Definition: The Articles of Association or AOA are the legal document that along with the memorandum of association serves as the constitution of the company. It is comprised of rules and regulations that govern the company’s internal affairs.
The articles of association are concerned with the internal management of the company and aims at carrying out the objectives as mentioned in the memorandum. These define the company’s purpose and lay out the guidelines of how the task is to be carried out within the organization. The articles of association cover the information related to the board of directors, general meetings, voting rights, board proceedings, etc.
The articles of association are the contracts between the shareholders and the organization and among the shareholder themselves. This document often defines the manner in which the shares are to be issued, dividend to be paid, the financial records to be audited and the power to be given to the shareholders with the voting rights.
The articles of association can be considered as the user manual for the organization that comprises of the methodology that can be used to accomplish the company’s day to day operations. This document is a binding on the shareholders and the organization and has nothing to do with the outsiders. Thus, the company is not accountable for any claims made by any external party.
The articles of association is comprised of following provisions:
- Share capital, call of share, forfeiture of share, conversion of share into stock, transfer of shares, share warrant, surrender of shares, etc.
- Directors, their qualifications, appointment, remuneration, powers, and proceedings of the board of directors meetings.
- Voting rights of shareholders, by poll or proxies and proceeding of shareholders general meetings.
- Dividends and reserves, accounts and audits, borrowing powers and winding up.
It is mandatory for the following types of companies to have their own articles:
- Unlimited Companies: The article must state the number of members with which the company is to be registered along with the amount of share capital, if any.
- Companies Limited by Guarantee: The article must define the number of members with which the company is to be registered.
- Private Companies Limited by Shares: The private company having the share capital, then the article must contain the provision that, restricts the right to transfer shares, limit the number of members to 50, prohibits the invitation to the public for the further subscription of shares in the form of shares or debentures.
Note: In the case of a public company limited by shares, the articles may be framed by the company itself or in case company does not register articles then it might adopt all of any of the regulations as contained in Table A in the Companies Act.