‘The internal rule book that every company must have and work by’
The articles of association is a record that identifies the rules for a company’s functioning and defines the company’s aim and lays down how tasks are to be performed within the organization which includes the process for appointment of directors and handling of financial records.
Articles of association also recognize the way in which a company will issue stock shares, pay dividends and assessment of financial records and the voting rights. This set of regulations can be considered as a user’s manual for the company as they outline the technique for completing the day-to-day operations of the company.
Essentials of ‘Articles Of Association’
The content of the articles of association and the precise terms used is very much dependent on various jurisdictions but the document is more or less similar everywhere. AOA usually consists of:
- Company Name
The company must have a name as a legal entity and it must be mentioned in the articles of association. Generally, a suffix like “Inc.” or “Ltd” is used to denote that the entity is a company.
- Purpose of the Company
The reason for the formation of the company must also be mentioned in the articles of association.
- Share Capital
The number of shares and kind of shares that constitute the company’s capital are enlisted in the articles of association.
- Organization of the Company
The legal framework of the company that includes its address, the number of directors and officers, the name of the founders and the original shareholders can be found in this section.
- Shareholder Meetings
It consists of provisions for the first general meeting of shareholders to be held and the regulations that will govern the following annual shareholder meetings are specified in this section.
Amendment in the articles of association
Any Company who is planning to make any changes to the Article of Association (AOA) of the company will have to conform with the provisions of Section 14 of the Companies Act, 2013 and any other provisions of the Act applicable including implementation of the conditions contained in the Memorandum of Association (MOA) of the Company.
A Company can amend its Article by means of addition, removal, moderation, replacement or in any other way suitable for them.
Steps for alteration:
- Summon A Board Meeting: Notice of at least 7 days.
- Holding the Board Meeting: At the Board meeting, the following resolutions must be passed:-
- Get Approval of amending the Article of Association and suggesting the proposal for consideration of members by special resolution.
- Fixing the date, time, and venue of general meeting and asking a director or any other person to send the notice to the members for it.
- Section 101 of the Companies Act 2013 mentions about the issue of written notice of EGM, 21 days prior to the actual date of the EGM to:
- All the Directors.
- Members
- Auditors of Company
- The notice shall consist a statement on the business to be transacted at the EGM.
- Calling a general meeting:
- Check the Quorum.
- Check if auditor is present and if he is not then Leave of absence is Given or Not. (Section- 146).
- Pass Special pledge [Section-114(2)]
- Approval of Amendment in AOA.
- Filing and fees
File FORM NO.MGT-14 i.e. filing of Resolutions and agreements to the Registrar (section 117) along with the required filing within 30 days of the special resolution being passed with the given documents:-
- Certified True Copies of the Special Resolution with explanatory statement
- Copy of the Notice of meeting given to members with all the attachments
- A printed copy of the amended AOA
- Follow up:
- I) The Registrar then registers the amendment and issues a certificate, alteration is complete after issuing of certificate
- II) Incorporation of amendment in every copy of the memorandum.
Effect of alteration of articles of association
Articles cannot be amended if the amendment is revolting to, or inconsistent with, any statute or it is defeating the provisions of any law. The articles cannot be changed to entitle a company to carry on an unlawful business.
A valid alteration is binding to all the members of the company whether they voted for or against it.
A provision of the Articles that has the effect of putting the company’s share capital to a limit of a fixed amount would have no effect as it is contrary to the Act.
Strict provisions can be made in the Articles as long as they are not contrary to the provisions of the Act.