Importance of Articles of Association

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Importance of Articles of Association

For a company, Articles of Association (AOA) is one of the most important documents. Under Companies Act 2013, every company must have an AOA. Without this document, a company cannot be registered with the Registrar of Companies (ROC). In this blog post, we shall understand the importance of AOA.

What is Articles of Association in Company Law?

Articles of Association is a legal document that specifies the rules and regulations of a company. It is one of the most important company incorporation documents, and is required to be submitted while filing SPICe+ form with ROC. Without AOA, a company cannot be registered in India. 

For a company, the AOA provides the internal policies. It dictates how the company directors and other members must run the company, handle the accounts and conduct business audits. Essentially, AOA provides the framework for how a company operates internally and offers guidelines for internal governance. 

What is the Purpose of Articles of Association?

The purpose of AOA is to serve as the company’s internal rulebook and outline how the company must be operated by directors, shareholders and other members. It defines procedures for various business activities and helps to ensure the company adheres to legal requirements set forth by the Ministry of Corporate Affairs, Government of India.

Importance of Articles of Association

The importance of AOA can be understood with the help of the following points:

• AOA provides rules for how the company must operate.

• It defines the rights and duties of various shareholders.

• It is crucial for defining how the audit accounts must be managed.

• It outlines the voting rights as well as other rights possessed by shareholders.

• Additionally, it specifies the ways in which shareholders can attend meetings, provide their vote on resolutions and get dividends as part of the decision-making process. 

• The processes for share transfers, issuance and other associated issues are also covered in the AoA in a detailed manner.

• Articles of Association, Companies Act 2013, is legally binding on the company as well as its members. This promises clarity and accountability, allowing for smooth business operations. 

• Articles of Association format makes it easier for shareholders to ensure compliance with legal requirements. 

• In case of any confusion or internal disputes in the company, AOA serves as a reference point for resolution.

• It details how the company can be wound up or liquidated. 

Contents of Articles of Association

According to Table F of the Companies Act 2013, the essential contents of AOA are as follows:

• Share Capital and Variation Of Rights 

• Preference Shares 

• Alteration to Memorandum 

• Increase of Capital 

• Lien on Shares 

• Calls on Shares 

• Transfer Of Shares & Transmission of Shares 

• Alteration of Capital 

• Capitalization of Profits 

• Buy-Back of Shares 

• Issue of Shares In Kind 

• General Meetings

• Proceedings at General Meetings 

• Voting Rights

• Proxy 

• Board of Directors

• Proceedings of the Board 

• Chief Executive Officer, Manager, Company Secretary or Chief Financial Officer

• Common Seal 

• Borrowing Powers 

• Operation of Bank Accounts 

• Dividends and Reserve 

• Accounts & Audits

• Winding Up 

• Indemnity 

Can Articles of Association be Altered?

Yes, a company may opt for alteration of AOA if the need arises. Some reasons why a company may alter its AOA include change in business goals, company name, board structure, company address and decrease/increase in share capital.

The provisions for altering AOA are contained in Section 14 of the Companies Act 2013. This Section authorizes a company to change AOA via a special resolution. 

Conclusion

AOA is a legal document that defines how a company must be managed and operated. It defines the roles and responsibilities of directors, shareholders and other stakeholders. Without AOA, a company cannot be legally registered in India. Therefore, if you plan to opt for company registration in the near future, it is essential that you draft AOA in accordance with the Companies Act 2013. 

For assistance, you can connect with experts at Registrationwala. We’ll help you register your company in a smooth and hassle-free manner!

Frequently Asked Questions (FAQs)

Q1. Can a company be registered in India in absence of AOA?

A. No, in absence of AOA, a company cannot be registered in India. 

Q2. Which Act governs AOA of a company?

A. The Companies Act 2013 governs the AOA of a company. 

Q3. Can an AOA be amended?

A. Yes, an AOA can be amended through a special resolution. The amendment must be agreed upon by 75% of shareholders.

Q4. Which document defines the roles and responsibilities of directors?

A. AOA defines the roles and responsibilities of directors of a company.

Q5. Apart from AOA, what other documents are essential for company incorporation?

A. Apart from AOA, other documents essential for company incorporation include digital signature certificate, memorandum of association and director identification number. 

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