Articles of Association: What Are They?

The articles of association are a legal document that outlines the rules for how a company must conduct its business and describe the firm’s mission. The document outlines how duties are to be carried out inside the company, including selecting directors and managing financial records.

Knowing how to read articles of association

The way a corporation will issue shares, pay dividends, audit financial records, and grant voting rights is frequently specified in the articles of organization. Because it describes the process for carrying out the daily duties that must be done, this list of regulations may be seen as the company’s user handbook.

Although the articles of association’s content and the precise terms used vary from country to country, they generally contain provisions on the company name, purpose, share capital, organization, and shareholder meetings. Articles of association are frequently referred to as “articles” for short in the United States and Canada.

Business Name

The business’s name must be in the articles of association for it to be recognized as a legal entity. There will be regulations governing business names in every country. The suffix “Inc.” or “Ltd.” must often indicate that the entity is a business. In addition, some terms that can mislead the public, such as “government” or “church,” cannot be used or must only be reserved for certain categories of institutions. In general, words that are derogatory or terrible are likewise forbidden.

Goals of the Business
The articles of association must also specify the rationale behind the company’s formation. While some countries allow extremely general purposes—like “management”—others want more specific information, such as “the operation of a wholesale bakery,” for instance.

Equity Capital
The articles of association list the amount and kind of shares that make up a company’s capital. A firm’s capital should consist of at least one class of common shares. There might be other varieties of preferred shares as well. The shares may or may not be issued by the firm; however, if they are mentioned in the articles of association, they may be issued as and when necessary.

Structure of the Company
This Section contains information on the company’s legal structure, such as its address, the number of directors and officers, and the names of its initial shareholders and founders. The auditors and legal counsel of the company may also be included in this part, depending on the legal system and the nature of the firm.

Ownership Meetings
This Section contains the provisions for the first General Meeting of Shareholders and the procedures for the annual meetings of Shareholders, including the notifications, resolutions, and votes.

Example of Articles of Association for a Small Business

When forming a corporation, a person or group of individuals launching a business would often consult a lawyer, accountant, or both for guidance.

The business will decide on a name and establish its goals. The business is then registered with the state, province, or federal government. A name can be trademarked, but the procedure is different.

A firm is not required to issue shares to divide the company, although it may do so if it chooses to. The articles will explain how to accomplish this. The lawyer or accountant would often consult with the firm’s directors to determine how the business should expand and how it could be organized in the future.

Directors of the company are given along with their contact details. Additionally, a company address is given. The director(s) must approve any changes to the articles of organization.

Conclusion

• The articles of association serve as the company’s “user’s manual,” describing its goals and providing the procedures for carrying out critical day-to-day duties.
• Depending on the jurisdiction, the “articles” may contain different provisions depending on the company’s name, mission, share structure, organizational structure, and shareholder meetings.
• Articles of association are frequently referred to as “articles” for short in the United States and Canada.