What do you mean by an Article of Association?
Article of Association is a key document prepared by the promoters during a company’s incorporation. It works alongside the Memorandum of Association, following the Companies Act, and outlines internal rules and procedures for achieving the company’s objectives. While the Memorandum defines what the company can do, the Articles explain how to do it, including managing internal operations and defining the rights of stakeholders. The Articles must always align with the Memorandum and cannot contradict it.
Read More: Understanding Memorandum of Association: Key Clauses & Common Alterations
Definition
According to Section 2(5) of the Companies Act, “Articles means the Articles of Association of a Company as originally framed or as altered from time to time in pursuance of any previous Company Law or of this act.” – Section 2(5)
Characteristics of Article of Association
By analyzing the above definitions, the following features of the Articles of Association become clear:
- 1. The Articles are subject to the company’s Memorandum.
- 2. The Articles are public documents registered with the Registrar.
- 3. The Articles outline the internal rules of the company, benefiting shareholders.
- 4. The Articles define the mutual rights of the members.
- 5. The Articles clarify the duties, rights, and powers of the officers.
- 6. They control and regulate the company’s business conduct.
- 7. The Articles are flexible and can be changed to meet the company’s needs.
- 8. They describe the methods for achieving the company’s objectives.
- 9. The Articles serve as a mutual agreement between the company and its members regarding their rights.
Read More: What is a Memorandum of Association? Features, Purpose, and Importance of MOA
Nature, Objects, and Importance of Article of Association
The Articles of Association are often seen as a supporting document to the Memorandum of Association. Their main objective is to manage the company’s internal affairs and define its rights. The importance of the Articles of Association is closely tied to the Memorandum of Association, as they provide detailed information about the company’s internal structure. This makes them a crucial document for internal management. The significance of the Articles of Association is highlighted for several reasons:
- 1. The Articles outline the rules and regulations that help achieve the company’s objectives. They aid in overcoming obstacles in day-to-day operations.
- 2. The Articles establish the relationship between officers and shareholders. They ensure that both the company and its members can enforce these rules, even legally compelling each other to comply.
- 3. Outsiders entering into contracts with the company must be aware of the Articles. If the Articles are violated, the contract cannot be enforced unless the outsider was unaware of the violation at the time of the contract.
- 4. Certain company actions, such as the forfeiture of shares, can only be carried out if authorized by the Articles. Therefore, the Articles regulate the company’s actions and support the Memorandum in achieving its objectives. They cannot contradict the terms set out in the Memorandum.
Read More: Stages of Company Promotion and Definition
Conclusion
The Articles of Association play a crucial role in defining how a company operates internally. They outline the rules, rights, and procedures that guide the company’s daily management, ensuring smooth operations and legal compliance. Understanding the characteristics and importance of the Articles of Association helps both company members and outsiders navigate business relationships effectively. As a key document, the Articles support the Memorandum of Association and ensure the company achieves its objectives within the defined legal framework.
FAQ on Article of Association
What is the purpose of the Articles of Association?
The Articles of Association outline the internal rules and regulations of a company, defining how it operates and the rights and responsibilities of its members.
How do the Articles of Association differ from the Memorandum of Association?
The Memorandum of Association sets out the company’s objectives and scope, while the Articles of Association detail how those objectives will be achieved through internal governance.
Why are the Articles of Association important for a company?
The Articles of Association are crucial for managing a company’s internal affairs, ensuring smooth operations, legal compliance, and clear relationships between shareholders, directors, and officers.
Can the Articles of Association be changed?
Yes, the Articles of Association can be amended to meet the changing needs of the company, as long as the changes comply with the law and the company’s Memorandum of Association.