The Articles of Association (AoA) is a document that defines the purpose of a company and specifies the regulations for its operations. The document outlines how tasks should be accomplished within an organization, including the preparation and management of financial records, and the process of director appointments.
The articles of association (AoA) can be considered the “constitution of a company.” It outlines the rules and regulations that stipulate a company’s internal affairs.
The articles of association are also considered a user’s manual for an organization that states the purpose of the organization and its strategies to accomplish its short-term and long-term goals.
Generally, the AoA includes a company’s legal name, address, purpose, equity capital, organization of the company, financial provisions, and provisions regarding the shareholder meetings.
Components of the Articles of Association
The articles of association will usually specify the way a company issues stocks, distributes dividends, and performs financial records. The document is focused on giving the reader information about the methods a company uses to achieve its daily, monthly, and yearly goals.
The articles of association are relatively similar in any part of the world, even though the exact terms and items vary across jurisdictions. In general, it includes the following:
A company must adopt an official name as a legal entity. It must be present in the articles of association. Usually, the following suffixes “Inc” or “Ltd” are used to show that an entity is a company. Please note that jurisdictions vary from country to country, and thus, there are various rules regarding company names.
The words “government” or “church” cannot be used as a name because it might confuse the public. Also, words that are offensive and vulgar are also prohibited.
Purpose of the Company
Companies are incorporated for a specific reason. Primarily, it is a for-profit reason to pursue a certain goal by delivering value to society. The reason or purpose of the organization must be clearly stated in the articles of association.
Some jurisdictions allow for very broad purpose statements, such as “management,” while others require a more detailed purpose of an enterprise, i.e., “the operation and growth of a restaurant chain.”
The articles of association will state the number and type of shares comprising a company’s capital. Typically, there is always at least one form of common shares that makes up its capital. Additionally, one can also see several types of preferred stock.
If information about stocks is found in the articles of association, it means they can be issued by the company when there is a need for funding.
Organization of the Company
The document includes legal information about the company, including the registration address, the number of directors and employees, and the identity of the founders and original shareholders.
Legal advisors and auditors may also appear here, depending on the type of business and a country’s jurisdiction.
The first general shareholder meeting provisions are listed in the shareholder meetings section. Notices, resolutions, and votes are detailed as well in the section, governing subsequent annual shareholder meetings.
Companies Required to File an Articles of Association
The following entities must file their own articles of association:
1. Unlimited companies
The document must include the number of employees and the amount of share capital, if any.
2. Companies limited by guarantee
The document must specify the number of members with which the company will be registered.
3. Private companies limited by shares
The document must include the provision restricting any transfers of shares, a limit of 50 members, and the prohibition of invitations to the public for share purchases in the form of stocks or debentures.
CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: