When a company is formed in India, two important documents shape how it works — the Memorandum of Association (MOA) and the Articles of Association (AOA). If the MOA explains what a company is allowed to do, the AOA explains how the company will actually run on a daily basis.
Many beginners get confused between these two documents. But once you understand the role of AOA, you will see that it mainly controls the internal rules of the company — things like how decisions are made, how shares are handled, and how members interact with each other. This guide explains Articles of Association under the Companies Act, 2013 (Section 5).
What is the Articles of Association (AOA) of a Company?
Imagine a group of people starting a company together. Naturally, they will need some rules to decide:
- Who can make decisions
- How directors are appointed
- What happens if a shareholder wants to sell shares
- How meetings are conducted
These internal rules are written in a document called the Articles of Association (AOA).
In simple words, AOA is the rule book that governs how a company is managed internally. Under Section 5 of the Companies Act, 2013, every company must have articles that define how the company will operate.
Why Does AOA Matter for a Company?
For beginners, it helps to think of AOA as the company’s internal constitution. The AOA creates a legal relationship between:
- The company and its members
- The members among themselves
This means that once the articles are registered, all members agree to follow these rules. Suppose five friends start a private company and each buys shares. Their AOA may contain rules such as:
- Shares cannot be sold to outsiders without offering them to existing members first.
- Directors must approve share transfers.
- Board meetings must happen at least four times a year.
Once these rules are written in the articles, every member must follow them. This is why the AOA plays a crucial role in company governance.
What Does the Articles of Association Contain?
Section 5 explains what typically goes into the AOA. In simple terms, the articles include:
1. Rules for Managing the Company
These rules explain how the company operates internally. For example:
- Appointment and removal of directors
- Conduct of board meetings
- Voting rights of shareholders
- Dividend declaration procedures
These are everyday operational rules
2. Other Matters Prescribed by Law
The Companies (Incorporation) Rules, 2014 also mention certain matters that should be included in the articles. These rules generally relate to:
- Share capital structure
- Share transfers
- Meeting procedures
- Member rights
Companies can also include additional rules if they feel those rules are necessary for smooth management.
What is Entrenchment in Articles of Association?
The word entrenchment may sound technical, but the idea is quite simple. Usually, a company can change its Articles of Association by passing a special resolution in a shareholders’ meeting. But sometimes companies want certain rules to be very difficult to change. This is where entrenchment provisions come into play.
What Entrenchment Means
Entrenchment means some clauses in the articles can only be changed after meeting stricter conditions than a normal special resolution. In other words, the company intentionally makes some rules harder to modify.
Why Companies Use Entrenchment
From practical experience, this is often done to protect important rules. For example, a startup company may want to protect founders’ rights. So the articles may state:
- Founders cannot be removed as directors without unanimous consent.
- Share transfers require approval from all members.
These clauses would require stronger approval to change.
When Can Entrenchment Be Added to Articles?
Entrenchment provisions can be added in two situations.
- When the company is first incorporated, founders can include such provisions directly in the articles.
- If the company already exists, the articles can be amended to add entrenchment provisions. But the approval requirements depend on the type of company.
- Private Company: All members must agree.
- Public Company: A special resolution must be passed.
Is the Registrar of Companies Informed About Entrenchment?
Yes.
Whenever entrenchment provisions are added, the Registrar of Companies (ROC) must be notified. If added during incorporation, the details are submitted through SPICe+ (INC-32) form.
If added later, the company must file Form MGT-14 within 30 days of adding the entrenchment provision. Government filing fees apply based on rules prescribed by MCA.
What are the Model Forms of Articles (Schedule I)?
The Companies Act provides standard templates for Articles of Association. These are called Model Articles and are given in Schedule I of the Companies Act, 2013. Companies can adopt these models fully or modify them. Below are the model formats.
| Table | Type of Company |
|---|---|
| Table F | Company limited by shares |
| Table G | Company limited by guarantee with share capital |
| Table H | Company limited by guarantee without share capital |
| Table I | Unlimited company with share capital |
| Table J | Unlimited company without share capital |
In practice, many companies adopt the Table F model and modify it slightly to suit their needs.
What Happens if a Company Does Not Modify the Model Articles?
If a company registers its articles but does not change certain model provisions, then the law assumes that the model rules apply automatically. This means, the model regulations will operate as if they were written in the company’s articles.
Section 5 applies mainly to articles registered or amended under the Companies Act, 2013. If a company’s articles were registered under previous company laws and have not been amended, this section may not apply.
What is the Difference Between MOA and AOA?
Many beginners confuse the Memorandum and Articles. A simple comparison makes it easier.
| Basis | Memorandum of Association (MOA) | Articles of Association (AOA) |
|---|---|---|
| Purpose | Defines the company’s objectives and scope | Defines internal management rules |
| Relationship | Governs relationship between company and outsiders | Governs relationship between members |
| Legal Position | Superior document | Subordinate to MOA |
| Scope | Limits what the company can do | Explains how the company operates |
| Violation | Acts beyond MOA are invalid and cannot be approved | Acts beyond AOA can sometimes be approved by shareholders |
Think of it this way, MOA sets the boundaries. AOA explains how to operate within those boundaries.
Can the Companies Act Override MOA and AOA?
Yes.
Under Section 6 of the Companies Act, 2013, the provisions of the Act always prevail.
This means if:
- MOA
- AOA
- Agreements
- Board resolutions
contain anything that conflicts with the Companies Act, then those conflicting provisions become invalid.
Example
The law says that dividends can only be paid from company profits. If the Articles say that dividend can be paid even when the company has no profits, that clause will not be valid. The Companies Act will override it.
What is the Legal Effect of Memorandum and Articles? (Section 10)
Once the Memorandum and Articles are registered with the ROC, they become legally binding. They create a contractual relationship between:
- Company and members
- Members and company
- Members among themselves
This means everyone must follow the rules mentioned in these documents.
One important rule beginners should understand:
Articles create a contract only between the company and its members. They do not create enforceable rights for outsiders.
Example: If the articles say that a particular person must always be a director, that person cannot legally force the company to appoint him unless he is a member and the conditions support it.
Conclusion
For anyone learning company law in India, understanding the Articles of Association is an important step. While the Memorandum defines what the company is allowed to do, the Articles explain how the company will function every day.
From director appointments to share transfers, many practical decisions inside a company are guided by these articles.
For beginners, the key idea to remember is simple:
AOA is the internal rule book of the company. Once registered, these rules legally bind the company and its members and help maintain order, transparency, and structured decision-making.
