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 of a company and its bye laws are regulations which govern the management of its internal affairs and the conduct of its business.
As per Section 2(5) of the Companies Act,2013 “articles” means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act.
They are framed in order to carry out the aims and objects as set out in the Memorandum of Association. While the MOA lays down the external boundaries, AOA laydown the guidelines within the boundaries. The Articles are next in importance to the MOA which contains the fundamental conditions upon which alone a company is allowed to be incorporated. As per Section 5 of the Act, it shall contain the regulations for management of the company.
Contents of Articles of Association
Generally, the Article contains the following matters.
Share capital and variation of rights, Lien, Calls on shares, Transfer of shares, Transmission of shares, Forfeiture of shares, Alteration of share capital, Capitalisation of profits, Buy-back of shares, General meetings, Proceedings at general meetings, Adjournment of meeting, Voting rights, Proxy, Board of Directors, Proceedings of the Board, CEO, CFO, CS, Manager, The seal, Dividends and reserves, Accounts, Winding up, Secrecy/Indemnity clause
Alteration Of Articles
Sec. 31 of the Companies Act, 1956, provides that a company may by passing a special resolution, alter regulations contained in its Articles any time subject to
a) the provisions of the Companies Act and
b) Conditions contained in the Memorandum of Association [Section 31(1)].
A copy of every special resolution altering the Articles shall be filed in Form no 23, with the Registrar within 30 days its passing and attached to every copy of the Articles issued thereafter.
The fundamental right of a company to alter its articles is subject to the following limitations:
a) The alteration must not exceed the powers given by the Memorandum of Association of the company or conflict with the provisions thereof.
b) It must not be inconsistent with any provisions of Companies Act or any other statute.
c) It must not be illegal or against public policies
d) The alteration must be bona fide for the benefit of the company as a whole.
e) It should not be a fraud on minority, or inflict a hardship on minority without any corresponding benefits to the company as a whole.
f) The alternation must not be inconsistent with an order of the court. Any subsequent alteration thereof which of inconsistent with such an order can be made by the company only with the leave of the court.
g) The alteration cannot have retrospective effect. It can operate only from the date of amendment.
h) If a public company is converted into a private company, then the approval of the Central Government is necessary. Printed copies of altered articles should be filed with the Registrar within one month of the date of Central Government’s approval. [Section 31 (2A)].
i) An alteration that has the effect of increasing the liability of a member to contribute to the company is not binding on a present member unless he has agreed thereto in writing.
j) A reserve liability once created cannot be undone but may be cancelled on a reduction of capital.
k) An assumption by the Board of Directors of a company of any power to expel a member by amending its Articles is illegal or void.
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Redrafted for Educational Purpose.
Deekshith Kumar,
Assistant Professor of Commerce
Book Reference:
1. Elements of Mercantile Law by N. D. Kapoor
2. Principles of Mercantile Law by Avtar Singh
3. A Textbook of Business Law by Dr. Umesh Maiya
4. Business Law by B.S. Raman
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