B.com(H/P)| CH-7 Articles of Association|Company law| Sem-2/4th Sol Du NEP| SOL DU Company Law

Introduction to Articles of Association

Overview of the Topic

• The session begins with an introduction to the topic, focusing on Unit 2, Chapter 2 of Company Law, specifically the Articles of Association (AoA). This is part of a series aimed at B.Com students and is not primarily targeted at CA or CS students.

Importance of Memorandum vs. Articles

• Prior knowledge includes the Memorandum of Association (MoA), which is deemed more important than AoA. Both documents are essential for company registration as they outline different aspects of a company's operations.

Key Documents for Incorporation

• When registering a company, both MoA and AoA must be submitted to the Registrar. MoA outlines what the company will do while AoA specifies how it will operate internally.

Understanding Articles of Association

Definition and Purpose

• The Articles of Association serve as internal rules governing a company's operations, detailing how objectives outlined in the MoA will be achieved through specific regulations and procedures.

Relationship Between MoA and AoA

• The MoA defines what a company can do; in contrast, AoA explains how those activities will be conducted—essentially outlining operational guidelines for management and governance within the company structure.

Governance Structure

Internal vs External Use

• The MoA is primarily used by external parties to understand a company's scope and limitations, while AoA is utilized by internal management to govern day-to-day operations effectively. This distinction highlights their respective roles in corporate governance.

Hierarchical Relationship

• There exists a hierarchical relationship where MoA acts as the primary document (the "boss"), while AoA serves as its subordinate, providing detailed instructions on executing tasks defined in the MoA. This structure emphasizes clarity in responsibilities within corporate governance frameworks.

Operational Guidelines

What Needs to Be Done?

• The session discusses that while MoA states what needs to be done (objectives), AoA clarifies how these objectives should be accomplished—providing essential guidance for operational execution within companies.

Section 7 Clause A Requirements

• According to Section 7 Clause A, articles must be printed and divided into numbered paragraphs—a requirement that ensures clarity and organization within legal documentation related to company operations. This contrasts with previous discussions about clauses in MoAs where only six out of seven were deemed necessary for understanding core functions.

Understanding Memorandum and Articles of Association

Overview of Memorandum and Articles

• The discussion begins with the distinction between clauses in a memorandum (M.O.) and paragraphs in articles of association (A.O.A.), emphasizing that A.O.A. is structured in paragraph form with unique identifiers.

• It is noted that the printed file of A.O.A. will be divided into numbered paragraphs, which are essential for clarity and reference.

Signing Requirements

• For public companies, a minimum of seven subscribers must sign the M.O., while private companies require at least two signatories.

• Witnesses are necessary for signing the M.O., and these documents must be submitted to the Registrar of Companies (R.O.C.).

Subscribers' Role

• Subscribers must hold at least one share in the company, indicating their commitment to its establishment.

• The M.O. outlines objectives, while A.O.A. details how these objectives will be fulfilled through rules and regulations.

Content of Articles of Association

• Key components include share capital rights, detailing how many shares can be issued by a company based on authorized, subscribed, and issued capital.

• Rules regarding allotment of shares are discussed, including methods for issuing preference shares versus equity shares.

Share Management Procedures

• The process for issuing share certificates is outlined along with timelines for issuance.

• Guidelines on calls on shares specify how funds will be requested from shareholders during different stages such as application or allotment.

Additional Provisions in AOA

• Procedures for reissuing shares are explained, including conditions under which shares may be seized if payments are not made.

• Regulations concerning general meetings (AGMs), including scheduling and duration requirements, are also included within AOA provisions.

Employee Compensation and Profit Distribution

• Discussion includes salary provisions for employees based on industry standards but varies across companies.

• Dividend decisions highlight how profits may either be distributed or retained within the company structure.

Company Closure Regulations

Changes in Articles of Association and Memorandum of Association

Making Changes to the Articles of Association (AoA)

• If you want to make changes within the AoA, it is possible by passing a special resolution during the Annual General Meeting (AGM).

• Any alterations made must be communicated to the Registrar of Companies (RoC) within 30 days.

Understanding Memorandum of Association (MoA) vs. Articles of Association (AoA)

• The MoA serves as a charter for a company, outlining how it should operate and setting fundamental conditions.

• The AoA consists of rules that govern internal management, detailing how the company will function internally.

Objectives and Relationships

• The MoA defines limits on what a company can do, while the AoA establishes rules for carrying out those activities.

• The MoA connects the company with the outside world, whereas internal management utilizes the AoA.

Alterations in Memorandum and Articles

• Changes can be made to both documents; however, specific procedures must be followed based on existing provisions in the AoA.

• Approval from RoC is required for changes in MoA but not necessarily for changes in operational methods outlined in AoA.

Practical Examples of Changes

• For instance, if a company wants to shift its focus from manufacturing pens to smartphones, it needs RoC approval for changing its objectives.

• However, if there are minor operational changes like altering production techniques or financing methods, these may not require prior approval from RoC.

Communication Requirements

• After making any changes to either document, companies must inform RoC within 30 days about these modifications.

Understanding Depreciation Methods

Discussion on Depreciation Methods

• The speaker expresses a preference for using the old method of calculating depreciation rather than adopting new methods, indicating that changes should not apply retroactively.

• A discussion arises about subordination within company structures, specifically who is subordinate to whom, highlighting the relationship between the Managing Officer (MO) and the company.

• The necessity of creating a Memorandum of Association (MOA) is emphasized as compulsory for companies to clarify their purpose, while Articles of Association are optional.

• The speaker mentions important topics relevant to both chapters being discussed, including the Doctrine of Ultra Vires, suggesting viewers check additional resources for clarity on this concept.