ARTICLES OF ASSOCIATION

ABSTRACT

AoA[1] is a legal instrument that deals with the inside administration of the organization and targets completing the goals as referred in the MoA. These characterize the organization’s goal and lay out the rules of how the undertaking is to be done inside the association. The AoA specifies details about the top managerial staff, regular meetings, voting rights, board procedures and so forth.

This article gives information about the importance of AoA, Forms and Contents of AoA, Provisions to be included in AoA, Alteration of AoA and doctrine of indoor management along with some exceptions to it.

INTRODUCTION

AoA is a legal document that regulates the principles for an organization’s affairs and identifies the organization’s motive. It contains the guidelines of the organization. They are identified with the inside working of the organization. It assumes a significant role in the undertakings of an organization. It manages the privileges of the individuals from the organization. AoA can be thought of as a user’s manual for an organization, identifying its motive and plotting the way for accomplishing essential everyday tasks.

Articles is defined as “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.”[2]

IMPORTANCE OF AoA

The AoA characterizes the obligations, privileges of the ruling body as among themselves and the organization as whole, and the means and structure where business of the organization is to be continued, and the means and structure wherein changes in the internal guidelines of the organization may be made. The articles oversee the manners by which the objects of the organization are to be completed and can be confined and modified by the individuals.

As stated in the case of Naresh Chandra Sanyal v. The Calcutta Stock Exchange Association Ltd.[3], “The articles regulate the internal management of the affairs of the company by way of defining the powers of its officers and establishing a contract between the company and the members and between the members inter se. This contract governs the ordinary rights and obligations incidental to membership in the company.”

FORM AND CONTENTS OF AoA

The drafting of the AoA is critical from the perspective of the organization’s affairs. It is recommendable to give due consideration to the list of the AoA during the organization’s establishing stage, on the grounds that the amendments thereof consistently require in any event two-thirds of the votes at the convention of investors. Important changes should be concurred between the investors.

The AoA generally deals with “classes of shares, calls on shares, directors, meeting and minutes, accounts and audit, voting, minimum subscription, procedure for winding up, rules regarding use and custody of common seal, etc.”

AoA must be as per forms indicated in the Tables F, G, H, I, J of the “Schedule I to the Companies Act,2013”, as might be appropriate comparable to the sort of organization suggested to be consolidated or in a Form as close therein as the conditions allow.

FORM INPERTINENT TO
TABLE FOrganizations “limited by shares”
TABLE GOrganizations “limited by guarantee having share capital”
TABLE HOrganizations “limited by guarantee not having share capital”
TABLE IUnlimited companies “having share capital”
TABLE JUnlimited companies “not having share capital”

PROVISIONS TO BE INCLUDED IN AoA

The AoA should include the following provisions:

  1. Name of the Company-A public company must end with the words ‘Limited’ whereas a private company must end with the words ‘Private Limited’. If an organization means to utilize its organization name in atleast two dialects, the names in different dialects must be expressed in the AoA.
  2. Company’s place of business– The organization’s enrolled location of business is of importance, as the meetings of investors should be conducted in the district of the location of business and any legitimate activities against the organization should be taken to the court, in which it is referred.
  3. Field of working of the company– An organization can have a few fields of action, yet they should all be enrolled. The meaning of the field of action has legitimate importance while surveying the skill of the organization’s organs to deal with organizational matters.
  4. Share capital can be demonstrated as a fixed sum. In the event that the share capital has been identified as least and greatest capital, it tends to be expanded and diminished inside these limits without a need to change the AoA. Also, all shares must have nominal value.
  5. The board of directors and the other deputy members and their incumbency might be expressed in the AoA. The AoA may incorporate extraordinary arrangements regarding the qualification of a board member and a representative member.
  6. Intimation of meeting of shareholders– The AoA may specify the way where and when the notification to the yearly regular meeting of investors must be given. If not referenced in the AoA, as per the Limited Liability Companies Act, the notification must be given one week preceding the date of the regular gathering.
  7. Accounting period of the company– The accounting period of the organization must be mentioned in the AoA. This period can be more or less than 12 months depending upon the company’s field of action but it could not be more than 18 months.
  8. Some supplementary provisions can be added to the AoA if the company wishes to use the alternative granted by the legislation which is completely voluntary.
  9. Entrenchment provisions– An entrenchment provision is the one which makes certain change quite difficult. The organization has the preference to incorporate entrenchment arrangements in its AoA. Such arrangement may identify with the impact that predetermined arrangements of AoA might be modified just if circumstances or systems which are prohibitive than those applicable on account of an extraordinary goals, are met with.

ALTERATION OF AOA

An organization has a legal option to modify its AoA. In any case, the ability to adjust is dependent upon the provisions of the Act and to the circumstances mentioned in the MoA[4]. “Subject to the provisions of this Act and the conditions contained in its memorandum, assuming any, an organization may modify its articles including modifications having the impact of transformation of a privately owned business into a public organization; or a public organization into a privately owned business”.[5]

As stated in Walker v. London Tramway Co.[6] “The right to alter the articles is so important that a company cannot in any manner, either by express provisions in the articles or by independent contract, deprive itself of the powers to alter its articles.”

Alteration can be of the following types:

  1. Alteration which is against memorandum
  2. Alteration in breach of contract
  3. Alteration as fraud on minority shareholders
  4. Alteration increasing liability of members

DOCTRINE OF INDOOR MANAGEMENT

As the principle of “constructive notice” looks to ensure the organization against the outsiders, the doctrine of indoor management works to secure the outsiders against the organization.

As established in the case of Royal British Bank v. Turquand[7], “According this doctrine, persons dealing with a company having satisfied themselves that the proposed transaction is not in its nature inconsistent with the memorandum and articles, are not bound to inquire the regularity of any internal proceedings.”

However, there are some exceptions to this doctrine:

  1. A person who knows that the executives don’t have the discretion to make a particular transaction yet goes into it, can’t look for protection under the rule of indoor management.
  2. The rule cannot be summoned for a person who doesn’t counsel the MoA and AoA and consequently doesn’t depend on them.
  3. The doctrine of indoor management doesn’t stretch out to exchanges including forgery which are in any case void. In the event of forgery, it isn’t that there is nonattendance of free assent but there is no assent at all.
  4. The principle cannot be summoned by an individual who behaves negligently.
  5. This rule is likewise not appropriate where a pre-requisite has to be satisfied before organization alone can practice a specific authority.

CONCLUSION

It is an established company law rule that the AoA of an organization can’t be abrogate the arrangements of the Companies Act, 2013. When an organization is being consolidated, and the AoA of the organization are being made, it is important that the equivalent must be done in consonance with MoA, the Companies Act, 2013 and other company law at force that time.

REFERENCES


[1] AoA- articles of association

[2] Section 2(5) of the Companies Act,2013

[3] AIR 1971 SC 422

[4] MoA- memorandum of association

[5] Section 14(1) of Companies Act,2013

[6] (1879) 12 Ch. D. 705

[7] (1856) 119 E.R. 886

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