Articles of Association is the second important document prepared by the promoters and filed with the Registrar of Companies along with other documents. This is mandatory under the provisions of the Indian Companies Act, and contains the rules that govern the management of the internal affairs of the company. The memorandum of a company defines the objects for which the company is being incorporated, whereas its articles define the procedure that is to be followed for achieving the objects .
Characteristics of Articles of Association
- The articles of a company are governed by its memorandum.
- The articles are a public document which is registered with the Registrar of companies.
- The articles contain the internal rules of the company and are for the interest of the shareholders.
- The articles pertain to the inter-related rights of the members of the company.
- The articles of a company define the powers, limitations and rights of the company’s officers.
- The articles help in the conduct and management of the company’s business.
- The articles of a company are amendable since they can be altered to suit the changing requirements of the company’s business.
- The articles elaborate the rules and policies of the company for the attainment of its objects.
- The articles serve as a contract between the members and the company, and define the rights of both.
Importance and Objects Of Articles of Association
- The articles of a company define the rules and sub-rules that help the company function in pursuit of its objectives. As such, they help overcome the day-to-day problems in the company’s functioning.
- The articles establish a relation between the company and its shareholders. They bind the members to the company, and the company to its members. Also one member of the company can lawfully bind the other to adhere to its articles.
- Those who deal, or make a contract, with the company should know about its articles of association. If they have such knowledge, in case of a default on the company’s part, they can legally enforce the contract.
- A company can do certain acts only if its articles of association authorise it to do such acts. In this manner, the articles of a company confine the company’s action to the sphere of its activity.
Contents of Articles of Association
- The extent to which the rules of Table A’ shall be applicable
- Rules for the adoption of ‘preliminary contracts
- Different classes of shares and rights of the holders of these shares
- Issue of share-capital and its allotment
- Minimum subscription allowed
- Procedure for issuing share certificates and share warrants
- Forfeiture of shares and their re-issue
- Re-organisation and consolidation of share-capital.
- Time lag in between calls on shares
- Payment of commission on shares and debentures
- Lien on shares
- Conversion of shares into stock
- Rules governing the quorum and proxy voting in company meetings
- Payment of dividends and creation of reserves
- Appointment, powers, duties, qualifications and remuneration of directors
- Borrowing powers of directors
- Use of Common Seal of the company
- Keeping of books of account and their audit
- Appointment, powers, duties and remuneration of auditors
- Capitalisation of profits