What are the Articles of Association?

Each and every area is covered in the Articles of Association as per the governing law by which the company can regulate its own internal affairs. Among others, it sets down the duties of directors, maintenance of financial records, calling and conduct of meetings, allotment of shares, etc.

Hence, the AoA is the rule book of the company.

The MoA states the outside objectives and the extent to which a company can operate. Annexed to that-much as the MoA states what a company may do, much more so the AoA states how a company may do it.

Key Contents of the Articles of Association

The precise content may differ according to the type of company or jurisdiction; classic AoAs typically incorporate the following:

1. Share Capital and Variation of Rights
   • Types of shares
   • Allotments
   • Calls on shares
   • Lien on shares
   • Transferability
2. Board of Directors and Management
   • The appointment, powers, and duties of directors
   • Procedures for board meetings and resolutions
3. General Meetings and Voting
   • The conduct of Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs)
   • Voting Rights and Quorum Requirements
4. Dividends and Reserves
   • Distribution of profits
   • Reserves
   • Dividends
5. Accounts and Audit
   • Books of accounts
   • Audit procedures
   • Financial reporting
6. Winding Up
   • The particulars about voluntary or compulsory dissolution
      

Legal Status of Articles of Association

• The Articles of Association are binding on:
  • The company and its members
  • The company and its directors
  • The members with each other
• An act performed in contravention of the Articles is seen as ultra vires (beyond the powers) and can be rendered void.
   

Judicial Interpretation and Case Law

The binding nature of Articles has been recognized by Indian courts in the past. This was made clear by the Supreme Court in V.B. Rangaraj v. V.B. Gopalakrishnan (1992) ruling that private arrangements between shareholders must find their way into the Articles to be binding on the company. This principle was reiterated in Ashbury Railway Carriage Co. v. Riche (1875), wherein it was stated that a company should be held bound within the limits prescribed in its constitution.
 

Alteration of Articles

Section 14 of the Companies Act 2013 states that a company may change its Articles of Association by special resolution. However, every alteration, however properly done, must also adhere to specific requirements laid down in the Act itself:

• Must not contravene any provision of law
• Its nature must not be against the public interest
• Must not unfairly violate the rights of minority shareholders
   

Importance of AoA

• Establishing governance criteria for itself
• To protect shareholder interests
• To ensure compliance to law
• To specify the duties and powers of the members of the board of directors
• To avert internal tensions

Conclusion:
The Articles of Association are foundational for a company's internal management and governance. While the Memorandum of Association lays down a company's range and purpose, the AoA deals with how that purpose will be executed, i.e., day-to-day business, decision-making, and resolution of disputes.

Understanding and drafting the AoA well and clearly is necessary not only to ensure legal compliance but is also vital for the smooth sailing of shareholders and directors. Good Articles of Association get rid of ambiguity, safeguard rights, and promote transparency and accountability within the company.

If the Memorandum is the soul of the company, the Articles can be treated as the nervous system of the company since they coordinate all internal functions and the actual performance of the company itself.