Articles of Association

Articles of Association: A Key Document for Companies in India

If you are planning to start a company in India, or if you are already running one, you must be familiar with the term "articles of association" or AOA. This is a document that contains the rules and regulations for the internal management of your company, such as how to issue shares, conduct meetings, appoint directors, and so on. The AOA is a part of the constitution of your company, along with the memorandum of association (MOA), which defines the scope and objectives of your company.

In this blog post, we will explain what are the articles of association, why they are important, how to draft them, and what are the legal implications of having them.

What are the Articles of Association?

According to Section 2(5) of the Companies Act, 2013, the articles of association are "the document containing the rules and regulations relating to the management of its affairs". The AOA is a contract between the company and its members, and among the members themselves. It lays down the rights and duties of the shareholders, directors, auditors, and other officers of the company. It also prescribes the procedures for various matters such as issuing shares, transferring shares, declaring dividends, holding meetings, passing resolutions, winding up, etc.

The AOA must be in accordance with the provisions of the Companies Act, 2013 and its rules. It must not contradict or go beyond the MOA, which is the supreme document of the company. If there is any conflict or ambiguity between the MOA and the AOA, the MOA will prevail. The AOA must also comply with any other applicable laws and regulations.

Alteration in Articles of  Association

The AOA can be altered or amended by passing a special resolution in a general meeting of the shareholders. However, some provisions may require prior approval from the Central Government or other authorities. For example, if the AOA contains any entrenchment clauses that make certain changes more difficult than a special resolution, such clauses can only be altered with the consent of all the members or by passing a special resolution along with approval from the Central Government.

Why are Articles of Association Important?

The articles of association are important for several reasons:

1. They define the internal structure and governance of your company. They specify how your company will be run and managed by its directors and officers.
2. They regulate the relationship between your company and its members. They specify how your members can exercise their rights and obligations as shareholders.
3. They protect your company from external interference. They establish a clear framework for dealing with disputes and conflicts among your members or with third parties.
4. They reflect your company's vision and values. They can help you create a unique identity and culture for your company that aligns with your goals and aspirations.