KNC501/KNC601 Constitution of India, Law and Engineering

Chapter 17: Sole Traders and Partnership

Unit 1

Unit 2

Unit 3

Unit 4

Unit 5

Appendix

Articles of Association:

Articles of Association is an important document of a Joint Stock Company. It contains the rules and regulations or bye-laws of the company. They are related to the internal working or management of the company. It plays a very important role in the affairs of a company. It deals with the rights of the members of the company between themselves.

The contents of articles of association should not contradict with the Companies Act and the MOA. If the document contains anything contrary to the Companies Act or the Memorandum of Association, it will be inoperative. The Pvt concern that are limited by shares and those limited by guarantee and unlimited companies must have their articles of association. Public companies may not have their articles but may adopt Model articles given in Table A of Schedule I of Companies Act, 1956. If a public company has only some articles of its own, for the rest, articles of Table A will be applicable.

Articles that are profound to be registered should be printed, segmented well and sequenced consecutively. Each subscriber to Memorandum of Association must sign the articles in the presence of at least one witness.

Contents of Articles of Association:

The articles generally deal with the following

  1. Classes of shares, their values and the rights attached to each of them.
  2. Calls on shares, transfer of shares, forfeiture, conversion of shares and alteration of capital.
  3. Directors, their appointment, powers, duties etc.
  4. Meetings and minutes, notices etc.
  5. Accounts and Audit
  6. Appointment of and remuneration to Auditors.
  7. Voting, poll, proxy etc.
  8. Dividends and Reserves
  9. Procedure for winding up.
  10. Borrowing powers of Board of Directors and managers etc.
  11. Minimum subscription.
  12. Rules regarding use and custody of common seal.
  13. Rules and regulations regarding conversion of fully paid shares into stock.
  14. Lien on shares.

Alteration of Articles of Association:

The alteration of the Articles should not sanction anything illegal. They should be for the benefit of the company. They should not lead to breach of contract with the third parties. The following are the regulations regarding alteration of articles:

 

A company may alter its Articles with a special resolution. Due importance and care should be given to ensure that the alteration of AOA does not conflict with the provisions of the Memorandum of Association or the Companies Act. A copy of every special resolution altering the Articles must be filed with the Registrar within 30 days of its passing.

  1. The proposed alteration should not contravene the provisions of the Companies Act.
  2. The proposed alteration should not contravene the provisions of the Memorandum of Association.
  3. The alteration should not propose anything that is illegal.
  4. The alteration should be bonafide for the benefit of the company.
  5. The proposed alteration should in no way increase the liability of existing members.
  6. Alteration can be made only by a special resolution.
  7. Alteration can be done with retrospective effect.
  8. The Court does not have any power to order alteration of the Articles of Association.

Features of Articles of Association (AOA):

The major features of articles of association are as follows.

  • Structure of the organization along with control mechanism.
  • Voting pattern and rights of the employees.
  • Mode of conduct of director’s meetings.
  • Mode of conduct of AGM of shareholders.
  • The difference in rights of different kinds of shares.

Differences between MOA and AOA:

The difference between article of association and memorandum of association are as follow.

  • The first difference between MOA and AOA while the MOA (Memorandum of Association) describes the powers and objects of the company, the AOA (Article of Association) defines its rules.
  • The MOA is subordinate to the Companies Act, and the AOA (Articles of Association) is subordinate to the memorandum.
  • The memorandum cannot be amended retrospectively while an AOA (Article of Association) may be changed.
  • The main difference between memorandum of association and article of association is that the memorandum includes six clauses while an article may be drafted as per the company’s need.
  • The MOA is mandatory for all companies while a public share company can use Table A in place of an AOA (Article of Association).
  • An alteration may be made in an MOA only after passing Special Resolution in Annual General Meeting after obtaining prior approval from the Central Government while changes in an AOA may be made by passing Special Resolution (SR) at Annual General Meeting (AGM).

Author – Dilip Kumar Rawat

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