Articles of Association – Meaning and Nature
The Articles of Association (AOA) are the internal rules and regulations of a company that govern its day-to-day management and administration. Under Section 2(5) of the Companies Act, 2013, Articles mean the articles of association of a company as originally framed or as altered from time to time. They act as a subordinate document to the Memorandum of Association and define how the company’s objectives are to be achieved in practice. The Articles lay down provisions relating to issue and transfer of shares, voting rights, conduct of meetings, appointment and powers of directors, and internal control mechanisms. They bind the company and its members as if each member had signed them personally. Thus, the Articles function as a contractual document ensuring discipline, uniformity, and clarity in corporate operations.
Legal Importance and Scope
The legal significance of Articles of Association lies in their binding effect on the company and its members. According to Section 10 of the Companies Act, 2013, the Memorandum and Articles, once registered, bind the company and its members to the same extent as if they were signed and sealed by each member. The Articles regulate internal management but cannot override the Memorandum or the provisions of the Act. Any clause inconsistent with the Companies Act or the Memorandum is void. Companies are free to draft Articles according to their needs, subject to statutory restrictions. Alteration of Articles is permitted under Section 14, provided such alteration does not conflict with the law or public policy. Hence, Articles serve as a flexible yet legally controlled framework for corporate governance.
Distinction from Memorandum of Association
While the Memorandum of Association defines the company’s constitution and scope of activities, the Articles of Association provide rules for internal functioning. The Memorandum answers what a company can do, whereas the Articles explain how it will do so. Any act beyond the Memorandum is ultra vires and void, but acts beyond the Articles can be ratified by members if lawful. Articles are easier to amend compared to the Memorandum, reflecting their operational nature. Courts have consistently held that Articles are subordinate to the Memorandum and the Companies Act. Thus, Articles play a crucial role in operational governance while remaining within the legal boundaries set by superior documents.
Real-Time Example
Consider a private company that wants to restrict the transfer of its shares to outsiders. The company includes a clause in its Articles stating that existing shareholders have the first right to purchase shares before they are offered to third parties. When a shareholder attempts to sell shares directly to an outsider, the company lawfully prevents the transfer by relying on its Articles. This demonstrates how Articles practically control internal affairs and protect shareholder interests. Such provisions are common in startups and family-owned companies to maintain control and stability.
Mnemonic to Remember Articles of Association
A useful mnemonic to remember the concept of Articles of Association is “IMPACT”:
I – Internal management
M – Members’ rights and duties
P – Powers of directors
A – Amendment under Section 14
C – Contractual binding under Section 10
T – Transfer of shares
This mnemonic helps law students recall the scope, purpose, and legal provisions related to Articles of Association in examinations.
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