What Are Articles of Association?
Articles of association are a document that specifies the regulations for a company's operations and defines the company's purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records.
- Articles of association can be thought of as a user's manual for a company, defining its purpose and outlining the methodology for accomplishing necessary day-to-day tasks.
- While the content and terms may vary according to jurisdiction, articles of association generally include provisions on the company name, its purpose, the share capital, the company's organization, and provisions concerning shareholder meetings.
Articles of Association
Understanding Articles of Association
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 it outlines the methodology for accomplishing the day-to-day tasks that must be completed. While the content of the articles of association and the exact terms used vary from jurisdiction to jurisdiction, the document is quite similar everywhere and generally contains provisions on the company name, the company's purpose, the share capital, the company's organization, and provisions regarding shareholder meetings.
As a legal entity, the company must have a name that can be 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 as "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—"management," for example—while others require greater detail—e.g., "the operation of a wholesale bakery."
The number and type of shares that comprise a company's capital are listed in the articles of association. There will always be at least one form of common shares that makes up a company's capital. In addition, there may be several types of preferred shares. 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.
A company may or may not issue shares, but if they are listed in the articles of association, shares can be issued if and when needed.
Organization of the Company
The legal organization of the company, including its address, the number of directors and officers, and the identity of the founders and original shareholders, are 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.