Articles Of Association: The First Principles

To incorporate the company, the company goes through the process of incorporation and for this the company needs to have a constitution. The main aspect of the company’s constitution is originated in the articles of the association because it governs management of Company, which includes the rules and regulations along with the company’s objectives. It is the contract which contains the Company's connection with its directors. Articles of Association serve as a guide to how the company will be run and help to ensure that it operates within the law. The AOA is a crucial document for every business since it outlines the guidelines for how the organisation will operate and serves to safeguard the interests of its shareholders. They assist in making sure the business complies with the law and defends the interests of its shareholders. The AOA will typically include information on the company’s registered name, registered office, and the type of company it is (such as a limited company or a public limited company). Additionally, it will include information about the company's authorised share capital, the rights associated with various share classes, and the procedures for issuing new shares. The AOA will also detail the meeting, decision-making, and record-keeping processes as well as the duties and authority of the company's directors. Businesses that disregard the terms of their AOA risk legal repercussions and reputational harm. The Articles of the association are company’s core regulations, equivalent to a partnership's "partnership deed". Memorandum of Association, termed as the main document and sets forth overall circumstances of company, is superseded and regulated by the Articles, however, the Articles may be used to clarify any inconsistencies in the Memorandum. However, the terms of the articles and memorandum of association cannot be in conflict with Company’s Act. Introduction: In accordance with section 2(5) of the Companies Act, 2013, "articles of association" are defined as "the articles of association of a company as initially formed or as subsequently amended or enforced in accordance with any prior legislation or this act." According to Section 5 of the Company’s Act of 2013, the company's articles must include: Regulation for management of company. Matters which are prescribed under the rules. Articles of Association as a contract- Generally speaking, an article of association is a contract between the Company and its shareholders as the company has a distinct identity from its shareholders, thereby such a contract describes the roles and responsibilities of internal management and it is submitted to the registrar of companies as a part of the process of incorporation. It is a public document governed by Company’s act, 2013, registered at the company's registrar in which the parties to the contract have binding power for existing and new shareholders. In Naresh Chandra Sanyal vs Calcutta Stock exchange association Ltd[1], According to the Supreme Court, the articles of association also create a contract between the firm and its members as well as among its individual members. The rights and obligations typical to membership in the company are governed by this contract. Relationship Between MOA and AOA:Articles which is subsidiary to memorandum- Memorandum includes the essential requirements upon which alone the company is permitted to be incorporated, while the articles are the operational rules of the company. As a result, articles are subordinate to the memorandum.Memorandum and AOA must be read together but articles shall not be deemed to amend or control the terms of the memorandum. As memorandum is a superior document which cannot be overridden by the articles of the company, and they must be read together to clarify the terms where the memorandum is silent.The power of alteration of articles is subject to what is prohibited by the memorandum, expressly or impliedly- Unless a company's memorandum does not stipulate that all shareholders are equal, it may change its articles by special resolution to provide for the issuance of preference shares. Binding Effect of articles of association: As per section 10 of the Company’s Act,2013 [2]after the registration of MOA and AOA, the document becomes a public document, thereby the members are bound to the company and the company is bound to its members. However, neither the corporation nor its members are obligated to third parties in regard to the articles. When it comes to rights and obligations emanating from the articles, the members are bound one to the other by the articles, but a member is not permitted to sue another member or members on his own behalf to enforce the articles. The legal effect is discussed as follows: -Members bound to company: The members are bound due to provisions in the memorandum and...

Articles Of Association: The First Principles

Rashi Banga

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