This article is written by Keshav Bhardwaj, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com.
Have you ever wondered, By how many ways, you can access the Article of Association? What are the things to ensure while extracting the Articles of Association? What are the things prudent investors and active members of the Company should look out after obtaining the Article of Association?
Well, As you already know, the Articles of Association plays a very crucial role in the incorporation of the Company and afterwards for the governance of the Company. Lets at first understand the definition of-“Articles” which means the Articles of Association of a company as originally framed or as altered from time to time or applied in pursuance of any previous Company Law or this Act as given under Section 2(5) of the Companies Act, 2013.
The Article of Association of Company is that document, which prescribed the Rules, Regulations, and the Bye-Laws for the internal governance & the conduct of the Company. Indeed, the Articles of Association of the Company also establish the contractual relationship between the Company and its members. It also lays down certain rights and obligations to be followed for holding the membership of the Company, as said under Naresh Chandra Sanyal vs. Calcutta Stock Exchange Association Limited (AIR 1971 SC 422).
Table of Contents
When can someone need to extract the Articles of Association?
The Article of Association includes provisions which specified the powers and duties for every member of the Company. Every member and investor should look out these things while extracting the Article of Association as given under:
- Method for the Calculation of Price of Intellectual Assets.
- Procedure for the Appointment of Directors, Auditors, Chairperson, etc.
- Meeting related provisions (Board Meeting, General Meeting, etc.).
- Rights of Shareholders/Members of the Company e.g. Voting Rights.
- Roles, Powers & Duties of the Top Management.
- Selection, Election & the Remuneration Process.
- Management of Accounts and Audit of the Company.
- Transferability of the shares and debentures.
- Dividend Policy.
- Lien on shares, Calls on shares, Forfeiture, Surrender, Transmission, Conversion of Shares.
- Share Warrant in case of Public Company.
- Alteration of Capital.
- Borrowing Powers.
- Winding up related rules.
Persons looking to invest/members of the Company should ensure these things while acting as a member or looking to invest or providing loans or any dealing with the Company. Now, Let’s come to know, How to extract the Article of Association of a Company.
How to extract the Article of Association?
After getting know, Why do you need Articles of Association of the Company as a Member or Investor. Here, Let’s come to the procedures through which you can extract the Article of Association of the Company. There are mainly two procedure for extracting Article of Association of the Company:
- From Ministry of Corporate Affair Website
- By Right to Information
- From Registrar of Companies (in exceptional cases)
1. For extracting through Ministry of Corporate Affair Website:
The Ministry of Corporate Affairs Website primary/ most known legal way through which you can extract the Article of Association of the company. The stepwise procedure to extract the Article of Association is given under:
- Firstly Search www.mca.gov.in, then click on the menu, under the menu click on MY WORKSPACE. You have to register yourself as Register User/Business User on the Ministry of Corporate Affair Website.
- Then Log In by filling User ID, Password & Enter Character as Shown. If you are a Business User then, Select the External Agency/Bank/Nodal Officials/Business Users option. Click the Browse button, navigate and select the Digital Signature Certificate (DSC).
Then click on Sign In (if you have already registered then you can directly proceed from this step).
- Go to MCA SERVICES > then Go to Document Related Services > View Public Documents.
- Check out which Company Information you want to access, Type the Company Name, Company Corporate Identity Number(CIN) / Foreign Company Registration Number(FCRN), Company Registration Number, Choose Country Of Origin India Foreign, Choose State and after all these, Add this Company to Your Cart.
- You have to click on Make Payment, then Pay Fee Rs. 100 & then choose the Payment Gateway.
Click the I Accept button. You will be redirected to your bank’s website to make the payment, Service Request Number (SRN) is generated and displayed.
After making the payment, next doubt come to arise is:
How to View Documents after Payment:
- Click on MY WORKSPACE, under the Documents section, you can view the name of the company whose document you wish to view. Also, you need to be aware of the expiry of this document as given in under Note.
- Click on the DOWNLOAD button to see the document.
- If you had called for viewing multiple documents of the same company. The category List page gets displayed.
- Select the Category i.e. Incorporation Documents. Document Details gets displayed.
- Click on Document name i.e. Incorporation Certificate.
- Thereafter, the document is displayed in PDF Format.
*NOTE: You can inspect the document exclusively within 7 days after the payment has been confirmed. The documents are accessible for inspecting only for 3 hours after you have started inspecting the first document of the company. It is recommended to Download the requisite documents when you pay for the same.
For the remaining doubts/questions like What is the payment procedure for pay through National Electronic Fund Transfer (NEFT) or through Pay Later? How can I search for the Corporate Identity Number(CIN) of a company? You can check here. Also if there is any doubt related to the payment service. You can get information under the Payment Services Section.
2. For extracting through the Right to Information
Let’s understand, In what circumstances, the companies come within the scope of Right to Information Act, 2005. Firstly, come to the purpose of this act, which is An act to set out the functional administration which provides information (which are under the control of public authorities) access to the citizen in order to develop transparency & responsibility in the working of every Public Authority.
