Articles of association: a guide for founders and shareholders

Creating the Article of association

When you start with a business, there's a lot you don't know about. So, reading blogs like this one can help you in taking care of all your business incorporation. Article of Association aka AOA is the constitution of your business, without it and MOA (about which we will talk in another blog) nothing can be held in the court of law. All your decisions while building up your business can be disputed and smashed.

AOA and MOA contain the provisions that allow you to build a business. They are the rules that control and run the game you are into. For example, how will you do that if you want to share the equity? How many board members you are going to have, as your company grows? How do you evaluate your company?

There are many questions you need to write in your AOA before you go out in the street to do business.

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What are Articles of Association?

Let me paint a picture for you of a contract that is between the shareholders of a company and the company itself. Now, this contract is required to provide for the binding obligation on the directors, ways for the company to operate daily, how shareholders can remove or elect directors, how to issue new shares, how dividends will be paid, how shares will be transferred from one hand to another, how shareholder and director will meet, and many other hows to make it smooth for the company to run.

Are Articles of Association mandatory?

Yes, AOA are mandatory in India. AOA has been defined under the sec2(5) of the Companies Act 2013. The AOA articles should be in sync of the MOA and the Companies Act 2016. AOA are subordinate to the MOA of the company and any article in the AOA cannot be ultra vires to the MOA.

What are the essential articles in the Articles of Association?

Share Management: AOA covers how to redeem shares, transfer the shares, Transmission of shares, Forfeiture of shares, Surrender of shares, Process for conversion of shares to stocks, and Share warrants. Sharemenangment helps the company and the shareholder for easy transmission of shares and builds long-lasting transparency between the company and its shareholders.

Capital Management: AOA designs the power, rules and regulations to transfer the capital, loan it, invest it or restructure it as needed.

Meetings: Board of directors and general meetings, and the meetings apart from these two are provided in the AOA. Minutes of these meetings are recorded as well as the decisions taken.

Rights: Voting rights or other rights are also provided in this document in sync with the MOA and Companies Act 2013. Obligations abstain, and duties of directors or any other agent in the name of the company are also provided in the AOA.

Management: From the directors, shareholders to the management team, and their power to take any decision is given and curtailed in this document.

Audits: Financial accounts and managing decisions are also provided in the AOA. Audit cycles and auditors are provided in the AOA.

Winding up: The decision to wind up the company on bankruptcy or on any other occasion is also provided in the AOA.