Friends we have already discussed the importance of making MOA – Memorandum of Association in our previous article and why and when it is to be formed. These two documents MOA & AOA are important documents and are supposed to be carefully drafted in presence of a legal expert.
As discussed before MOA defines What, Where, Why and Who of the company and AOA (Articles of Association) defines HOW of the company. AOA is used to draft the rules and regulations that the company has to follow and the layout of internal management of the company. AOA should be drafted in such a way that it should not violate anything that is mention in MOA.
AOA – Articles of Association
The articles set out provisions for the manner in which the company is to be administered. They provide for matters like appointment, powers and duties of auditors, directors, qualifications, procedure for transfer and transmission of shares and debentures. AOA is the next important document after MOA, and should describe the following in its articles.
- How the shares are allocated and the manner in which these shares have to be handled i.e Lien/transfer/surrender/conversion of shares.
- Voting rights of members
- List of Intellectual Property rights
- Procedure to elect chairman and his voting rights
- List of Directors, including first directors or directors for life, their appointment, remuneration, qualifications, powers and proceedings of Board of directors’ meetings
- Dividends and reserves – How profits are divided
- Alteration of Capital
- General Meetings and proceeding at General Meetings
- Board of Directors and their powers
- How Accounts and Audits will be managed
- Borrowing Powers
- How the company can be dissolved
More about AOA – Articles of Association
- Articles are like the partnership deed in a partnership.
- It should be printed and made public to shareholders and potential investors
- Articles of association also establish a binding contract between the company and the members and between the members and company. This contract governs the ordinary rights and obligations of membership in the company. But articles doesn’t have a binding contract between company and the outsider
- AOA must not violate MOA
- Alteration of MOA is restricted while AOA can be altered through a special resolution
- While MOA is a must for all the companies, AOA is not so. It’s not a must for companies limited by shares to have its own AOA
- The articles are subordinate to the memorandum; any clause in them which is inconsistent with the memorandum is overruled
Lot of care has to be taken while drafting AOA as it defines the power and duties which if not defined properly considering all the situations in mind can hamper the normal working of the company so a legal expert is must while forming it.
You can read the complete document on the Companies ACT 1956 here (if link not opening, pls open in Internet Explorer 🙂 http://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf
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