Articles of Association
Articles of Association (AOA)
A company’s Articles of Association (AOA) is a primary declaration of the company’s nature, purpose and ends which, along with the Memorandum of Association, forms together the company’s constitution. These must be submitted at the time of application for incorporation. They define clearly the responsibilities of the directors, the kind of business to be undertaken, and the means by which the shareholders exert control over the board of directors.
Articles of Association Content
As is evident, an Articles of Association must contain all the information regarding who holds the power distribution among directors, officers, shareholders etc, who holds right of vote and veto, the nature and form in which the primary business of the company is to be carried out, the structure for the internal corporate governance of the company, the means of internal review by which executive decisions are made, the bodies in whom authority to make such decisions in the last resort finally rest, the procedure and number or percentage of votes required to establish a majority and make some key decisions etc. Besides this the rights and duties of the members of the company, their names and number, as well as other details relating to the contributed share capital are included.
Scope and Extent of Articles of Association
The article is binding not only to the existing members, but also to the future members who may join in the future. The hires of members, successors and legal representatives are also bound by whatever is contained in the Article. The Articles bind the company and its members as soon as they sign the document. It is a contract between the company and its members. Members have certain rights and duties towards the company and the company have certain obligations towards its members. At the same time the company also expects some duties and obligations which the member has to fulfil for the smooth functioning of the company.
The Objectives and the purpose of the Company are determined in advance by the shareholders and the Memorandum of Association (MOA), if separate, which denotes the name of the Company, its Head- Office, street address, and (founding) Directors and the main purposes of the Company – for public access. It cannot be changed except at an AGM or Extraordinary General Meeting (EGM) and statutory allowance. The MOA is filed with a Registrar of Companies who is an appointee of the Ministry of Corporate Affairs. For their assurance, the shareholders are permitted to elect an Auditor at each AGM. There can be Internal Auditors (employees) as well as an External Auditor.
Details included in AOA
If a company’s constitution contains any restrictions on the objects at all, those restrictions will form part of the articles of association. The Articles of Association also include, among other details:
- valuation of intellectual rights, say, the valuations of the IPR of one partner and, in a similar way as how we value real estate of another partner
- the appointments of directors – which shows whether a shareholder dominates or shares equality with all contributors
- directors meetings – the quorum and percentage of vote
- management decisions – whether the board manages or a founder
- transferability of shares – assignment rights of the founders or other members of the company do
- special voting rights of a Chairman, and his/her mode of election
- the dividend policy – a percentage of profits to be declared when there is profit or otherwise
- winding up – the conditions, notice to members
- confidentiality of know-how and the founders’ agreement and penalties for disclosure
- first right of refusal – purchase rights and counter-bid by a founder
A company’s memorandum of association, by contrast, contains an objects clause, which limits its capacity to act. The objects clause in general is drafted in such a wide and somewhat ambiguous way as not to restrict the board of directors in their day to day activities, especially if the business intends to gradually broaden its scale of operation. Nonetheless, any significant change (for e.g. operating in a completely different industry than registered in) in this clause requires a separate application.