Every Company before or after its Incorporation, requires a set of rules and regulations to manage its relationship with the external world and also to control the internal affairs inside the organisation. The two relevant documents a company must have are the MOA and AOA. Article of Association (AOA) is a document that defines the relationship between the Company and its members. It lays down the rules and regulations for the internal management of the Company. AOA of a company represents how tasks are to be accomplished within the organization, including the process of appointing Directors and the handling of financial records. Further, any alteration in Articles of Association (AOA) can be done by the way of addition, deletion, modification, substitution, or in any other way.
Which law states Articles of Association?
Section 2(5) of the Companies Act, 2013 defines the “Article of Association.” AOA contains all the rules and regulations that govern the company policy. According to the Companies Act, 2013, every company must have its own AOA.
The company’s articles of association are its rules and laws which governs the administration of its internal dealings and the management of its business conduct. They are drafted with the objective of carrying out the company’s aims and objects as has been framed in the MoA. The Articles manage the internal regulation of the company. They describe the powers and functions of its officers.
The Supreme Court has held in the case of Naresh Chandra Sanyal vs Calcutta Stock exchange association Ltd (AIR 1971 SC 422), that the articles of association also create a contractual relation between its members and the company and also amongst the members of the company inter se. This contract contains the usual rights, duties, and obligations that are incidental to the objects of the company.
Why does a company need to have AOA?
Both AOA and MOA is mandatory before and after the Incorporation of a company. The most essential thing while incorporating a company is the documentation of the MOA and AOA. Without the documentation of MOA and AOA, a company cannot be registered. AOA is mainly drafted for the benefit of the Company and also for all the employees who are directly as well indirectly associated with it.
What are the different kinds of AOA?
According to the Companies Act, 2013, the Company can adopt any one of these as their AOA.
|Company Limited by Shares
|Company Limited by Guarantee and having share capital
|Company Limited by Guarantee and not having share capital
|Unlimited Company and having share capital
|Unlimited Company and not having share capital
What information does AOA contain?
Article of Association contains the bye-laws of the Company. Such as,
- Share Capital which includes subdivision of share capital; calls on shares, shares transfer, and shares conversion into stock, a surrender of shares.
- Qualification, appointment, remuneration, powers, and proceedings of the Directors. It also includes the proceedings of shareholders’ general meetings.
- Shareholders are voting rights either by poll or proxy and proceeding of shareholders’ general meetings.
How can a company alter its AOA?
- In accordance with Section 14 of the Companies Act, 2013, a company may alter its articles mentioned in its AOA by passing a special resolution. The alteration done in the AOA of a company must be filed with the registrar with a printed copy of the articles within 15 days. Company can alter its articles of association in accordance with the provisions of companies act and the conditions as has been mentioned in the memorandum. [section 14(1)]
- The entrenchment provisions of the articles can only be made on the formation of a company or by an amending the articles as has been agreed to by all the company members in the case of a private company and in the case of a public company by a special resolution. [Section 5(4)]
- It is obligatory for the Company to pass a Special Resolution for the converting Public Company into Private Company and vice-versa
The AOA can be altered in the following ways –
- By adopting a new set of articles.
- By adding or inserting any new article.
- By deleting any article.
- By amending or substituting any specific rule.
Some Major Highlights about the Alteration in AOA –
- Alteration in AOA is to be noted in every copy – Any kind of alteration in the AOA of a company must be noted in every copy of the AOA. These copies on request by a member need to be sent to them within seven days of the request.
- If the company makes any default in complying with the provisions, the company and every officer of the company who is in default shall be liable for the default. The penalty includes one thousand rupees for each day during which such default continues or one lakh rupees whatever be the case.
What are the Procedures for the alteration in AOA?
There are specific steps that needed to be followed for altering the AOA of a company –
- Convene a Board meeting – Firstly, hold a Board meeting and find that particular article that needs alteration. The alteration does not mean only altering the existing articles. It may also include the addition or deletion of any articles. After that, a formal resolution is passed for this.
- Any changes in the Articles of the AOA need to comply with the provisions of Companies Act, and the conditions contained in the MOA of the Company. You need to check that any such changes do not increase the liability or expulsion of any member after the alteration.
- A time, date, and venue are fixed for the general meeting to fix the resolution.
- A Company Secretary is authorized to issue the notice of the general meeting.
- Thereafter, if the shares of your Company are enlisted with any recognized stock exchange, then forward copies of all notices to the shareholders about the changes in the AOA to the Sock exchange.
- Form MGT-14 is filed with the ROC (Registrar of Companies).
- At last, you can make necessary changes in all the copies of the AOA.
What are the effects of Alteration in AOA?
- Companies need to alter their articles according to the requirements. The most important thing is that a company cannot alter its article for their personal benefit or for the sake of doing illegal business.
- Alteration in the AOA of a company bounds the Company to its members.
- The AOA governs the internal management, business, or administration of the Company.
Changes are frequent, and so are the changes in the Company’s law rules and regulation. Companies may need to alter the clauses of the Company, and so alteration in the Articles of Association (AOA) is required. But these alterations cannot overrule the Companies Act, 2013. Thus, it is essential to have AOA drafted before the Incorporation of the Company as it includes the rules and regulations for the internal management of the Company.