The amount of share capital, issue of shares and different classes of shares such as common stock and preferred stock.
2.) Rights of each type of shareholders.
3.) Procedure of transferability of shares.
4.) Procedure for making allotment of shares.
5.) Procedure for issuing share certificates.
6.) Procedure for forfeiture of shares and re issue forfeited shares.
7.) Voting rights of the chairperson and mode of election.
8.) Procedure for conducting meeting of directors and quorum needed or percentage of vote need to pass a resolution or motion
9.) Procedure for appointment or removal of directors.
10.) Duties, powers, liabilities and remuneration of directors.
11.) Procedure for maintaining the financial records of the company.
12.) Procedure for determine the period of accounting and state the agenda of AGM.
13.) Procedure regarding winding up of the company.
14.) Procedure regarding keeping of books of account and audit.
15.) Common seal of the company.
ALTERATION OF AOA:-
1.] A company may change its article of association by passing a special resolution, subject to the following instructions:-
A. The alteration must not be contrary or against the provision of memorandum of association and companies act.
B. It must not result in breach of contract with outsiders.
C. It must be the interest of the company.
D. It must not result in increasing the liability of its members.
E. If the alteration involves conversion of public company into private company. Than the approval of the central government must be obtained.
2.] A copy of special resolution has to be filed within thirty days to the ROC.
3.] Every alteration in MOA or AOA shall be noted or altered in every copy of MOA or AOA.
4.] Any default in complying with the provision of the company and every officer in default will be liable to a penalty of 1000 rupees for every day of MOA or AOA issued without such alteration.
MODULE FORM OF ARTICLE OF ASSOCIATION:-
Section 5 of the companies act gives the module form of articles:-
1.) Table F – Company limited by share capital.
2.) Table G – By guarantee + share capital.
3.) Table H – By guarantee not having share capital.
4.) Table I – By unlimited guarantee + share capital.
5.) Table J – By unlimited guarantee + not having share capital.
RULE 13 – These are the consents of article of association:-
- The subscriber sign all the documents of AOA, by the two witnesses,
- The subscriber who is illiterate, shall do thumb impression in documents.
- Name, address, work, job, relation everything is mandatory to written in documents.
- If a body corporate, so the authorized signature of that company is valid in the AOA.
LIMITATION OF POWER TO ALTER THE ARTICLES:-
There are some limitation keeping in mind when the company did alteration in articles of association:-
1.) The alteration must not exceed the power given by memorandum or be in conflict with the any provision of the memorandum.
2.) The alteration must not be inconsistent with any alteration provision of company act or any other statute.
3.) A company not be in consisted with any alteration made by the tribunal.
4.) Alter article must not include anything which is illegal or against the public policy.
5.) It must be Bonafide for the benefit of the company and its members.
6.) Alteration must not constitute fraud or minority by the majority.
7.) A company can’t void or contractual liability by altering the article.
“The articles of association can be found in every company and it is a document containing the rules, regulations and bye laws for the efficient and hustle free administration of the company. The articles of association are compulsory for a few classes of the company such as an unlimited company, a company whose shares are limited by guarantee and a private company, the articles of association have all the important subject which are required for the management and administration of the companies. It can even be altered or amended when required by following the procedures laid down in the Companies Act, 2013”.
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