Articles of Association is the main declaration of the nature, purpose and main rules of a company. AoA mainly states how the Board Members, Directors, Shareholders and employees are required to conduct themselves in the management of the company.
Article of Association was introduced under the Companies Act, 2013. Its major focus is on:
- Appointment of Directors wherein the Director is the sole decision maker. Shareholders are required to take the consent from the Directors if they wish to transfer any shares to anyone else.
- The Board Meetings where the voting rights and the veto power is put in place. All members of the Board must agree to the rules and regulations discussed in said meetings.
- The management decides whether the entire Board of members will take important decisions for the company or only the Director gets to make the main decisions for the management of the company and its employees.
- The AoA also talks about the percentage of profits to be declared at the time of filing for Income Tax Return.
- Most importantly, the winding up of the company is discussed in the Article of Association. It includes the conditions under which the company may dissolve and the notice to be given to the Board Members and employees.
- Also, the law binds the Board Members under a confidentiality clause wherein the members cannot disclose the know-how of the functioning of the company to any outsider. Along with this, the penalties for not following these compliances are discussed as well.
However, at times, the AoA may contain provisions for entrenchment which means that specific parts of the Article can be altered in the case that said parts are more restrictive than those applicable in case a special resolution is required. This can be done as an amendment made to the AoA or at the time of incorporation of the company.
Note: Articles of Association is always filed with the Memorandum of Association. Together both these documents form the constitution of the company, which needs to followed by all members of the company, Board members and employees alike.