Articles of Association

Articles of Association (AOA) refer to a document that contains all pieces of information relating to the company in formation. From the type, nature, and purpose of the business to its appointment process and financial reporting procedures, the AOA covers everything. In short, this set of credentials acts as a guide and ready reference for all external and internal stakeholders.

It is the rule book of any company that covers the regulations, and operational guidelines to follow within the organizational premises to achieve the business goals and objectives. In addition, the articles are different from the Memorandum of Association, which defines the business objectives and the conditions of the company's formation.

• Articles of association form a document that companies must file with the government to enjoy a legal status in the corporate sector.
• It acts as a user manual for the corporate entities in the event of doubts or questions regarding the standard rules and regulations to be followed.
• Company details, purpose, duration, share capital, power distribution, shareholder meetings, and company organizations are some of the AOA contents.
• While AOA helps companies operate per the rules and regulations to achieve the goals, the memorandum of association (MOA) lists those objectives.

The articles of association constitute a set of guidelines that companies and their staff members, from board of directors to executives, need to follow. Every company should have an AOA as a guide to refer to before making any minor or major business decision. Whether companies want to know the process of appointing a director or executive or they are to decide the number of shares to issue, going through this document helps them proceed in a sequence.

There are default standard formats or model articles of association that most companies use. However, the businesses have the liberty to make changes in the same as per their individual company requirements. The model articles provide a base for the small companies to which they make further changes during the incorporation process. Furthermore, the Company Act 2006 offers different model AOAs for businesses set up in the UK, which apply to the private companies limited by shares and guarantees, and public companies limited by shares (PLCs).

In the AOA, the companies include all pieces of information, like the rights of the employees from directors to executives, limited liability members, the decision-making protocol, the powers and duties of the directors, their appointment process, the steps to approve and issue dividends, the requirements of the general meetings and board meetings, voting rights, etc. 

Above all, filing the AOA with the government and getting it approved by the authorities is important as it makes the business entities enjoy legal status in the corporate industry.

The contents of articles of association vary from company to company, given their requirements. However, there are some of the aspects that are covered in all AOAs being filed with the government for approval. 

#1 - Company Details

The first one is the details of the company. All basic information is provided under this separate section of the AOA, from the name of the entity to the name of the incorporators and their addresses. As far as the company's name is concerned, every government has a different format that the corporate entities need to follow. Thus, they must name it per the standards.

#2 - Purpose

When a business is incorporated, it is done with a purpose. The AOA has this section for the incorporators to mention the business goals. It is an important segment of the document, which the government authorities look into in detail. Thus, the owners must outline how the business would carry out the day-to-day tasks.

As the operational aspect of the company is likely to be noticed with much attention, this section keeps everything clear. This, in turn, shows the clarity in the incorporators' minds, which makes the document easy to read and understand for further approval from the authorities.

#3 - Duration

The duration of the purpose or company formation also requires specific mention. Some entities form themselves for a specific reason, and once that is fulfilled, they pull it out. Here, the companies mention whether the incorporation is seasonal or for one particular objective for a limited period, or permanent. 

#4 - Power Distribution

Delegation of power is necessary for companies if they aspire to run in an organized manner. Hence, they have a hierarchy of staff from the management to anyone working there. The distribution of powers is the section that deals with this aspect of incorporation. The hierarchy-wise roles and responsibilities of individuals are mentioned in this segment.

#5 - Company Organization

The AOA gives details about the number of employees and directors, along with other information related to the company's organization. In addition, the details of the shareholders, founders, investors, auditors, etc., are found in this section. 

#6 - Share Capital

The rights they all enjoy in the company are briefed herein. Thus, the AOA lets the authorities understand the management of the share capital by the companies. Also, it includes the information regarding the alteration that occurs in the share capital, calls on shares, shareholders' rights, voting rights, preference shares, etc.

#7 - Shareholder Meeting

This section contains the requirements of the general or director meetings. In addition, the rules that govern the annual meeting of shareholders are found here, along with the notices, resolutions, and votes.

AOA helps companies have a rule book to refer to whenever they require it. The document acts as a user manual that guides every employee in case of minor or major queries as it contains all rules and regulations that all management and employees must follow.

When businesses prepare the AOA, it is easier for them to apply for different loans for approval. Plus, they can have a new business account opened instantly. In addition, this document makes the government recognize the entity as a corporate player, and it gets legal recognition in the region it operates and beyond. Furthermore, the AOA keeps the personal assets of the incorporators separate from their business assets.

Here is the articles of association sample for example:

SOURCE

Memorandum and articles of association seem and sound similar, but they differ widely. Though both these documents are necessary for companies to have during their incorporation, the owners hardly understand the difference between them.

While a memorandum of association specifies the objectives and conditions of the formation of the business, articles of the association form the rules that govern the operational aspect fit for the organizations to achieve the set goals.

So, let’s have a look at the differences in a tabular form below:

This is a guide to what is Articles of Association & its meaning. Here we explain its mechanism, contents, sample, importance & differences with MOA. You can learn more about financing from the following articles –

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