4/22/23, 4:39 PM Articles of Association under Companies Law

Articles of Association
The  Articles of Association or AOA are the legal document that along with the
memorandum of association serves as the constitution of the company. It is
comprised of rules and regulations that govern the company’s internal affairs.

The articles of association are concerned with the internal management of the
company and aims at carrying out the objectives as mentioned in the
memorandum. These define the company’s purpose and lay out the guidelines of
how the task is to be carried out within the organization. The articles of association
cover the information related to the board of directors, general meetings, voting
rights, board proceedings, etc.

The articles of association are the contracts between the shareholders and the
organization and among the shareholder themselves. This document often defines
the manner in which the shares are to be issued, dividend to be paid, the financial
records to be audited and the power to be given to the shareholders with the
voting rights.

The articles of association can be considered as the user manual for the
organization that comprises of the methodology that can be used to accomplish
the company’s day to day operations. This document is a binding on the
shareholders and the organization and has nothing to do with the outsiders. Thus,
the company is not accountable for any claims made by any external party.

Following are the provisions of Articles of Association

Share capital, call of share, forfeiture of share, conversion of share into stock,
transfer of shares, share warrant, surrender of shares, etc.
Directors, their qualifications, appointment, remuneration, powers, and
proceedings of the board of directors meetings.
Voting rights of shareholders, by poll or proxies and proceeding of
shareholders general meetings.
Dividends and reserves, accounts and audits, borrowing powers and winding
up.

It is mandatory for the following types of companies to have their own articles:

1. Unlimited Companies: The article must state the number of members with

which the company is to be registered along with the amount of share
https://lawbhoomi.com/articles-of-association-under-companies-law/ 2/17
4/22/23, 4:39 PM Articles of Association under Companies Law

capital, if any.
2. Companies Limited by Guarantee: The article must define the number of
members with which the company is to be registered.
3. Private Companies Limited by Shares: The private company having the
share capital, then the article must contain the provision that, restricts the
right to transfer shares, limit the number of members to 50, prohibits the
invitation to the public for the further subscription of shares in the form of
shares or debentures.

Note: In the case of a public company limited by shares, the articles may be framed
by the company itself or in case company does not register articles then it might
adopt all of any of the regulations as contained in Table A in the Companies Act.

Article of Association v. Shareholders Agreement

The rights and obligations of investors against other shareholders and/or the
company may range from rights with regard to the transfer of shares to the inter-
se  governance matters relating to the ownership of shares – such as affirmative
votes, pre-emption rights, and call/put option rights. Our focus here is India’s
position, as of October 2020, on the enforceability of additional, non-conflicting
rights in the shareholders agreements vis-à-vis the articles of association. What
prompts our concern is that investors need to be aware that while the Shareholders
Agreement provisions keep changing to keep abreast of change in shareholdings
or shareholders, the said changes are not always reflected in the Articles of
Association, which may cloud their better judgment and be to their detriment. 

While Indian jurisprudence recognizes the right to transfer shares as being inherent
in the ownership of shares (limited by reasonable restrictions)1, absolute restriction
on Share Transfer Rights is not valid and binding. Judgments such as  Mafatlal
Industries2 and V.B. Rangaraj3, under the erstwhile regime of the Companies Act,
1956, have held that Share Transfer Rights should be included in the Articles of
Association to have the sanctity of enforceability of the provisions. In the  V.B.
Rangaraj  judgment, dating back to 1992, the parties incorporated certain share
transfer restrictions in the Shareholders Agreement that required them to offer
shares to the other party before offering it to an outsider. However, as the pre-
emption clause was not incorporated in the Articles of Association, the parties
eventually reached a juncture where the applicability of the share transfer
restriction was questioned.

https://lawbhoomi.com/articles-of-association-under-companies-law/ 3/17
4/22/23, 4:39 PM Articles of Association under Companies Law

his binding restriction in the erstwhile regime has been modified, to some extent,
by the proviso to Section 58(2) of the Companies Act 2013 that recognizes that
“any contract or arrangement between two or more persons in respect to transfer
of securities shall be enforceable as a contract”. However, this position, which
upholds the provisions of the Shareholders Agreement in the event the Articles of
Association is silent in the matter, is applicable only to public companies, not
private companies. Which begs the question as to why the same yardstick is not
applicable to private companies. If a public company, instituted on the basis of free
transferability of shares, has the right to incorporate (limited and not absolute)
share transfer restrictions, by that logic, shares of a private company that feature
the spirit of restrictive transfers should also be allowed to restrict transferability by
entering into private contracts. If private companies are denied contractual
transferability restrictions, then they should at least be allowed Inter-se Governance
Rights that are not incorporated in the Articles of Association.

