Article of Association Under Section 5 of the Companies Act, 2013

Section 5 of the Companies Act, 2013, defines the Articles of Association (AoA) as a legal document containing the prescribed regulations of the company. Further, it is prepared at the time of incorporation of the company. The company also has the right to include additional matters in the AoA for its management. In this article, we will talk about the definition of the Articles of Association under Section 5 of the Companies Act, 2013, and the rules that govern them. Finally, we will compare articles with the memorandum of association.

Articles of Association

Section 5 of the Companies Act, 2013, defines the Articles of Association or AoA as a set of regulations for the management of the company and the conduct of its business. Further, the company has the right to adopt any or all of the model articles applicable to it. You can also consider it to be the rule book of the way the company works and regulates the powers of the officials of the company. In many ways, the AoA establishes a contract between the company and its members. It is, however, second-in-line to the Memorandum of Association (MoA) which is the fundamental document of any company.

Forms for AoA

The articles must be in forms specified in Tables F, G, H, I, and J in Schedule-I as applicable to the company.

TABLES:

  • F– AoA of a company limited by shares.
  • G– AoA of a company limited by guarantee. Also, the company has a share capital.
  • H– AoA of a company limited by guarantee. However, the company does not have any share capital.
  • I– AoA of an unlimited company. Also, the company has a share capital.
  • J– AoA of an unlimited company. However, the company does not have any share capital.

Rules and Regulations of the Articles of Association

Here is a quick view of the set of rules and regulations of the Articles of Association of a company:

  1. Share capital and also the variation of rights for:
      • Issue of Shares
      • Transfer of Shares
      • Transmission of Shares
      • Also, buyback of Shares and
      • Forfeiture of shares
  2. Procedure and matters with respect to meetings-
      • Board Meeting
      • General meeting
      • Also, Proxy and
      • Adjournment of Meetings
  3. Appointment and also the rights attached to the appointment for-
      • Chief Executive Officer
      • Manager
      • Also, Company Secretary and
      • Chief Financial Officer
  4. Declaration of dividend and reserves
  5. The right with respect to the inspection of books of accounts of the Company.

Altering the Articles

Articles of Association also contain provisions for entrenchment. However, it is possible to alter specific provisions only if the company passes a special resolution. Further, it is important to ensure that the alteration does not conflict with the provisions of the Memorandum of Association. Also, the company must file a copy of the special resolution altering the AoA with the Registrar within 30 days of passing it.

Many people get confused between the Articles and Memorandum of Association. While they understand that these are two separate legal documents, there is ambiguity in defining their purpose clearly. Hence, we decided to do a quick comparison between the AoA and the MoA.

Comparison between the Articles and Memorandum of Association

Factor Memorandum of Association Articles of Association
Status The Memorandum of Association is the Primary document that consists of the basic fundamentals of the Company. The Articles of Association is the Secondary document which is sub-ordinate to the Memorandum of Association. Further, it defines the rules and regulations that govern the company.
Content It contains the power & objects of the Company. It contains the bye-laws governing the Company.
Clauses The MoA consists of six clauses i.e.

  1. Name Clause
  2. Registered Office Clause
  3. Objects Clause
  4. Liability Clause
  5. Capital Clause
  6. Association Clause.
The AoA consists of various clauses as per the running aspects of the Company.
Obligation The company must adopt the MoA as per the format prescribed in Schedule I of the Companies Act, 2013. Private Companies can alter and adapt the Articles of Association as per their discretion. However, the alterations cannot contradict the law.
Amendment The company can alter or amend the MoA after passing Ordinary Resolution, Special Resolution or Central Government’s approval. Further, the resolution or approval required will depend on the alteration suggested. The company can alter the AoA by passing Special Resolution.
Legality Acts done beyond the power specified in the MoA are void. The shareholders of the company can ratify the acts done beyond the scope of the AoA.

Conclusion

When it comes to corporate governance, the Articles of Association are crucial. While the memorandum describes the objectives of the company the articles define the rules of the game. However, if there is a conflict, the memorandum supersedes the articles. Also, the Companies Act, 2013, supersedes them both. We hope that this article offered better clarity about the AoA. In case of any doubt, don’t hesitate to write to us.

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