Company Registration Legal Agreements

Why Articles Of Association Is Important For Your Business

Why Articles Of Association Is Important For Your Business

Introduction

For any corporation, the Articles of Association are of utmost importance because they serve as the fundamental guidelines that outline the internal policies and organizational structure of the company. The Companies Act, 2013 contains two essential corporate documents. The Memorandum of Association (MOA) and the Articles of Association (AOA) are two examples of these documents. Internal regulations are governed by the Articles of Association.

Association Memorandum, a main document

Articles of Association, a secondary document

Let’s try to understand what the Articles of Association actually are and their relevance before we get started.

What Is Articles of Association?

An article of association (AOA), which outlines the responsibilities, rights, obligations, powers, and administration of the firm, establishes key guidelines for internal management.

The company’s goals are outlined in the memorandum of association, and AOA aids in achieving those goals. Additionally, AOA comprises the business’s bye-laws, thus all directors and other members of the company must carry out their duties in accordance with AOA.

What law says about Articles of Association?

Section 2(5) of the Companies Act, 2013, “Articles” refers to a company’s original articles of association or any amendments made in conformity with any prior company law or for this Act.

As a result, AOA is a type of public document that can be viewed at the company’s registered office and contributes to the growth of the company’s relationship with its internal management.

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Each and every business must have its own set of articles of organization and submit them for registration, as required by the Companies Act of 2013.

Importance of Articles of Association

Both AOA and MOA are quite important and are intertwined with one another.  One of the first steps in forming a company is to document both of these documents.

Furthermore, after drafting the AOA and MOA, you must begin with the formation procedure regardless of whether it is a private or public company. It is comparable to the building’s foundation, which must be built.

Compared to private companies, public listed companies have tougher rules and restrictions. Therefore, it is preferable to develop a strong AOA for the benefit of both the business and all employees who are either directly or indirectly connected to it.

What Are the Different Forms of the Articles of Association (AOA)?

The Articles of Association (AOA) forms for the various types of corporations are listed in Tables F, G, H, I, and J of Schedule I of the 2013 corporations Act. AOA needs to be in the appropriate format.

Table F- AOA of a corporation limited by shares;

Table G- AOA of a limited liability corporation with a share capital;

Table H- AOA of a limited liability company without share capital that is limited by guarantee;

Table I: AOA of a share-capitalized, limitless corporation;

Table J: AOA of a corporation that is unlimited and does not have a share capital;

What All Details Are Contained in The Articles of Association (AOA)?

In general, the norms and regulations are contained in the AOA as discussed. The following issues are covered by these rules and regulations:

Share Capital, which comprises calls on shares, forfeited shares, transfers of shares, shares converted into stock, surrender of shares, etc.

When directors are appointed

Regulations governing dividend distribution to shareholders;

Every provision relates to the upkeep of the company’s accounting records and its audit;

It grants authority to borrow money from outside sources and details how to wind up a corporation;

However, AOA also outlines the clauses pertaining to general meetings and processes, meeting notices, shareholder voting rights by poll or proxy, a lien on shares, etc.

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What Should a Company Do When It Wants To Alter The Articles?

A corporation may amend its articles by passing a special resolution in accordance with Section 14 of the Companies Act of 20131.

Whatever changes a business makes to its articles, they must be submitted to the Registrar within 15 days, together with a printed copy of the articles. There are several ways to change the articles of association:

  • A fresh set of articles is being adopted
  • Any new article that is inserted or added
  • Removal of any article
  • Making changes to a specific article
  • Replacing any particular article

How Would You Alter the Articles Of Association?

If your business wants to change the articles of association, you must follow the steps listed below:

  • Call a Board Meeting: Simply call a board meeting to discuss the items that need to be changed and to adopt a formal resolution to that effect.
  • Fix the date, time, and location of the general meeting so it can adopt a special resolution.
  • Accept the agenda and notification for such a general meeting.
  • Give the company secretary the authority to send out this general meeting notice.
  • Send information about the proposed modification to the stock exchange after the board meeting if shares are listed.
  • Convene a General Meeting: To begin with, as was mentioned above, send notice of the General Meeting to all of the Company’s members, directors, and auditors.
  • Intimate with stock exchanges
  • In the general assembly, a specific resolution must be adopted.
  • If your shares are listed, all general meeting proceedings must be sent to the stock exchanges.
  • File Form MGT-14 with the ROC (Registrar of Companies).
  • After that, you can make the necessary adjustments to all copies of the AOA.

What would be the effect of the Alteration of Articles?

Articles that are improper or in conflict with any legal restrictions cannot be changed. Furthermore, you cannot change them in order to engage in criminal activity. Therefore, whether they voted in favor of it or against it, every member is bound by the legally binding change.

Conclusion

It is a well-established principle of company law that the Companies Act 2013 provisions cannot be superseded by a company’s articles of association. As the articles are subject to the memorandum of association and any other company laws in effect at the time, they are also required to take care of the memorandum of association of the particular company. Therefore, it is crucial that the articles of association for a business be created in line with the memorandum of association, the Companies Act of 2013, and any other applicable company laws at the time it is incorporated.

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Frequently Asked Questions (FAQ)

  1. What are the benefits of Articles of Association?

    The partnership deed of a partnership is similar to the articles of association. They specifically address issues such the issuing of calls, forfeiture of shares, eligibility for directors, the process for transferring and transmitting shares and debentures, and the rights, responsibilities, and appointment of auditors.

  2. What are the effects of articles of association?

    The articles bind the company and its members, as was previously stated. Members may take legal action to restrain the company if it violates the articles. By signing the articles, the members, for instance, consented that any money due to the firm is a debt, and that the articles may be used to compel payment.

  3. Why is the article of association and memorandum of association important?

    Each organisation operates in a unique way. They are shocked in a firm in the shape of MOA and AOA. It serves as a constitution and outlines the fundamental principles for the business, including what it does specifically and information on each principal agent of authority, such as directors, promoters, etc.

  4. What are the nature, objectives and importance of Articles of Association?

    An article of association is a legal document that outlines the rules that will govern an entity's operations, including the appointment of the board of directors, how meetings will be conducted, compensation, the appointment and removal of the company's auditors, and many other things.

  5. What is the binding nature of articles of association?

    It is an agreement between the business and its participants. The corporation owes some obligations to its members, and members have certain rights and responsibilities towards the company.

  6. What is the importance of memorandum and Articles of Association?

    The memorandum of association establishes the firm, and the articles of association specify its rules for ownership, management, and governance. The duties and authority of the directors are outlined in the articles, as well as the methods by which the members can influence the board of directors.

  7. What is the significance and alteration of the Articles of Association?

    The most crucial element is that a business cannot change its content for its own gain or in order to engage in illicit operations. A change to a corporation's AOA binds the company to its members. The Company's internal management, operations, or administration are governed by the AOA.

  8. What is the alteration process of Articles of Association?

    The given resolutions regarding the modification of the AOA must be approved at the Board meeting. Obtain approval for the proposed change to the articles of association and recommend it to the members for consideration in a special resolution.

  9. What is the significance of the memorandum of association and Articles of Association?

    The Memorandum comprises a list of all the Subscribers (those who were present when the company was founded, such as the Original Shareholders), and the Articles of Association are a set of regulations that specify how the Company shall be managed.

References

  1. https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf

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