When a company is formed, certain rules and regulations are laid down along with the objectives of the company’s operations and its purpose. These laws regulate the internal affairs of a company. There are two important sets of documents that define these objectives and govern the functioning of the company and its directors or internal affairs. These documents are Articles of Association (AOA) and Memorandum of Association (MOA). Here, we will discuss in detail the Articles of association.
Articles of Association contain the by-laws that regulate the operations and functioning of the company like the appointment of directors and handling of financial records to name a few. Let’s imagine the company as a machine. The articles of association then can be considered the user’s manual for this machine. It defines the operations that the machine is supposed to perform and how to do that on a day to day basis.
As per Section 2 (5) of the Companies Act, 2013, Articles of Association have been defined as
“The Articles of Association (AOA) of a company originally framed or altered or applied in pursuance of any previous company law or this Act.”
Sec 5 of the Companies Act, 2103 states that the Articles of association:
Must include the regulations for the management of the company
Include matters that have been prescribed under the rules
They do not prevent a company from including additional matter in the AOA or from doing any alterations as may be considered necessary for the functioning of the company affairs.
The AOA contains the rules and by-laws for the following;
Share capital: Rights of various shareholders, share certificates, payment of a commission, etc.
Lien of shares
Calls on shares
The process for the transfer of shares
Transmission of shares
Forfeiture of shares
Surrender of shares
Process for conversion of shares to stocks
Alteration of capital: Increase, decrease, or rearrangement of capital
General meetings and proceedings
Voting rights of members
The appointment, remuneration, qualifications, powers of directors, etc.
Proceedings of the boards of directors meetings
Dividends and reserves
Accounts and Audits
Borrowing Powers of the company
Provisions relating to the winding up of the company
The forms for Articles of Association (AOA) in tables F, G, H, I and J for different types of companies have been mentioned under Schedule I of the Companies Act, 2013. AOA must be in the respective form.
Table F- AOA of a company limited by shares
Table G- AOA of a company limited by guarantee and having a share capital
Table H- AOA of a company limited by guarantee and not having a share capital
Table I- AOA of an unlimited company and having a share capital
Table J- AOA of an unlimited company and not having a share capital
Q1. What are the Conditions for the Provisions of Entrenchment in the AOA?
Ans: The provisions for entrenchment provide specific provisions in the AOA that can be altered if certain conditions are complied with. These conditions are usually more restrictive than those applicable for a special resolution. The provisions for entrenchment can be added on the formation or after an amendment. However, in both cases, the company must give notice to the Registrar of the same.
The inclusion of the provisions for entrenchment can be done:
At the time of formation of the company
By amending the Articles with approval from all members of the company.
In the case of a public limited company, it can be done with a special resolution.
Q2. Can the AOA be Altered?
Ans: Section 31 of the Companies Act states that the Articles of Association can be altered any time by a special resolution. A copy of the same must be filed with the Registrar of Companies. However, this power of alteration is subject to two restrictions:
The alteration must be in accordance with the provisions of the Act
The alteration is subject to conditions stated in the MOA
Any alteration that converts a public company into a private company must be approved by the Central Government.
Q3. Can the AOA Go Beyond the Scope of the MOA?
Ans: MOA and AOA are two key documents that come into being at the time of the company formation. The Articles of Association are subsidiaries not just to the company but also to the Memorandum of Association of a company. The MOA is a fundamental constitutional document of the company. Any articles that go beyond the Memorandum of Association are deemed ultra vires.
Case Law: Shyam Chand v. Calcutta Stock Exchange