Articles of Association (AOA)

A company's Articles of Association (AOA) is a primary declaration of the company’s nature, purpose and ends which, along with the Memorandum of Association, forms together the company's constitution. These must be submitted at the time of application for incorporation. They define clearly the responsibilities of the directors, the kind of business to be undertaken, and the means by which the shareholders exert control over the board of directors.

Refer to our Comprehensive Guide to Articles of Association (AOA) for more details.

Definition of Articles of Association under the Companies Act, 2013

The Companies Act 2013 offers a comprehensive definition and outlines provisions of the Articles of Association. Section 2(5) of the Companies Act 2013 defines the Articles of Association as a document that encapsulates the rules and regulations governing company affairs management. In accordance with Section 5 of the Companies Act 2013, the Articles of Association must align with the Act's provisions and necessitate each subscriber's signature to the memorandum of association. This signing must occur in the presence of at least one witness who attests to the signature. Additionally, the articles must be printed, organized into paragraphs, and consecutively numbered.

Objectives Outlined in the Articles of Asociation

Section 5 of the Companies Act 2013 outlines the key objectives of the Articles of Association, specifying that they must:

Include regulations for the management of the company.
Cover matters as prescribed under the relevant rules.

Additionally, it's important to note that the Articles of Association do not prohibit a company from incorporating additional provisions or making necessary alterations to facilitate its operations.

Purposes of the Articles of Association (AOA)

The Articles of Association serve several vital purposes under Indian Company Law, including:

Governing Document: As a governing document, the Articles of Association establish the framework of rules and regulations governing the company's management and operations. It delineates the rights, responsibilities, and obligations of the company's directors, shareholders, and officers.
Legal Requirement: In adherence to the Companies Act 2013, it is mandatory for every company to possess its Articles of Association. These Articles must be submitted to the Registrar of Companies during incorporation.
Clarity: The Articles of Association offer vital clarity to the company's shareholders, directors, and officers regarding the prescribed procedures and regulations they must adhere to while conducting business activities.
Protection: They safeguard the interests of shareholders by defining their rights and providing procedures to address disputes or conflicts.
Flexibility: The Articles of Association can be amended over time to accommodate changing circumstances and evolving company needs, provided such amendments adhere to the Companies Act 2013 provisions.

Overall, the Articles of Association play a critical role in a company's governance, ensuring that its affairs are conducted lawfully, transparently, and in a manner that safeguards the interests of its stakeholders.

Scope and Extent of Articles of Association

The article is binding not only to the existing members, but also to the future members who may join in the future. The hires of members, successors and legal representatives are also bound by whatever is contained in the Article. The Articles bind the company and its members as soon as they sign the document. It is a contract between the company and its members. Members have certain rights and duties towards the company and the company have certain obligations towards its members. At the same time the company also expects some duties and obligations which the member has to fulfil for the smooth functioning of the company.

The Objectives and the purpose of the Company are determined in advance by the shareholders and the Memorandum of Association (MOA), if separate, which denotes the name of the Company, its Head- Office, street address, and (founding) Directors and the main purposes of the Company - for public access. It cannot be changed except at an AGM or Extraordinary General Meeting (EGM) and statutory allowance. The MOA is filed with a Registrar of Companies who is an appointee of the Ministry of Corporate Affairs. For their assurance, the shareholders are permitted to elect an Auditor at each AGM. There can be Internal Auditors (employees) as well as an External Auditor.

Nature and Contents Encompassed within the Articles of Association

Nature of the Articles of Association (AOA)

The Articles of Association (AOA) possess a binding nature, serving as a definitive document that delineates the rules and regulations governing the management and functioning of the company. Within its provisions, the AOA comprehensively defines the rights, duties, and responsibilities of the company's directors, shareholders, and officers.

The Articles of Association encompass rules and by-laws pertaining to various crucial aspects of the company's operations, including:

Share Capital

Rights of different shareholders, issuance of share certificates, commission payments, and more.

Lien of Shares
Calls on Shares
Procedures for Share Transfer
Transmission of Shares
Forfeiture of Shares
Surrender of Shares
Conversion of Shares into Stocks
Share Warrants
Alteration of Capital:
Increase, decrease, or rearrangement of capital.
General Meetings and Proceedings
Voting Rights of Members
Appointment, Remuneration, Qualifications, and Powers of Directors
Proceedings of Board of Directors Meetings
Dividends and Reserves
Accounts and Audits
Borrowing Powers of the Company
Provisions for Winding Up of the Company

Components of the Articles of Association

The Articles of Association serve as a foundational document that establishes a company's internal regulations and management framework. This document comprises several key components, including:

