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What are Articles of Association?
A company’s Articles of Association are a set of documents that defines its purpose and states the regulations that will govern it.
The articles typically detail how directors will be hired and how financial records will be handled.
Key points
● Articles of association discuss how the company will be organised
● Articles of association set out the process for shareholder meetings
● The articles define how shares and dividends will be issued and what voting rights shareholders will have
● They also discuss the responsibilities of directors and how they will be appointed
● The articles of association may also cover administrative arrangements
What are Articles of Association?
Articles of association are critical documents when it comes to governing a business. They can also be considered as a contract between the company and its shareholders.
The articles have been described as ‘the user guide’ for a business and typically discuss how the company will be organised and the process for shareholder meetings.
The articles set out the rules that govern the company, to which shareholders and directors have agreed.
They outline the managerial and administrative structure and responsibilities of the business and include information on the rights of shareholders.
In terms of shareholders, the articles may also set out rules concerning how shares and dividends will be issued and what voting rights shareholders will have.
The company’s legal name should be clearly stated, and these articles will form the basis for the company’s constitution.
The company’s articles may be held at the company’s registration office and can be accessed as a public record.
Can a company change its Articles of Association?
At some point, a company might want to change its articles of association. This can be to take into account a change in the law or because a regulating authority has ordered them.
If the articles must be changed, then a general meeting should be called where the directors approve a statement informing the shareholders that the articles of association need to be changed.
A meeting should then be held with shareholders to pass a special resolution.
What makes a company’s Articles of Association so important?
The articles could be considered some of the most important statutory documents for a newly formed company.
The articles and the memorandum of association are required documents in many countries.
The company secretary and directors must sign them. They are vital when it comes to investor relations and the stock market.
They are also a good place to set out regular goals for the organisation.
The articles may also be needed when setting up a company bank account or applying for business loans.
Until the articles of association have been filed, the company will not be considered an official company.
Where can a company’s Articles of Association be found?
Companies must keep a copy of the articles at their registered office address. There should also be a copy of them held on public record at the company’s registration office.
Who is bound by the Articles?
The articles act as a contract between the company and its shareholders. This is a binding agreement between parties, and changes can only be made via a special resolution, which is agreed by at least 75% of shareholders.
What are the legal effects of the Articles of Association?
As mentioned, the articles bind the company and its members. If a company should breach the articles, then members can take action to restrain the company.
For example, by signing the articles, the members agreed that any monies owed to the company are considered debts and the articles can be used to enforce payment.
They are binding between members in that they govern how and when members should inform each other of their intention to transfer shares.
However, they are not binding in terms of outside parties who are not included in the agreement.
Are there any limitations concerning the alteration of the articles?
Alterations to the articles must not be illegal or against public policy, and they cannot be inconsistent with a court order. They must not be fraudulent, and they must not increase the liability of members. In summary:
- Articles of Association are rules that govern the company, and which shareholders and directors have agreed on.
- The articles outline the managerial and administrative structure and responsibilities of the business and include information on the rights of shareholders.
- Although a company can change its Articles of Association, a special resolution will be needed where a majority of shareholders must vote on the change.
- The articles are essential documents that set out the company’s rules and are vital when it comes to investing and the stock market.
- They also set out how shares can be transferred and other fiduciary duties.
- The articles are a binding legal document between shareholders and directors, but not outside parties.