The Articles of Association (AoA) is the charter document that establishes the legal existence of a company in many jurisdictions worldwide, including the United Kingdom, Europe, and China.
This regulatory document defines the purpose of a company and its operation. Regulatory authorities determine the minimum requirement for its content, also known as articles, for establishing companies within their jurisdiction. Although this is the baseline to conduct commercial activity as a separate legal entity, companies can expand beyond to suit the circumstance.
The Articles of Association (AoA) can be considered the “constitution of a company.” At a minimum, it must meet the rules and regulations governing the particular business structure within a jurisdiction.
The articles state the organization’s purpose and broad strategies to accomplish its short-term and long-term goals.
Generally, the articles detail a company’s legal form, purpose, capital structure, governance, records, and other terms of its existence.
Purpose of the Articles of Association
Companies incorporate for many reasons. Authorities often require the filing of a variety of documents to ensure companies are rule-abiding. The articles of association are the primary source authorities need to assess and grant a company a separate legal identity from its stakeholders.
The whole document is colloquially known as the Articles. The document may detail the name and legal form of the company, its purpose, capital structure, corporate governance, administration of corporate records, and other terms of its existence.
Jurisdictions may also refer to Articles as Memorandum of Association, Articles of Incorporation (AoI), Memorandum of Incorporation, Constitution, or Articles of Organization, to name a few.
Common Components of the Articles of Association
While articles of association are relatively similar in many parts of the world, exact terms will vary across jurisdictions. In general, it includes the following:
Company name and form of business
Purpose of the company
Administration of corporate records
Company Name and Form of Business
To be a legal entity, a company must have a distinguishable name. It must be present in the articles of association. Sometimes an address is included to ensure the registration is attached to a legal address.
Jurisdictions may have rules and require suffixes, for example, “Inc,” “Ltd,” and “Plc,” to denote a specific form of business structure. There are prohibitions for words that may confuse the public or are deemed offensive and vulgar.
Generally, companies may exist perpetually; however, articles may explicitly limit their duration and outline how they can cease, depending on the circumstance.
Purpose of the Company
For-profit organizations pursue benefit for their stakeholders by delivering value to society, while non-profit organizations pursue societal benefit by providing value that may be intangible. Regardless of the pursuit, the organization’s purpose must be stipulated in the articles of association.
Some jurisdictions allow for general purpose statements, such as “management.” Others require a detailed purpose of an enterprise, i.e., “the operation and growth of a restaurant chain.”
The articles state the method a company organizes its capital structure.
For companies with share capital, the typical structure is via common shares. There may be other classes and categories of shares; for example, preferred shares having dividend and distribution rights or even liquidation preference.
Organizations without share capital may be companies limited by guarantee, which may be non-profit companies in some jurisdictions.
The capital structure stipulates the relationship with stakeholders of the company. It shows how the company confers the stake in exchange for stakeholder support.
Directors’ positions and duties, along with the rights and responsibilities of shareholders or members, may be defined under this category.
Many jurisdictions have rules for corporate governance. Directors are typically the most-directly responsible individuals, as authorities may permit shareholding or membership by legal entities other than individuals. Directors’ liability varies by jurisdiction, and their indemnity may be outlined within the articles of association.
Rules for decision-making by directors, shareholders, and members are set out in writing and are legally binding. Jurisdictions may state the minimum frequency of meetings, participation, voting, and quorums. It may outline dispute resolution and ways to address other contestable issues.
Administration of Corporate Records
A record of directors’ and shareholders’ meetings and decisions, as well as financial and accounting records, is typically required. Authorities may require submission regularly (e.g., annually or quarterly) and legally compel its retention. Regulators must ensure the company’s existence is verifiable beyond the individual directors, owners, and members.
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