What is an Article of Association?
Every company requires a set of rules and regulations for managing its internal affairs. The two crucial documents that define the internal affairs of a company are Articles of Association (AOA) and Memorandum of Association (MOA). AOA specifies the internal regulations of the company or the bye-laws. The director and the top management must perform their duties in line with the management of the company, its audits, and accounts in accordance with the AOA.
The Article of Association of a company is a legal piece of the document along with the MOA that serves its constitution. It comprises rules and regulations that govern its internal affairs. The AOA is concerned with the internal management of the company and aims at executing the objectives as mentioned in the memorandum.
AOA clearly specifies the purpose of the company and offers guidelines on how the tasks need to be performed. It covers all vital information on the board of directors, voting rights, general meetings, board proceedings, and more.
- Article of Association can be considered to be a user manual for the organization and comprises detailed methodology that can be used for accomplishing its everyday operations.
- Articles of association content include detailed information on the powers, appointment, qualification of the directors, proceedings of the board of directors, share capital details, voting rights of shareholders, accounts, audits, borrowing powers, and more.
- AOA establishes the constitution of a company and clearly demarcates all the rules and regulations that stipulate its internal affairs.
Content of article of association:
As per the Articles of Association Companies Act 2013, an AOA must include the following components in general.
A company has to adopt an official name as its legal entity and it should be clearly specified in the AOA. Usually, the suffixes “Ltd” or “Inc.” indicate that the entity is a company. The rules regarding the company names vary from one country to another as per the jurisdiction.
Purpose of the company
Companies are instituted for a specific purpose. It is primarily for making a profit by pursuing a certain goal and by delivering value to society. The reason has to be clearly specified in the AOA. Some jurisdictions permit a broad purpose statement while others require a more specific purpose of an enterprise to be included in the document.
The articles of association clearly state the number and the kind of shares comprising the capital of a company. One can also see detailed information on the several types of preferred stock.
Organization of the company
The document pertaining legal information of a company along with the registration address, information on directors, identity of founders, and original shareholders has to be included in the AOA.
The first general shareholder meeting information is listed in a specific section of the AOA. Votes, resolutions, notices, and other factors governing the subsequent annual shareholder's meetings are covered in the section.
Importance of Articles of Association:
- AOA are rules and regulations governing the conduct and internal affairs of a company.
- It clearly specifies the internal regulations for governing the company, the powers of the directors as well as the rights of the shareholders.
- The members are bound to the company by the provisions listed in the AOA. It clearly defines the rights and liabilities of the members.
- It gives provisions to the company’s inner workings by defining the powers and duties of the employees at different levels of management.
Article of Association format:
AOA of a private limited company or any other company has to abide by some standard format. Here are the articles of association samples that will help you gain a better understanding of what AOA is.
|ARTICLES OF ASSOCIATION
Of ABC Private Limited
(A Company Limited by Shares)
The company is a private company defined under the Companies Act, 2013 having a minimum share capital of Rupees ten lakhs.
Proceedings at general meetings
Board of DirectorsThe First Directors of the company;
Chief Executive Officer, Manager, Company Secretary or Chief Financial OfficerA chief executive officer, or chief financial officer may be appointed by the Board for a defined term for specific remuneration. A director can be appointed as chief executive officer, company secretary, manager, or chief financial officer.
IndemnityEvery employee of the company shall be indemnified against any liability incurred by them while defending any proceedings.
We, the several persons are desirous of constituting a company based on this Article of Association.
AOA is a document that clearly describes the roles and responsibilities of the directors and every other member of the company. It completely governs the internal management of the company. It forms the core and constitution of the company. It wouldn’t be wrong to call it the rule book with which the management has to abide.