Articles of Association (AOA) and Its Importance for the Company

Articles of Association (AOA) plays a vital role in helping companies to carry their operation efficiently and smoothly. In order to ensure every task is carried accurately, it’s crucial that every member understands his/her actual responsibility towards the company clearly. And, this is what a company’s articles of association is all about.

Once the responsibilities of every member are clear and evident to everybody, a business will function evenly and without any dispute. Hence, every company must have a better structured Articles of Association in place. Therefore, in this blog, we have covered several strands relating to the AOA which includes its benefits, various forms, its contents, and more. So, let’s start-

What is Articles of Association?

Articles of Association (AOA) of the company is a document which together with the memorandum of association (MOA), forms the company’s constitution. Furthermore, it defines the duties of the directors, the type of business each director is supposed to undertake, and the medium by which shareholders employ control over the Board of Directors.

Why is Articles of Association imperative for running a business?

Article of Association (AoA) and Memorandum of Association (MoA) are racially mixed and united. Documentation of these two documents is the first and foremost step in the formation of the company.

Drafting of Article of Association is like the foundation stone of the company. Irrespective of the type of the company the formation process starts with the drafting of AoA.

Public listed companies have very strict regulations, so it is always advisable to draft a well approved AoA. It is really beneficial for the company as well as employees connected to the company; directly or indirectly. In addition, it describes the rules & regulation of the company.

What are the various forms of Articles of Association?

There are different forms of Articles of Association prescribed under Companies Act, 2013. Some of them are as follows:

What are the contents of Articles of Association? 

According to Section 5 (1) of the Companies Act, 2013, the articles must include the regulations of for the company’s management along with the matters directed by the Central Government. Moreover, the AOA of the company must contain the following elements:

1. The AOA consists of the steps required for the transfer of shares by the shareholders of the company to others.
2. The share capital of the company consists of the sub-division, rights and duties of several shareholders, the relationship between the rights of these shareholders, shares certificates and the payment of a commission.
3. Transmission of shares, in articles of association, defines the transfer of title by death, insolvency, marriage, succession, etc. Although it not elective, it is brought about by the operation of law.
4. In case the member of the company is unable to pay his debt, the AOA defines lien of shares which means the possession of shares can be retained.
5. Forfeiture of shares: It comes into play when the purchase requirements like call money or paying any allotment are not settled.
6. Calls on shares include the full or section that remains unpaid on every share and needs to be paid by the company’s shareholders on demand.
7. In accordance with the AOA, a company is able to convert its shares into stock by passing a general resolution in a general meeting.
8. Articles of Association provides the regulations on any alteration of capitals such as for increasing, decreasing, and rearrangement of the capital.
9. In case of transfer of shares, you must issue the share warrant if you’re a public limited company. Private limited companies don’t have the authority to issue the share warrant.
10. The AOA must define the surrender of shares which should further define the regulations regarding the voluntary return of shares by the shareholders of the company.
11. AOA must elucidate the voting rights of the members on the company’s certain issues and the way the member can vote.
12. The AOA should mention the provisions for the auditing of the company.
13. All the provisions regarding the general meetings and the way in which they are supposed to be conducted should be mandatorily mentioned in the AOA.
14. The AOA of the company should necessarily mention the rules regarding the distribution of dividend to the shareholders.
15. The AOA must mention the appointments of directors, qualifications, remuneration, powers and proceedings, of the boards of directors meetings.
16. The Articles of Association must mention the provisions regarding the winding up of the company. Additionally, the company is supposed to follow the same regulations in case it is winding up.

Therefore, the above-described points are essential contents of AOA and must be kept in mind while preparing the article.

Wrapping up

Articles of Association is a document which describes the roles and responsibilities of the directors and every member of the company. AOA, along with the MOA, builds the company’s constitution. For operating a business accurately and with high efficiency, it’s quite crucial to make the roles of every member of the company pretty clear. Therefore, AOA is one of the most required documents for every company falling. Furthermore, to ensure that you have a perfect AOA in place, you must ascertain that the AOA contains all the elements as described above.

In case you have any query or doubts regarding the company’s articles of association, then you can contact the highly dedicated team of Swarit Advisors. We are one of the best consultants in the market which provides various legal services such as legal documents, Company Registration, NBFC Registration, GST Registration, etc.

Also, Read: Conversion of Public Company into Private Company