What is the 'Articles Of Association'
The articles of association is a document that specifies the regulations for a company's operations, and they define the company's purpose and lay out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled.
Articles of association often identify the manner in which a company will issue stock shares, pay dividends and audit financial records and power of voting rights. This set of rules can be considered a user's manual for the company because they outline the methodology for accomplishing the day-to-day tasks that must be completed.
BREAKING DOWN 'Articles Of Association'While the content of the articles of association and the exact terms used vary from jurisdiction to jurisdiction, the document is quite similar everywhere, The articles of association generally contain provisions on the company name, the purpose of the company, the share capital, the organization of the company and provisions regarding shareholder meetings.
As a legal entity, the company must have a name and it is found in the articles of association. All jurisdictions will have rules concerning company names. Usually, a suffix such as "Inc." or "Ltd" must be used to show that the entity is a company. Also, some words that could confuse the public, such "government" or "church" cannot be used or must be used only for specific types of entities. Words that are offensive or heinous are also usually prohibited.
Purpose of the Company
The reason for the creation of the company must also be stated in the articles of association. Some jurisdictions accept very broad purposes, for example "management" while others require greater detail ("the operation of a wholesale bakery").
The number and type of shares that comprise the company's capital are listed in the articles of association. There will always be at least one form of common shares and there may be several types of preferred shares as well. The company may or may not issue the shares, but if they are found in the articles of association, they can be issued if and when the need presents itself.
Organization of the Company
The legal organization of the company, including its address, the number of directors and officers, the identity of the founders and original shareholders is found in this section. Depending on the jurisdiction and type of business, auditors and legal advisors of the company may also be in this section.
The provisions for the first general meeting of shareholders and the rules that will govern subsequent annual shareholder meetings, such as notices, resolutions and votes are laid out in detail in this section.