The document containing a company’s details is an Articles of Association. The article includes details such as the business’s nature, type, and purpose. It also details a company’s appointment process and financial reporting procedures. The contents of the Articles of association can be used as a ready reference for the company’s stakeholders.
The various details regarding the company’s functioning are stated in the articles of association. Details regarding the regulation for the operation of the company, the guide to accomplishing a task within the organization, including more information, such as the appointment of directors, are mentioned in the AoA.
Objectives of AOA
- Managing the daily performance of the company
- Description of the norms concerning the internal functions of the company
- Distribution of the company’s capital based on the classification of company shares
- Elucidating the sections and clauses of MOA (Memorandum of association)
- Determining and explaining the director’s authority, role, responsibility, right, and mutual relationship.
- Dictating the executives’ recruitment, salary, financial and non-financial benefits
- Integration of rules regarding company meetings
- Securing the security of the company’s seal and logo
- Explanation and estimation of the company’s dividend policy
- Describing the forms of dissolution of the company etc
Importance of AOA
It establishes contact between the company and its shareholders. The provisions are determined based on the companies Act 2006. The company must follow the conditions mentioned in the AoA as it has legal force. Any actions breaching the provisions listed in the Articles of Association will be considered void. A good set of Articles of association is required for the existence of a legal company.
Specifically, AOA is a shield for the company stakeholders and aids in properly managing the company within the defined parameters.
Details to Include in AoA
It will include any limitations on the objects contained in a company’s constitution in the articles of association. Articles of Association list the following details:
- The appointment of directors, which demonstrates whether a shareholder dominates or shares equality with other contributors;
- The valuation of intellectual rights, such as the values of the IPR of one partner and, similarly to how we value the real estate of another partner;
- Transferability of shares – do the company’s founders or other members have assignment rights to shares?
- Directors meetings – quorum and voting percentages;
- The dividend policy, which specifies the percentage of earnings to be declared when there is a profit or not;
- The requirements and notice to members;
- The special voting rights of a Chairman and their method of election
- Management decisions – if the board manages or a founder does;
- First right of refusal – acquisition rights and counter-bid by a founder;
- Secrecy of know-how, founders’ agreement, penalties for disclosure;
- Steps for changing the AoA
Steps for Alteration in AoA
Step 1: Hold a board meeting. Notice should be issued seven days before the date of the board meeting.
Step 2: The resolution for the alteration of AoA, subject to the approval of the shareholders meeting, should be passed in a board meeting.
Step 3: Fix a date, day, time, and venue for conducting the shareholder’s meeting. Authorize a director or any other person to send notice to the members
Step 4: At least 21 days before the scheduled shareholder meeting, publish the notice of the meeting. If the consent of at least 95% of that portion of the company’s paid-up capital has been obtained, a shorter statement of the shareholder meeting may also be called.
Step 5: Call a shareholder meeting and, with the consent of the majority of shareholders, pass a special resolution for the purpose.
Step 6: After the Resolution has been passed, you must file Form MGT-14 within 30 days of the special resolution’s passage, along with a true certified copy of the answer, an Explanatory Statement, Articles of Association’s updated copy, and any other necessary documents.
AOA will is an important document required for the functioning of a company. The memorandum of association for a specific firm must also be complied with by the articles of association for that company because any other company law in effect at the time supersedes the articles, which are subservient to the charter, which is the company’s memorandum.