While companies have to abide by the Indian laws to operate in the country, every company has to have its own set of internal laws to drive its business smoothly.
Articles of Association lays out rules for founders, directors, management, etc. Every company, According to the Companies Act 2013, must have its Articles of Association.
What are Articles of Association?
Articles of Association are a part of a company’s Memorandum of Association, which together forms its constitution.
It is a legal document that has details such as its scope of business, purpose, internal rules, and regulations, among other things.
It is one of the most important documents for any company as it lays out rules to run the company, penalties for breaking the rules, guidelines to appoint new directors, etc.
Also Read: Companies Act 2013: What All You Should Know?
In the course of running the business, Articles of Association come in handy for entrepreneurs, employees, as well as investors, to understand the company’s original roadmap.
Every company is bound to submit the Memorandum of Association, which includes Articles of Association to the government along with their application to incorporate the business.
Difference between Memorandum and Articles of Association
| Memorandum of Association | Articles of Association |
| It contains the overall objective of the company and also talks about the conditions of incorporation of the company. | It has details of the rules and regulations of running the company. The internal management of the company is governed by these rules and bye-laws. |
| It establishes the relationship a company will have with the external world. The contents are essentially for the benefit of the creditors and the shareholders. | It talks about the relationship between the company and its members. Even the relationship among the members and their responsibilities are laid out in it. |
| Shareholders or board members can’t approve the company’s acts beyond the Memorandum of Association. | Shareholders or board members can approve the company’s acts done beyond the Articles of Association. |
| Memorandum of Association is a subsidiary of the Companies Act, 2013, and can’t include provisions that contradict it. | Articles are a subsidiary of the Memorandum and the Companies Act. |
| It’s difficult to change the Memorandum of Association and can only be done under specific conditions. In some cases, the Central Government’s nod is required to make changes in the Memorandum. | It’s easier to alter the Articles of Association. Board members can simply pass a special resolution and change the Articles. |
What are the contents of the Articles of Association?
The Companies Act, 2013, says that the Articles of Association of different companies should be framed based on the type of company. Here is a list of different types of companies as listed by the Companies Act:
- Companies limited by shares
- Companies limited by guarantee and having a share capital
- Companies limited by guarantee and not having a share capital
- Unlimited companies having a share capital
- Unlimited company and not having a share capital
However, there are a few common elements that go in the Articles of Association of all companies.
- Corporate governance: A company’s Articles of Association have the details of the corporate structure including its internal governance. It mentions the powers of directors, shareholders, and other higher management executives.
- Voting rights: Individual voting rights of shareholders and board members are mentioned in the Articles of Association. They also have information on the manner of voting including proxy, by poll, etc. They distinguish the rights and duties of the directors, board members, and shareholders.
- Share capital: Articles of Association must include information regarding the subdivision of shares among promoters and the board of directors. It also contains details of the transfer and forfeiture of shares including converting shares into stock.
- Capital alteration: Articles of Association guide board members if they need to rearrange capital allocation.
- Credit power: Every now and then, companies need to borrow money from different sources. For such an event, the Articles of Association need to lay out rules about borrowing money.
- Dissolution of the company: This is one of the most important parts of the Articles of Association. It talks about how the company, if need be, should shut down. It mentions details of the responsibilities of board members as well as the information regarding the sale of shares of individual members.
What are the powers of the Articles of Association?
The Articles and Memorandum of Association bind the company with its board members. The binding becomes effective once the company is registered with the Registrar of Companies (RoC).
Once the binding is enforced, the company has to oblige to every rule of the Articles of Association. Board members have the power to take legal action against the company if any rule is violated.
Also Read: All You Need to About Section 8 Company Registration
Board members can sue the company to safeguard their interests as enforced by the Articles.
Alternatively, the company can also take legal action against a board member if the latter is found flouting the rules laid out by the Articles and Memorandum of Association.
Frequently Asked Questions
Do Articles of Association need to be signed?
Yes, Articles of Association have to be signed by all the members and subscribers. They have to mention their names, occupation, and addresses. The signature must be done in the presence of at least one witness who also must sign and provide his or her details.
A Memorandum of Association also has to be signed in a similar manner by all members of the company.
How can one access the Articles of Association?
The website of the Ministry of Corporate Affairs gives access to every company’s Articles and Memorandum of Association.
Is it possible to alter the Articles of Association?
Section 14 of the Companies Act, 2013, empowers board members to alter the Articles of Association when required. A special resolution has to be passed in a general meeting in the presence of board members to alter or amend the Articles of Association. However, the amendment must be in line with the conditions mentioned in the Memorandum of Association.
The amendments in the Articles of Association are generally done to convert a private company into a public company or vice versa.
Can the Memorandum of Association be altered?
Technically, it’s allowed to alter the Memorandum of Association, but it can only be changed under special circumstances. The changes must meet the rules laid down in the Companies Act, 2013. The company has to take permission from the central government to alter the Memorandum of Association.
