What
is the 'Articles Of Association'
The articles of association is a document that
specifies the regulations for a company's operations, and they define the
company's purpose and lay out how tasks are to be accomplished within the
organization, including the process for appointing directors and how financial
records will be handled.
Articles of association often identify the manner
in which a company will issue stock shares, pay dividends and audit financial
records and power of voting rights. This set of rules can be considered a
user's manual for the company because they outline the methodology for
accomplishing the day-to-day tasks that must be completed.
BREAKING
DOWN 'Articles Of Association'
While the content of the articles of association
and the exact terms used vary from jurisdiction to jurisdiction, the document
is quite similar everywhere, The articles of association generally contain
provisions on the company name, the purpose of the company, the share capital,
the organization of the company and provisions regarding shareholder meetings.
Company
Name
As a legal entity, the company must have a name and
it is found in the articles of association. All jurisdictions will have rules
concerning company names. Usually, a suffix such as "Inc." or
"Ltd" must be used to show that the entity is a company. Also, some
words that could confuse the public, such "government" or
"church" cannot be used or must be used only for specific types of
entities. Words that are offensive or heinous are also usually prohibited.
Purpose
of the Company
The reason for the creation of the company must
also be stated in the articles of association. Some jurisdictions accept very
broad purposes, for example "management" while others require greater
detail ("the operation of a wholesale bakery").
Share
Capital
The number and type of shares that comprise the
company's capital are listed in the articles of association. There will always
be at least one form of common shares and there may be several types of
preferred shares as well. The company may or may not issue the shares, but if
they are found in the articles of association, they can be issued if and when
the need presents itself.
Organization
of the Company
The legal organization of the company, including
its address, the number of directors and officers, the identity of the founders
and original shareholders is found in this section. Depending on the
jurisdiction and type of business, auditors and legal advisors of the company
may also be in this section.
Shareholder
Meetings
The provisions for the first general meeting of
shareholders and the rules that will govern subsequent annual shareholder
meetings, such as notices, resolutions and votes are laid out in detail in this
section.
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