Every company needs a set of rules and regulations to manage its internal affairs. There are two important business documents of a company, namely, Memorandum of Association (MOA) and Articles of Association (AOA). The AOA specifies the internal regulations of the company. In this post, we will look at the Articles of Association (AOA) in detail.
The AOA contains the bye-laws of the company. Therefore, the director and other members must perform their functions as regards the management of the company, its accounts, and audits in accordance with the AOA.
Content and Model of Articles of Association (AOA)
According to Section 5 of the Companies Act, 2013, the AOA must have the following components:
The AOA must contain the regulations for the management of the company.
Inclusion of matters
The Articles must specify all matters, in accordance with the rules. Furthermore, a company can include additional matters deemed necessary for its management.
Provisions for entrenchment
Entrenchment means fortification or protection.
The AOA can contain provisions for entrenchment for specific provisions. The provisions for entrenchment can ensure that the specified provisions are altered only if certain conditions or procedures are met or complied with. These conditions are usually more restrictive than those applicable for a special resolution.
The inclusion of the provisions for entrenchment is possible:
- On the formation of the company
- Also, by amending the Articles with approval from all members of the company. Further, in the case of a public limited company, with a special resolution.
Regardless of whether the provisions for entrenchment are added on the formation or after an amendment, the company must give a notice to the Registrar of the same.
Forms of AOA
Schedule I of the Companies Act, 2013 provides forms for AOA in tables F, G, H, I and J for different types of companies. Further, the articles must be in the respective form.
A company can adopt all or any of the regulations specified in the model articles.
Company registered after the commencement of the Act
IF… The registered articles of such a company do not exclude or modify the regulations contained in the model articles applicable to such company
THEN… Those regulations are the regulations of that company as if they were contained in the duly registered articles of the company.
Difference between Memorandum and Articles of Association
|Objectives||It defines and delimits the objectives of a company. Further, it specifies the conditions of incorporation.||It lays down the rules and regulations for the internal management of the company. Hence, it also contains the bye-laws of the company.|
|Relationship||It defines the relationship of the company with the outside world.||It defines the relationship between the company and its members.|
|Alteration||It can be altered only under special circumstances. Also, it usually requires the permission of the Regional Director or the Tribunal.||It can be altered by passing a special resolution.|
|Ultra Vires||Acts beyond the scope of the MOA are ultra vires and void. Furthermore, even unanimous consent of all shareholders cannot ratify it.||Acts which are ultra vires the AOA can be ratified by a special resolution of the shareholders. However, such acts should not be ultra vires the MOA.|
Solved Question on Articles of Association
Q1. What are the conditions for the inclusion of provisions of entrenchment in the AOA?
Answer: The conditions for the inclusion of provisions of entrenchment in the AOA are as follows:
- On the formation of the company
- Also, by amending the Articles with approval from all members of the company. Furthermore, in the case of a public limited company, with a special resolution.