Business Law - Articles of Association

Articles of Association is a document, which is mandatory for every company to prepare. It contains the following details −

• The powers and privileges enjoyed by the directors, shareholders and officers while voting.
• The type of business to be carried out by the company.
• The type of changes, which can be made in the internal regulations of the company.
• The rights, duties, powers and privileges of the company and its members.

Articles of Association

Articles of Association can be considered as a contract between the members and the company. These articles bind the present as well as the future members of the company. The company and its members are bound by the articles as soon as the document is signed.

• Members have various rights and duties towards the company.

• The articles together with the memorandum of association make the constitution of the company.

The Articles of association may cover the following topics −

• The issuing and different classes of shares
• Valuation of intellectual rights
• The appointment of directors
• The directors’ meetings
• Management decisions
• Transferability of Shares
• The dividend policy
• Winding up
• Confidentiality of know-how and the founders’ agreement and penalties for disclosure

The company is essentially run by the shareholders but for convenience, it is run by a board of directors. The shareholders elect a board of directors and the directors are elected at the Annual General Meeting. The directors may or may not be employees of the company. Shareholders may also elect independent directors.

• Once elected, the board of directors manages the company.
• The shareholders play no part till the next Annual General Meeting.
• The shareholders and the Memorandum of Association determine the objectives and the goals of the company in advance.
• The auditors of the Annual General Meetings are elected by the shareholders.
• The auditors may be internal auditors (employees) or external auditors.
• The Board meets several times in an year.
• An agenda is prepared before each meeting.
• The board meetings are presided over by a chairperson.
• In the absence of the chairperson, the vice chairperson presides over the meetings.

Meaning of Association

Purpose of an Article

The article of association contains the following details −

• The voting powers of officers, directors and shareholders.
• The form of business that the company carries out.
• The form of freedom to change the company’s internal regulations.
• The rights, duties and powers of the company and its members.

Articles of Association of a Company

• The articles of association records clearly the duties and purpose of the company and its members.
• It is filed with the registrar of companies.

Registration of the Articles

• Every private company, whether a company limited by guarantee or an unlimited company, should be registered with the registrar of companies along with the memorandum according to section 26 of the Companies Act, 1956.

• For a company limited by shares, it is not mandatory to have its own articles.

• A company limited by shares may partly or totally adopt the table A of the Schedule of the Companies Act, 1956.

• If a company limited by shares does not have any articles of association, then the table A of the schedule of the Companies Act will be applied by default, until and unless it is modified.

• There are 3 ways for a company limited by shares −

  • It may totally adopt table A.

  • It may totally exclude table A and form its own articles of association.

  • It may adopt just a part of table A and create its own articles of association.

• It is not needed to register the articles of association of a company if it totally adopts table A.

• For a company adopting table A, it should be mentioned in the memorandum of association that the company has adopted table A as its articles of association.

The articles of a private limited company should contain the following −

• The company must have a specific amount of share capital with which the company is to be registered.

• The number of members included to register the company.

For a company limited by guarantee, the articles must state the total number of members, involving whom, the company is to be registered according to Section 27(2) of the Companies Act, 1956.

• As per Section 30 of the Companies Act, 1956, the Articles of Association must be signed by each subscriber of the memorandum of association in the presence of at least 1 witness.

• The witness must attest the articles with his signature, designation and address.

Definitions used in Articles

“Act of incorporation” refers to an act for the incorporation of International Air Transport Association.

• “Air service” refers to public transport of passengers, drafts or cargos via aircraft.

• “Airline” refers to an entity operating on air service.

• “Applicant Airline” refers to an airline that makes an application for IATA membership pursuit to article 5 of these articles.

• “Articles” refers to the articles of association.

• “Board” means the board of governors.

• “Committee of the Board” refers to any committee of the Board formed according to the rules and regulations of the Board of governors.

• “Dues” refers to a specific amount of money to be paid by members to maintain membership.

• “Fees” refers to a specific amount to be paid by an Applicant Airline to acquire membership.

• “General meeting” refers to Annual General meeting or any special general meeting.

• “IATA Conference” refers to conferences organized by general meeting pursuant to Article XII (3) (e) of these articles.

• “Industry Committees” refers to Committees formed by the general director with the approval of Board pursuant to Article XV (4) of these articles.

• “Limitation” refers to loss of all rights and privileges of membership.

• “Members” refers to a member Airline of IATA.

• “Membership office” refers to IATA department designated by the general director.

• “Presiding officer” refers to the individual presiding over a general meeting.