Name Clause: This clause defines the company's name and specifies its legal structure, whether private or public.
Registered Office Clause: Specifying the address of the registered office, this clause serves as the official communication address and legal proceedings location.
Object Clause: This section outlines the primary objectives and purposes of the company, detailing the authorized activities it can engage in.
Liability Clause: The liability clause elucidates the extent of members' liability, whether it is limited or unlimited.
Share Capital Clause: Defining the authorized share capital, types of shares, and the rights and privileges associated with each class of shares.
Management Clause: This clause delineates the powers, duties, and responsibilities of the company's directors, along with the procedures for their appointment, removal, and compensation.
General Meetings Clause: Outlining the procedures for convening and conducting general meetings, this section addresses notice periods, quorum, voting rights, and the resolution-making process.
Dividend Clause: This clause specifies the rules and procedures governing the distribution of dividends to shareholders.
Winding-up Clause: Outlining procedures for the company's winding up in cases of bankruptcy, liquidation, or dissolution.

These components are crucial for ensuring effective corporate governance and must be drafted in accordance with the legal requirements stipulated in the Companies Act 2013.

Details included in AOA

If a company's constitution contains any restrictions on the objects at all, those restrictions will form part of the articles of association. The Articles of Association also include, among other details:

valuation of intellectual rights, say, the valuations of the IPR of one partner and, in a similar way as how we value real estate of another partner
the appointments of directors - which shows whether a shareholder dominates or shares equality with all contributors
directors meetings - the quorum and percentage of vote
management decisions - whether the board manages or a founder
transferability of shares - assignment rights of the founders or other members of the company do
special voting rights of a Chairman, and his/her mode of election
the dividend policy - a percentage of profits to be declared when there is profit or otherwise
winding up - the conditions, notice to members
confidentiality of know-how and the founders' agreement and penalties for disclosure
first right of refusal - purchase rights and counter-bid by a founder

A company's memorandum of association, by contrast, contains an objects clause, which limits its capacity to act. The objects clause in general is drafted in such a wide and somewhat ambiguous way as not to restrict the board of directors in their day to day activities, especially if the business intends to gradually broaden its scale of operation. Nonetheless, any significant change (for e.g. operating in a completely different industry than registered in) in this clause requires a separate application.

Forms of Articles of Association (AOA)

The specific forms for Articles of Association (AOA) are delineated in Tables F, G, H, I, and J, tailored to different types of companies, as specified in Schedule I of the Companies Act, 2013. It's mandatory for the AOA to be in the respective form that aligns with the company's nature:

Table F: AOA for a company limited by shares
Table G: AOA for a company limited by guarantee with a share capital
Table H: AOA for a company limited by guarantee without a share capital
Table I: AOA for Table J: an unlimited company with a share capital
Table J: AOA for an unlimited company without a share capital

Vital Role of Articles of Association in Company Registration

The Articles of Association (AOA) hold significant importance during the company registration process, as these provisions carry legal weight and impact both the members and the company itself. The AOA must align with the Memorandum of Association (MOA), ensuring it doesn't stipulate rules that exceed the powers granted. Typically, the Articles of Association outline the relationships among shareholders, the Board of Directors, and even among the Directors themselves. This document commonly covers regulations concerning share capital, variation rights, lien on shares, calls on claims, share transfer and transmission, and other crucial matters. Moreover, the company may include additional provisions in the AOA as needed for effective management and governance. In essence, the AOA acts as a pivotal document that shapes the internal framework and functioning of the company.

Difference between Memorandum and Articles of Association

Aspect	Memorandum of Association	Articles of Association
Purpose	Defines the company's objectives, powers, and scope of activities.	Specifies the internal rules and regulations for the company's management.
Parties Concerned	Primarily concerns the company and its outsiders, such as creditors and shareholders.	Primarily concerns the company and its members, including shareholders and directors.
Alteration	It can be altered, but any changes must align with the company's objectives and be approved by a special resolution and, in some cases, by the court.	It can be altered, but changes must comply with the Memorandum and Articles and typically require a special resolution by the members.
Contents	Outlines the company's name, registered office, objects, limited liability clause, and authorized share capital.	Covers regulations regarding share capital, management, governance, voting rights, and internal affairs.
Registration	Submitted to the Registrar of Companies as part of the company's incorporation process.	Submitted to the Registrar along with the Memorandum during company registration.
Subsidiary	MOA is a subsidiary of the Companies Act	AOA is a subsidiary of both the Companies Act as well as the MOA
Obligatory	Mandatory for company registration; every company must have a Memorandum.	Mandatory for company registration; every company must have Articles.
Section under the Companies Act	Section 2(56) of the Companies Act, 2013 governs the Memorandum of Association.	Section 2(5) of the Companies Act, 2013 governs the Articles of Association.

Alteration of Articles of Association

The AOA of a company can be modified through various means, provided they adhere to the stipulations outlined in the Companies Act 2013. Altering the Articles of Association is a frequent necessity, whether a public company seeks to transition into a private company or a private company aims to become a public company. IndiaFilings: Your Partner for Company Registration and Compliance Services