Articles of Association (AOA)

Meaning. The Articles of Association, dealt with under Section 5 of the Companies Act, 2013, are the rules and bye-laws that govern the internal management of the company — how it actually runs itself from day to day. Where the Memorandum tells the world what the company may do, the Articles tell the company's own members and officers how it will be done.

Contents. The Articles typically deal with matters such as:

• the different classes of share capital and the rights attached to them;
• procedures for making calls on shares, forfeiture of shares, and the transfer and transmission of shares;
• the conduct of general meetings, including notice, quorum, voting rights and the use of proxies;
• the appointment, powers, duties and remuneration of directors;
• the company's borrowing powers;
• the declaration and payment of dividends and the creation of reserves; and
• the maintenance of accounts, audit, and procedures relating to winding up.

Relationship with the Memorandum. The Articles are subordinate to, and must not conflict with, the Memorandum or the provisions of the Companies Act, 2013 itself; if a clause in the Articles contradicts the Memorandum or the Act, the Memorandum and the Act prevail and that clause has no effect. Unlike the Memorandum, however, the Articles can generally be altered more freely — by passing a special resolution of the members — subject only to the condition that the alteration must not be illegal, must not conflict with the Memorandum, and must not amount to a fraud on the minority shareholders.

Memorandum vs Articles. A quick comparison, which is a common short-answer and distinguishing question in AP Intermediate first-year Commerce examinations: