Article of Association(AOA): An Overview

Articles of Association (AOA) of a company are the rules and regulations governing the internal management of a company. AOA specifies the procedures for executing various matters such as management and issue of share capital, shareholder meetings, appointing directors, managing the accounts of the company, and so on.

The AOA of the company should be in the prescribed format as per Table F to J, as may apply to the company. A company has to register its articles at the time of company incorporation. A company can go for an alteration of its articles after its incorporation as may be necessary for its management.

Section 14 of the Companies Act, 2013 contains the provisions for the alteration of the Articles of Association of a company. A company may modify, delete or add any article in the following manner:

Meeting of the Board of Directors: The company has to convene a meeting of the Board of Directors. All the directors must be served seven days’ notice of the board meeting. The board has to recommend the proposed alteration to the members. A special resolution, with a 75% majority, has to be passed by the Board to give effect to any alteration of the articles. The votes which are cast in favour of the resolution should be at least three times more than the number of votes if any cast against the resolution. 
 

General meeting of the company: The company should call for a general meeting or an extraordinary general meeting (EGM). The company has to give at least 21 days' notice for holding the meeting specifying the date, time and place and business to be transacted. An EGM can be called with a shorter notice with the consent of at least 95% of the members entitled to vote. The notice should be sent to all the directors, members and auditors of the company. The meeting should have the prescribed quorum, and the presence of an auditor (leave of absence otherwise), conducted with the passing of a special resolution for the alteration of the AOA. 
Compliance with the Companies Act, 2013 The amendment or the alteration to AOA should conform to the provisions of the Companies Act, 2013. For example, the alteration should not modify the membership or shareholding of the company. The alteration should not increase or alter the liability of any member or shareholder of the company. The articles are procedural, and hence the alteration can be of only the procedural matters contained therein. 
 

Compliance with Memorandum of Association: The alteration of the articles should not violate the memorandum of association of the company. The alteration cannot alter the objects of the company or the address of the registered office of the company. These matters are dealt with by the Memorandum of Association of the company. The AOA is subordinate to the memorandum of association of the company. The alteration should be in accordance with the powers conferred by the memorandum. 
 

Changing the status of the company: The alteration should not have the effect of changing the status of the company. In a case where the alteration has the effect of converting a private company into a public company or a public company into a private company, the same cannot be carried out without the approval of the Central Government. 
 

Filing compliance with ROC: After the passing of the board resolution, the company has to file Form MGT-14 with the Registrar of Companies for the filing of resolutions and agreements with the Registrar or ROC. The form has to be filed within 30 days of the passing of the board resolution. The form shall be accompanied by such fees as may be prescribed. In the case of delayed filing, the company will be liable to pay additional fees at the time of filing the form, calculated based on the number of days of delay. The fee is calculated as per The Companies (Registration offices and fees) Rules, 2014. 
 

Stamp duty on alteration of articles: The company need not pay any stamp duty on the alteration of articles. Stamp duty has to be paid only at the time of incorporation of a company. 
 

Effect of alteration of Articles of Association: The amended Articles of Association come into effect on the date of passing of the board resolution. The altered articles will have the same effect as the original articles. The alteration is effective only when the procedure laid down in the Companies Act and Memorandum is followed. The changes shall be made in all the copies of the Articles of Association.

Conditions

The following conditions should be followed by a company which is altering the articles of association:

The alteration should not introduce any terms which are inconsistent with the objectives of the company. 
The alteration should not contravene or contradict the terms of the memorandum. 
The alteration should be consistent with the Companies Act, 2013 and other applicable laws. 
The alteration should be for the benefit of the company as a whole. 
The alteration should not introduce any terms which are disadvantageous to a minority of the shareholders. 
A company may be under litigation relating to the terms of the articles. In such cases, the alteration should be made under the guidance of the court. 
The alteration should not be made retrospectively. The effective date appointed for the modification should not be before the date of passing a special resolution. 
The alteration should not change the paid-up value of the shares. 
The alteration should not change the company’s liabilities towards lenders. 
The alteration should not remove any person from membership in the company. 
The alteration should not cancel the voting rights available to the shareholders. 
The alteration should not prevent shareholders from attending meetings. 
The alteration should not introduce benefits to persons who are not members of the company. 
The alteration should not be used as a method to enter into an agreement with persons who are not members of the company.