This flexible position was recognized in 2012, under the Companies Act, 1956
purview, by the Supreme Court in the Vodafone4 judgment. The court therein held
that the Shareholders Agreement is essentially a contract between some or all
other shareholders in a company, the purpose of which is to confer rights, and
impose obligations, over and above those provided by the Companies Act. In
holding so, the court stated that the Shareholders Agreement is a private
document that binds parties thereof, but not the other remaining shareholders or
the company, giving greater flexibility to make provisions for the resolution of any
dispute among the shareholders and also the modus operandi of future capital
contributions. 

In essence, the Vodafone judgment disagreed only with the V.B. Rangaraj holding

without expressly overruling it. As evident from the above extract, the Supreme
Court merely expanded the partisan view taken in V.B. Rangaraj by holding that if
the provisions of the SHA conflict with the provisions of the Articles of Association,
in that event the provisions of the Articles of Association would prevail and not the
provisions made in the Shareholders Agreement.

As the holding was not overruled in express terms,  the Delhi High Court, in March
2013, while overruling the holding of the Company Law Board in the case of World
Phone India5,held that as the existence of an affirmative vote cannot be found in
the Articles of Association, the right of the parties remained unenforceable. In
August 2013, in HTA Ltd. And Ors6, wherein the shareholding was not maintained as
per the pre-agreed ratios between the management and the non-management

https://lawbhoomi.com/articles-of-association-under-companies-law/ 4/17
4/22/23, 4:39 PM Articles of Association under Companies Law

staff union, the Delhi High Court held that as the terms of the Articles of
Association were amended, the claims of such breach cannot be upheld. It is
therefore evident that the cases adjudicated by the Delhi High Court have chosen
to ignore the  Vodafone  ruling, creating ambiguity in the legal jurisprudence in
respect of the enforceability of provisions.

Such confusion calls for a conjoint reading in the interests of maintaining harmony.
A logical conclusion suggests either (i) overruling the stance adopted by the Delhi
High Court (non-harmonious); or (ii) consideration of the non-enforceability of the
Shareholders Agreement provisions valid under company law but as a breach
under contract law, thereby allowing for relief under the Indian Contract Act, 1872
(for instance, damages or injunction). The latter, however, will dilute the essence of
Shareholders Agreements.

Future decision-making depends on whether a larger bench of the Delhi High

Court, or the Supreme Court, overrules the position adopted by World Phone and
the HTA Ltd. judgment. However, the lesson from previous experience dictates that
– until further clarity on enforceability of Inter-se Governance Rights, provisions in
the Shareholders Agreement in respect of transfer of securities should be
incorporated in the Articles of Association to avoid any impediment in enforcing
the terms of the Shareholders Agreement.

COMPONENTS

The articles of association will usually specify the way a company issues stocks,
distributes dividends, and performs financial records. The document is focused on
giving the reader information about the methods a company uses to achieve its
daily, monthly, and yearly goals.

The articles of association are relatively similar in any part of the world, even
though the exact terms and items vary across jurisdictions. In general, it includes
the following:

Provisions on the company name

Purpose of the company
Share capital
Organization of the company
Provisions on shareholder meetings

https://lawbhoomi.com/articles-of-association-under-companies-law/ 5/17
4/22/23, 4:39 PM Articles of Association under Companies Law

Company Name

A company must adopt an official name as a legal entity. It must be present in the
articles of association. Usually, the following suffixes “Inc” or “Ltd” are used to show
that an entity is a company. Please note that  jurisdictions  vary from country to
country, and thus, there are various rules regarding company names.

The words “government” or “church” cannot be used as a name because it might

confuse the public. Also, words that are offensive and vulgar are also prohibited.

Purpose of the Company

Companies are incorporated for a specific reason. Primarily, it is a for-profit reason

to pursue a certain goal by delivering value to society. The reason or purpose of
the organization must be clearly stated in the articles of association.

