Articles of Association is the second document along with the Memorandum of Association required for Company Registration.
Articles of Association necessarily define the internal framework of the organisation such as defining the governing structure, the inherent powers of the directors, shareholders and other stakeholders.
This necessarily helps any organisation while entering into a business contract so as to who is authorised to sign the business contract and in what capacity he/she is doing so defining the locus standii of the concerned person in black and white leaving no scope for any ambiguity.
The Articles of Association also clearly enumerates the process of issuance of shares, the frequency at which the company shall conduct its meetings, the quorum required for the same and various other details.
Articles of Association also necessarily enumerates the detailed mechanism of dispute resolution in case of a dispute such as following alternative mechanisms like arbitration and conciliation as the case may be. But in any such case the Articles of Association also need to clarify the minute details of the Arbitration and Conciliation mechanism as well to avoid any future ambiguity.
Another aspect where Articles of Association hold importance is the process in which the entire organisation shall execute the business without any non-compliance of the statutory norms for the time being in force.
All these factors help in understanding the detailed process of business that the organisation has been following since its inception thereby giving the opposite party a clear understanding to make an informed decision before entering into any business contract.
