Articles of Association – Companies Act, 2013: An Overview

Articles of Association (AOA) – Companies Act, 2013

Introduction

The Articles of Association of a company are what recommend the rules, regulations and the bye-laws for the inward administration of the company, the direct of its business, and is a record of central importance in the life of a company. The Articles of a company have often been contrasted with a standard book of the company’s working, that controls the administration and powers of the company and its officers. It endorses a few subtleties of the company’s internal operations, for example, the way of settling on decisions, director’s/employees’ qualifications, powers and duties of auditors, forfeiture of shares and so on.

Meaning of Articles of Association (AOA)

Under Section 2(5) of the Companies Act, 2013 characterizes ‘articles’ as the “articles of association of a company initially outlined, or as adjusted now and again in compatibility of any past company laws or of the present.”

The articles of association additionally set up a contract between the members and between the members and the company. This contract is set up, oversees the common rights and commitments that are accidental to having participation in the company.

ALSO READ Contents of Memorandum of Association

Why company needs Articles of Association (AOA)?

Each company in India under Companies Act is required to have articles, without which a company can’t lawfully be framed. This necessity applies to a wide range of Companies.

Objectives of Articles of Association (AOA)

1. The AOA of a company will contain the regulations for the executives of the company.
2. The AOA will likewise contain such issues, as might be endorsed.
3. Further, it will not keep a company from remembering such extra issues for its AOA as might be viewed as fundamental for its administration.

Entrenchment

“Entrench” signifies to set up an attitude, habit or belief so solidly that change is troublesome or far-fetched.

An entrenchment condition is the one which makes certain amendments either unimaginable or troublesome. The articles may contain provisions for entrenchment such that predefined provisions of the articles and might be adjusted just if conditions or procedures as that are more prohibitive than those pertinent on account of a special resolution, are met or followed.

The provisions for entrenchment will just be made by-

• Private Company

New Company: During arrangement of a company

Existing Company: An alteration in the Articles consented by all the members of the company and by passing a Board resolution.

• Public Company

New Company: During arrangement of a company

Existing Company: By passing a special resolution

Forms of Articles of Association

Schedule I of the Companies Act, 2013 gives structures to Articles of Association (AOA) in tables F, G, H, I and J for different types of companies.

If there should arise an occurrence of any company, which is enlisted after the beginning of this Act, to the extent that the enrolled AOA of such company doesn’t avoid or alter the regulations contained in the model AOA, those regulations will be the regulations of that company in a similar way and to the degree as though they were contained in the appropriately enrolled AOA of the company, so far as material.

Enforcement of Articles of Association

The Articles of a company tie the company to its members, and the other way around and ties the members to one another, they comprise a contract among themselves.

A member may sue the company and the other way around to enforce and limit breach of the articles of the company.

Overriding of Articles of Association

Section 6 of the Companies Act, 2013 states that the Companies Act overrides the Articles.

On account of existing companies, to the extent that their articles are conflicting with the Companies Act, the prerequisites of the Companies Act will supersede those of the existing articles.

Contents of Articles of Association (AOA)

• Share capital and variation of rights incorporates sub-division, rights of different shareholders, the relationship of these rights, share certificates, installment of commission.
• Lien of shares- To retain or hold the ownership of shares in the event that the member can’t pay his debt to the company
• Calls on shares- It includes the entire or part unpaid sum for each share which must be paid by the shareholders on the interest of the company.
• Transfer of shares- incorporates the process for the transfer of shares by the shareholder (transferor) to other individual (transferee).
• Transmission of shares- incorporates title devolution by succession, death, marriage, insolvency, and so on.
• Forfeiture of shares- The AOA accommodates the forfeiture of shares if the purchase prerequisites of shares are not met with- neglects to pay the call, cash, instalment.
• Alteration of capital- Increase, reduction or renaming of capital should be done as the Articles of Association give.
• Conversion of shares in stock- In consonance with the AOA, the company can change over the shares into stock by an ordinary resolution in a general meeting.
• Capitalisation of Profits- Use of a company’s retained income to pay a bonus to shareholders as dividends or extra stock shares.
• Buy-back of Shares- Under the provisions of AOA, the Company has the privilege to buy-back shares gave to shareholders.
• General meetings and proceedings- All the provisions identifying with the general meetings and the way to be directed are contained in the Articles of Association.
• Voting rights and Proxy- The members or the arrangement of proxy will reserve the privilege to decide on certain company matters and the way in which voting can be completed is given in the Articles of Association.
• Board of Directors, Meetings and Proceedings- The appointment, remuneration, qualifications, powers and proceedings of the Board of Directors’ meetings are definite out in Articles of Association.
• Key Managerial Personnel- The Articles of Association accommodates appointment, remuneration, powers of CEO, CS, CFO or Manager.
• Dividends and reserves- The Articles of association of a company accommodates the appropriation of profit to the shareholders.
• Accounts and Audits- Manner in which books of accounts are to be kept is explained in AOA.
• Borrowing Powers- Every company has powers to borrow; the equivalent must be consonance with Articles of Association of the company.
• Winding Up- Provisions relating with the winding up of the company and should be done appropriately.

Signing of Articles of Association (AOA)

The AOA is needed to be signed by all subscribers utilizing their Digital Signature Certificates (DSC), who are additionally needed to add their names, addresses and occupation, within the sight of at least one witness, who should validate the signatures with his own signature and subtleties.

Author: Kavya S,
CHRIST (Deemed to be University), 4th year BA LLB