Similar to the Memorandum of Association (MOA), the Article of Association too, holds great importance for a company. However, while the former defines the rights and powers of a company’s external operations, the Articles of Association primarily defines the scope of the internal management of a company. Read on to know all about the Article of Association.
What is AOA?
An extremely significant subsidiary to the Memorandum of Association, the Article of Association (AOA) constitutes all the empowering laws, norms, rules and regulations for the management to control the internal affairs of a company. It states the rules for the proper governance of a company’s work policies. It also defines the code of conduct for individual directors and board of directors, employees and other members concerning the management of a company. Irrespective of the type of company, an Article of Association should be a part of every company. It is a must-have for an unlimited company, a company limited by guarantee, a public company limited by shares and a private company limited by shares.
Together with the MOA, AOA defines the outline of the company constitution.
The AOA of a company binds the-
- Company to the members and members to the company
- Members to members
- Company to the outsiders (Based on the assumption that any outsider who agrees to indulge in professional dealing with a company has read its Articles of Association.)
The AOA discusses in detail, the-
- Duty of the board and directors
- Liability of members
- Director’s rights regarding holding meetings, delegation of authority, voting and interest conflict
- Removal and appointment of the board members
- Record of all decisions taken by the directors
The AOA addresses a company’s right to issuing shares, discusses different share classes, certificates, and transfers. It also addresses the dividends and other distribution rules for the members. The AOA states member’s rights for decision-making and attendance requirement at the general meetings. Of course, it does not apply if the company is not limited by shares and limited only by guarantee.
Amendments in the Article of Association:
The AOA is amendable by way of deleting, adding, modifying, altering, substituting, or by any other way.
To make amendments in the AOA, in case of a private limited company an agreement has to be signed following the rules set in the AOA, with the consent of all the members. For public limited companies, a special resolution has to be passed followed by filing the MGT-14 form with the Registrar and submitting a signed copy of amended AOA.
More about the Articles of Association:
Just like the MOA, AOA should be printed and must be issued to the public including shareholders and prospective investors.
The AOA is a binding contract that governs the obligations and ordinary rights of an individual’s membership in a company.
No clause of the AOA can violate the clauses in the MOA. Any clause in the Articles of Association that is not in accordance with the Memorandum, it must be overruled.
While having a MOA is mandatory for any limited company, having the AOA is not a legal binding for all.
The AOA is a vital document for a company. It holds almost equal importance as the Memorandum of Association. Though unlike the MOA, the AOA can be easily amended, if a company wishes not to allow amendments easily (or not at all) then an entrenchment can also be passed for the same.