The definition of the term “Information” as given under Section 2(f) of the Right to Information Act, 2005, any material in any form, including records, documents, memos, e-mails, press releases, circulars, contracts, samples, models, data held in any electronic form and information relating to any private body which can be accessed by a public authority under any other law for time being in force. The Public Companies information can be obtained as comes already comes under the scope of Public Authority, all information registered with government bodies can be accessed by Right to Information. The question now comes to arise in mind is that under what circumstances private companies come into the scope of public authority?
In M.P. Varghese Vs. Mahatma Gandhi University, AIR 2007 Ker 203, the Hon’ble Kerala High Court states that the organizations which are receiving any kind of financial aid from the Government come within the scope of public authority. Also, the information which falls under Section 8 and 9 are exempted from disclosure. In addition to this stated that, if the same information of the company can be accessed through regulators like the Ministry of Corporate Affairs or Stock Exchange Board of India. Then it’s recommended to the person looking for information to go for Primary way to access information e.g. www.mca.gov.in.
3. From Registrar of Companies (in exceptional cases)
In addition to what is stated above, you can also physically confirm the document files (comprising some old documents may not be accessible online) at the Registrar of Company Office [Section 399 of the Companies Act, 2013] by presenting the fee receipt within 2 days of payment. If you feel that all the document filed by the company is incomplete or if there any information missing or any technical error on site of MCA you can approach Registrar of Company with fees paid receipt & Service Request Number (SRN), who shall allow you a physical inspection of document file of the company from where you can note down the required details.
What things a prudent investor should look out for in a Companies Articles of Association
Investors have many valid reasons to invest in a company, but what prevention will you have in the absence of shareholders agreement. It is the article of association that set out how a company should be run, governed and owned.
Also, to verify that the director does not have any kind of extreme powers. A prudent investor would also want the satisfaction that the following areas have relevant provisions:
(i) Voting Rights
A voting right is the right of shareholders to vote on subjects of Company Policy, the number of votes a shareholder has corresponds to the number of shares he/she holds. i.e. If a company is not performing well due to the mismanagement, if shareholders want to remove the deficient director or replace with more competent. But that director holds 50% of voting rights. It’s advisable to perform due diligence in this case.
Every investor invests capital in a company with the motive to get a return on investment. The expectation would be to get equal rights to a dividend but in some cases, if there are different share classes which leads to different entitlement for dividend then investors have different entitlement to a dividend that’s why investors should look out that each share has Unrestricted rights and not capped or limited in any way.
(iii) Proceed on sale or winding up
When a company is Sold (or Wound Up), a shareholder expected to get a significant amount of return on their investment. The Articles of the Association include entitled to any capital from the sale of winding up in direct symmetry to the shareholding in the Company.
It is recommended in case of early-stage investors to insist upon the “Liquidation Preference Provisions” i.e. right to get some equal amount of capital of their initial investment before any shareholder. Also to ensure if any other shareholder has a Liquidation Preferences Payment.
(iv) New Shares
Developing companies always keep issuing new shares to expand their funds while this can be a good thing a prudent investor should make sure that the provision of the right of first refusal on any new share being issued by the Company. This provision is defined as pre-emption rights with the purpose to balance the existing shareholding percentage and to avoid unwanted dilution.
(v) Freely sell or Transfer of shares
If you would like to transfer or sell the some/whole of your shareholding in the company, but there is a restricted clause in Articles of Association of the Company. In that case, you have no ability to sell or transfer the shares or if the directors have the “Absolute Right to Block” any alterations in the Company.
- Drag Along with Rights
Often, when the company is going for raising the fund from varied investors, the crowdfunding comes to occur. In that case, Majority Shareholders reserve the right to force any minority shareholder to join hands in the sale transaction, by which due to 100% acquisition, they have to sell the shareholding in terms of consideration decided by the majority shareholders of the company.
- Tag-Along Rights
It’s often seen that where you get “drag along” rights you will also find “Tag Along” Rights. If the majority of shareholders sell their shares, then minority shareholders may want to join-in-hand in the transaction. This is a safeguard any minority shareholder should solicit. If they want to avoid any possibility to get left behind as a minority shareholder with no longer the desired prospects.
If there any provision related to the Warrants or Share Options you should also CheckOut those provisions to safeguard yourself. Now, Let’s come to the Doctrine which specifies why it’s essential for outsiders to check out the Company document before investing in the company.
The doctrine of Constructive Notice
The doctrine of Constructive Notice means that Any person as an outsider looking to deal with the Company presumed to have read these documents (i.e. Incorporation Document) and understood them in true prospect. The Documents are accessible publicly with the nominal fee. Therefore it’s a duty upon the outsiders to consider this before entering in any deal and well understood every information because the Company has no liability in case the provision given under the document i.e. Articles of Association.
By all this, We come to conclude that the Articles of Association can be accessed by three routes which are: Ministry of Corporate Affairs Website, Right to Information and Registrar of Companies. It is recommended to go to the Ministry of Corporate Affairs Website, before considering other options. Other options to be considered, in case of inconvenience.
Also, you must look out to certain provisions as given above while dealing with the Company. Imagine, What would happen if you invested the capital without properly reading the essential provision of the Articles of Association of the Company?
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