Some jurisdictions allow for very broad purpose statements, such as

“management,” while others require a more detailed purpose of an enterprise, i.e.,
“the operation and growth of a restaurant chain.”

Share Capital
The articles of association will state the number and type of shares comprising a
company’s capital. Typically, there is always at least one form of common shares
that makes up its capital. Additionally, one can also see several types of preferred
stock.

If information about stocks is found in the articles of association, it means they can
be issued by the company when there is a need for funding.

Organization of the Company

The document includes legal information about the company, including the
registration address, the number of  directors  and employees, and the identity of
the founders and original shareholders.

Legal advisors and auditors may also appear here, depending on the type of
business and a country’s jurisdiction.

https://lawbhoomi.com/articles-of-association-under-companies-law/ 6/17
4/22/23, 4:39 PM Articles of Association under Companies Law

Shareholder Meetings
The first general shareholder meeting provisions are listed in the shareholder
meetings section. Notices, resolutions, and votes are detailed as well in the section,
governing subsequent annual shareholder meetings.

Alterations 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.

Highlight Of Articles Of Association

https://lawbhoomi.com/articles-of-association-under-companies-law/ 7/17
4/22/23, 4:39 PM Articles of Association under Companies Law

Alteration in Articles of Association is to be noted in every copy – Any kind of

alteration in the Articles of Association of a company must be noted in every
copy of the Articles of Association. These copies on request by a member
need to be sent to them within seven days of the request.
If the company makes any default in complying with the provisions, the
company and every officer of the company who is in default shall be liable for
the default. The penalty includes one thousand rupees for each day during
which such default continues or one lakh rupees whatever be the case.

Procedure of alternation of Article of Association

Convene a Board meeting – Firstly, hold a Board meeting and find that particular
article that needs alteration. The alteration does not mean only altering the existing
articles. It may also include the addition or deletion of any articles. After that, a
formal resolution is passed for this.

Any changes in the Articles of the Articles of Association need to comply with the
provisions of Companies Act, and the conditions contained in the Memorandum of
Association of the Company.

You need to check that any such changes do not increase the liability or expulsion
of any member after the alteration.

A time, date, and venue are fixed for the general meeting to fix the resolution.

Thereafter, if the shares of your Company are enlisted with any recognized stock
exchange, then forward copies of all notices to the shareholders about the changes
in the Articles of Association to the Sock exchange.

Form MGT-14 is filed with the ROC (Registrar of Companies).

At last, you can make necessary changes in all the copies of the Articles of
Association.

Conclusion

The articles of association can be found in every company and it is a document

containing the rules, regulations and bye-laws for the efficient and hustle free
administration of the company. The articles of association are compulsory for a few

https://lawbhoomi.com/articles-of-association-under-companies-law/ 8/17
4/22/23, 4:39 PM Articles of Association under Companies Law

classes of the company such as an unlimited company, a company whose shares

are limited by guarantee and a private company. The articles of association have all
the important subjects which are required for the management and administration
of the companies. It can even be altered or amended when required by following
the procedures laid down in the Companies Act, 2013.

The provisions regarding the article of association were different in many aspects
under the Companies Act,1956 but after the 2013 Act, many provisions were
amended. Like earlier the amendment could not lead to the conversion of the
company to public to private and private to the public but after the Act of 2013, it
is possible. Similarly, there was also no provision of retrenchment, but after the
2013 Act the provision of entrenchment was also introduced. The article of
association holds a very important position in any company and all the major
aspects of a company’s management are dealt with the articles of association.

Footntotes 

1 Section 58, Companies Act 2013

2 Mafatlal Industries Ltd. v. Gujarat Gas Co. Ltd. And Ors. (1999) 97 Comp Cas 301

3 V.B. Rangaraj v. V.B. Gopalakrishnan And Others (1992) Comp LJ 11 (SC)

4 Vodafone International Holdings BV v. Union of India(2012) 6 SCC 613

5  World Phone India Pvt. Ltd. & Ors. v. Wpi Group Inc.(2013) 178 Comp Cas 173
(Del)

6 HTA Employees Union (Regd.) vs Hindustan Thompson Associates CO. A (SB) No.

102 of 2012

7 section 28

8 section 38

9 Malleson v. National Insurance Co.

10 Wikipedia

https://lawbhoomi.com/articles-of-association-under-companies-law/ 9/17