What are Articles of Association
It is a document that specifies the regulations for a company’s operations. The articles of association defines the company’s purpose and lays out how tasks are to be accomplished, including the appointment of directors and how financial records are to be handled. This is governed by the Companies Act of 1956. This document is accessible to all the stake holders and shareholders of the company, so that it gives an overview of the financial status of the company.
Now let us see the contents of the Articles of association.
Table A of 1st schedule of companies act of 1956 are as follows:
- Interpretation and definition
- Transfer of shares
- Transmission of shares
- General meeting that is Annual general meeting etc.
- Notice and proceedings
- Votes of members
- Power and duties of directors
- Common seal
- Disqualification of directors
- Proceeding of directors
- Filling up vacancies.
- Dividends and reserves.
- Accounts and audit
- Notice for meetings.
Now let us see what kind of companies should have an article of association. Unlimited companies, companies limited by guarantee, private companies limited by shares, A public limited company may have its own articles, if not if can adopt the above table A. In the case of unlimited companies the articles must state the following:
- The number with which the company is registered, and
- If it has a share capital, the amount of share capital with which the company is registered.
In the case of companies limited by guarantee the articles of association should state the numbers of members with which the company is registered. In the case of private company having a share capital, the articles of association will contain certain provisions as:
- Restrict the right to transfer of shares.
- Limit the number of its members to 50
- Forbid the invitation to any public to subscription of shares.
The strength of articles of association is that the focus is on the contents of it rather than the form. Articles of association can also include organization charts, escalation procedures to handle hiring process for managerial level, a simple flow chart for basic accounting procedures such as payables and receivables. The main thing to keep in mind while preparing an article of association is “simply think about the day to day operations of a firm”. Using this as foundation it is easy to think what the process needs to be in place to provide proper communication to the shareholders. Last but not the least it is important to remember that to register the company to do business, there must a formal Articles of Association in place.