The Articles of Association (AOA) are the internal rules that guide how a company operates. These rules are required by the Companies Act 2013 and can either be the original set of rules or changes made over time.
For private companies, the Articles can be customized to fit specific needs, as long as they comply with the law.
Relationship Between Articles of Association and Memorandum of Association
The Articles work alongside the Memorandum of Association (MOA).
While the Memorandum defines the company’s purpose and boundaries, the Articles describe how the company will be run on a day-to-day basis.
The Articles cover roles and responsibilities of the members, how decisions are made, and other operational rules.
- The Memorandum outlines what the company can do.
- The Articles explain how it will operate, including management, meetings, and financial matters.
Can the Articles Be Changed?
Yes, the Articles of Association can be changed by the company members.
However, any changes must follow strict legal procedures and stay within the limits set by the Memorandum of Association and the Companies Act 2013.
If any part of the Articles contradicts the Memorandum or the law, those provisions will be considered invalid.
Filing Requirements
When forming a company, the Articles of Association must be filed with the Registrar of Companies, along with the Memorandum of Association. All founding members must sign both documents, and the signatures must be witnessed.
Entrenchment Provisions in the Articles
Some companies include entrenchment provisions in their Articles of Association.
These are special rules that make it harder to change certain parts of the Articles. Changes to these provisions require stricter procedures than usual.
Entrenchment provisions can be added during company formation or later, if all members agree in a private company or if a special resolution is passed in a public company.
Key Components of the Articles of Association
The Articles of Association outline essential rules that govern the company. Some of the most important things covered include:
- Exclusion of standard rules (Table F, G, H, I, J)
- Share capital details and any changes in shareholder rights
- Rules for issuing and redeeming preference shares
- Share allotment, procedures for calling on shares (payment), and lien on shares
- Rules for transferring and inheriting shares, and nominations for shares
- Provisions for the forfeiture of shares (taking back shares due to non-payment)
- Changes to share capital and share buybacks
- Guidelines for general meetings and voting rights (including proxies)
- Rules for appointing directors, their roles, powers, and remuneration
- Nominee directors (appointed to represent other interests)
- Procedures for issuing debentures and stocks
- Rules for forming an audit committee
- Company roles like Managing Director, CEO, CFO, and Secretary
- Borrowing powers, dividend policies, reserves management, and financial matters
- Winding up the company (closing down)
- Indemnity (protection against legal liability) and confidentiality
- Capitalization of profits and reserves
Drafting the Articles of Association
According to Section 5 of the Companies Act 2013, the Articles of Association must follow one of the forms from the prescribed tables (F, G, H, I, or J), depending on the type of company. These tables are as follows:
- Table F: For companies limited by shares
- Table G: For companies limited by guarantee with share capital
- Table H: For companies limited by guarantee without share capital
- Table I: For unlimited companies with share capital
- Table J: For unlimited companies without share capital
When drafting the Articles, it’s important to choose the right table based on the company’s structure.
Precautions When Writing the Articles
To ensure the Articles of Association are valid and legally binding, follow these precautions:
- Organization: The Articles must be clearly organized, divided into numbered paragraphs.
- Consistency with the Memorandum: The Articles should not contradict the Memorandum of Association.
- Compliance with the Companies Act: The Articles must comply with the Companies Act 2013. For instance, Section 272 prevents the Articles from limiting the right of shareholders to petition for winding up.
- Signatures: All subscribers of the Memorandum must sign the Articles, providing their address, description, and occupation.
- Witness Requirement: The signatures must be witnessed by at least one person, who will also provide their details.
These precautions help ensure that the Articles of Association are properly formed and legally effective.
By following the proper procedures and ensuring legal compliance, companies can ensure smooth operations and clear governance.
Key Takeaways
- Articles of Association are essential for managing a company’s internal operations.
- The Articles work together with the Memorandum of Association to define both the company’s purpose and how it is governed.
- Articles must comply with the Companies Act 2013, and changes must follow legal procedures.
- Entrenchment provisions can make certain rules harder to change, requiring stricter procedures.
- The Articles must be filed with the Registrar at the time of company formation, with signatures from all founding members.
- Key topics covered in the Articles include share capital, director roles, general meetings, and financial management.
