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Why Articles Of Association Is Important (AoA) For Your Business

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Introduction: Articles of Association (AOA)

Article of Association is the rules and regulations, by-laws that help in the management of the affairs of the Company and business of the Company among the founding members of the Company. The Company is essentially regulated by the Companies Act, 2013, the term Article as per Section 2(5), “Article of Association” of a Company which can be framed or altered from time to time in pursuance of the act, it regulates the affairs of the Company.

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Importance of Article of Association (AOA)

The Articles of Association essentially deal with the Management and internal administration of the Company, it defines the roles and responsibilities of the Directors and other prominent members, and the restrictions are also described in the article of Association. The provisions relating to shares are also defined in the articles of association. So far as the issues relating to the affairs of the Company, the article of association is looked into to resolve the same. The Important provisions are:

  • Management of Intellectual property rights and Assets and values of the Company;
  • The Appointment of the Directors and other Personnel;
  • Conducting General meetings, Annual Meetings, and Board Meetings;
  • The Operation of the Company;
  • The voting and other rights of the Shareholders;
  • The management of the Audit accounts;
  • The salary and remuneration of the Members;
  • The appointment and removal of the Members;
  • The Purchasing power is decided  through the Article of Association;
  • The Liquidation and winding up of the Company;
  • The decision of the Dividend policy to the shareholders and other members.

Features of the Article of Association (AOA)

  • It is the basis of the Constitution of the Company
  • It is an agreement of the members of the Company
  • It defines the rights and duties of the Stockholders
  • The Statutory clauses of the Company from the Stockholders are defined
  • The By-laws are made by the Company and Stockholders.
  • The clause can be declared Ultra vires if found by the Stockholders and Directors
  • It is a Public document mentioning every minor detail of the Company and can be inspected by anyone.

Formation of Articles of Association

At the time of the creation of the Article of Association the utmost caution that should be kept in mind while writing is the provision of the Companies Act, in the manner so that the act of the Company could be continued in the right manner.

The important clauses that should be kept in mind while Drafting Articles of Association are 

  • Adoption of introductory Contractual terms in the Articles of Association
  • The total number of shares and their values needs to be mentioned in the Contract 
  • The total number of Issuance of Preference shares needs to be mentioned.
  • The total allotment of shares needs to be mentioned in the AoA along with the details of the Shareholders.
  • The amount of money to be called on shares should be in the AOA.
  • The Lien on shares must be described, with details of the members who will retain the shares.
  • The provisions relating to the transfer and transmission of shares must be in the Articles.
  • All nomination of the Company in the name of the Shareholder needs to be mentioned 
  • The procedure of forfeiture of the Members of the Company
  • The procedure relating to the alteration of the shares must be mentioned 
  • The Procedure of the Buyback of the Shares of the Company.
  • The provisions of the issue of the share certificate nowadays are done in a digital form. 
  • The procedure of the securities conversion in the electronic format.
  • The procedure of conversion of the share market value into the Stock Market.
  • The process of voting rights and meeting rules must be mentioned.
  • The appointment of the Director and their delegation of power of them need to be mentioned. 
  • The appointment of the director to the board represents further interest.
  • The method of the issuance of the debenture and stock must be mentioned.
  • The provisions relating to the audit committee along with their power.
  • The details regarding the managing director, whole-time director, and Secretary and managers need to be mentioned.
  • The official logo and seal of the company
  • The details of the remuneration to the director, Secretary, and Managers.
  • The provision relating to the borrowing power of the Company.
  • The details of the dividend that is to be paid and that needs to be reserved.
  • The Provisions relating to the manner of Winding up of the Company.

Indoor management doctrine

The doctrine of Indore management started with the case of Royal British Bank vs. Torqued, the Company has held that Company is not bound to pay the Money back as the plaintiff has the right to infer the amendment in general meetings. The Doctrine is opposite to the doctrine of Constructive Notice, it protects the outdoor against the actions of the Company, and every member of the Company must authorize the articles ensuring that the transaction is authorized in AOA. Subsequently, if a breach occurs, the Member would have the right to sue the Company for the violation of the Article of Association. 

Amendment in the Articles of Association

As the company holds the power to make changes in the articles of the Company, Section 14 of the Companies Act, 2013, allows the company to make changes in the Articles of the Company, through a special resolution.

The provisions of Entrenchment containing in the article of the association are a must as it provides rigidity to the changes that might come in the Companies provisions, the Company operating their business might come to a sudden change in the provisions of the same as it includes the sole right upon the Director how the provision relating to Encroachment bounds the Director and other prominent members to ask consent of the all Stocks and shareholders before bringing changes to the provisions of the Company.

Read Our Blog: Difference between MOA and AOA

The procedure of Alteration in Article of Association

The procedure of the alteration in Article of Association is defined under Section 14 of the Companies Act, 2013, the following are the steps of alteration:

  • Notice period 

Before the alteration in the Articles of Association, at least seven days of prior notice needs to be given to every director of the Company, mentioning the agenda and date of the “Board meeting” and in cases of the shorter period, a proper notice call shall be given to the members mentioning the reason of the meeting.

  • Details of the Board meeting:
  1. Consideration shall be made for the change in the AoA.
  2. The approval of the alteration shall be made.
  3. The approval for the change in the AoA, by any Director of the Company, shall be made at the Registrar's office and the provision of the alteration shall be made.
  4. The date, time, and place of the general meeting shall be conveyed to the members as per Section 14 of the Companies Act.
  5. The notice of the general meeting shall be given along with the Statement of Explanation as per Section 102 of the Companies Act, 2013.
  6. The signature of the general meeting shall be made by any Director or Company secretary.
  • The Draft of the Meeting shall be circulated to the Directors for their view within 15 days from the date when the Board Meeting has been concluded by any means of Communication.
  • The Shareholders shall also conduct a meeting on the date of change in the Articles of Association along with more than ¾ of the majority, along with that the provision of Section 114 (2) should also be followed.
  • The details of the resolution shall be given to the Registrar within thirty days from the date of passing of the Special resolution as per Section 114 of the Companies Act, 2013.
  • The change shall then be deemed to be effective.

Conclusion

The companies, Startups, are managed according to the Companies Act, of 2013. The documents of the Article of Association contain the rules, and regulations for the management and administration of the Company. It describes the responsibility of every member of the Company, The provision is Compulsory for Companies such as a Company whose shares are limited by guarantee, the Unlimited Company, and the Private Company. The Articles of Association is the Constitution of the Company which plays a very important role in the major businesses of the Company. 

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.

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Author
Ravikant Rai
Hi, I am Ravikant Rai, a Technology Lawyer, who graduated with B. A. LL. B. (Hons.) from the school of law and legal affairs at Noida International University I have two years of experience writing about law as a freelancer and aspiring lawyer. In addition, I have experience writing, Content creation and researching legal information. Various articles on business and corporate law, cyber law and cyber security have been authored by me. I currently work in technology deals, corporate, fintech, and cyber law, etc. I have written documents on a variety of subjects, including software licensing, license to use, terms of service, privacy policy, cloud computing service, data security, confidentiality, and data protection, as well as shareholder and founder requirements.

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