What Are Articles of Association?
Let me tell you directly: Articles of Association are the internal documents and rules that specify the regulations for a company's operations and define its purpose. They outline how tasks are accomplished within the organization, including the process of appointing directors and handling financial records.
Key Takeaways
You should know that Articles of Association define a company's purpose and outline the methodology for day-to-day tasks. The 'articles' typically include provisions on the company name, its purpose, share structure, and the company's organization. In the U.S. and Canada, they're often just called 'articles' for short.
What the Articles Include
Articles of Association identify how a company issues shares, pays dividends, audits financial records, and provides voting rights. Think of this set of rules as a user's manual for the company. The content varies by jurisdiction, but globally, it commonly outlines several key areas.
First, the company name: As a legal entity, the company must have a name listed in the articles. You usually need a suffix like 'Inc.' or 'Ltd.' to indicate it's a company, and certain words like 'government' or 'church' can't be used or are restricted to specific entities.
Next, the company purpose: You have to state the reason for the company. Some places accept broad purposes like 'management,' while others demand details, such as 'the operation of a wholesale bakery.'
Then, share capital: This lists the number and type of shares that make up the company's capital. At minimum, there's one form of common share, and there might be various preferred shares.
The legal organization comes next: This covers the company's address, number of directors and officers, and identities of founders and original shareholders.
Finally, shareholder meetings: Provisions for the first general meeting and rules for subsequent annual ones—like notices, resolutions, and votes—are detailed here.
Important Note
Remember, a company may or may not issue shares, but if they're mentioned in the articles of association, they can be issued when needed.
Small Business Example
If you're starting a business, whether alone or with others, you'll typically consult a lawyer, accountant, or both for advice on setting up the company. You choose a name and define its purpose, then register the company at the state or federal level.
Your company might issue shares to divide ownership, but it's not required. The articles explain how to do this if you choose to. The lawyer or accountant works with the directors to structure the company accordingly.
The articles list the company directors, their personal information, and a business address. You can make changes to the Articles of Association with approval from the director or directors.
How Do Articles of Association Differ From Articles of Incorporation?
Articles of Association are internal documents that define a company's purpose as a business, key information like the name, and how shares are structured. In contrast, Articles of Incorporation are formal documents you file with a government body to legally form a corporation. They include the firm’s name, street address, agent for service of process, and the amount and type of stock to be issued.
What Are Articles of Organization?
Articles of Organization are legal documents you use to establish a limited liability company (LLC) at the state level.
Who Creates the Articles of Association?
A company's founders typically create its Articles of Association. Since this is an important document dealing with management and finances, they consult lawyers, accountants, or both to get it right.
The Bottom Line
In summary, Articles of Association define what a company is and how it operates. This includes fundamental information such as the company's name, its founders and original shareholders, the purpose driving the company, how shareholder meetings are conducted, and how directors are hired.
Other articles for you
An offering is the issuance or sale of securities by a company, commonly an IPO, to raise capital.
The payout ratio measures the portion of a company's earnings distributed as dividends to shareholders.
Business economics applies economic theories and quantitative methods to analyze and address financial, organizational, and market issues faced by corporations.
Factors of production are the essential resources—land, labor, capital, and entrepreneurship—required to produce goods and services in an economy.
A value change is a daily adjustment to a stock's price that reflects the number of outstanding shares held by investors for equal weighting in evaluations.
Fixed capital refers to investments in long-term assets like property, plant, and equipment that support business operations without being consumed in production.
Capital goods are physical assets used by companies to produce consumer goods and services, distinct from the end products themselves.
Automatic bill payments are scheduled transfers to pay recurring bills, offering convenience but with potential risks like fees if funds are insufficient.
The foreign exchange market, or forex, is a global decentralized network for trading currencies, determining exchange rates, and offering various transaction types like spot, forwards, and futures.
The cash conversion cycle measures how efficiently a company converts its investments in inventory and receivables into cash by tracking the time involved in selling inventory, collecting payments, and paying bills.