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Articles of association are a document that specifies the regulations for a company's operations and defines the company's purpose. In some countries, they are also referred to as articles of incorporation. Along with the memorandum of association, if any, they make up the company's constitution.
The articles of association cover various topics related to the company's governance, such as:
- Share issuance and transfer, covering share types and classes, dividend policy, and intellectual property valuation
- Directors' selection and removal, as well as their duties, authority, and compensation
- The way shareholder meetings are run, including the quorum requirements, voting rights, and resolutions
- Management of the business affairs of the organization, including delegating authority, auditing financial records, and amending the articles
The articles of association are crucial because they clearly and transparently state how the company runs and what its goals are, which is vital for both internal and external stakeholders. They aid in complying with the laws of the country where the company is incorporated, as well as defending the rights and interests of shareholders and directors.
The articles of association may vary depending on the size, nature, and complexity of the company, as well as the specific laws and regulations of each country. However, some common components that are usually found in most articles of association are:
- Company name and form of business: The company must have a unique and distinguishable name that indicates its legal status (e.g., Ltd., Inc., etc.). Some words that may confuse or mislead the public (e.g., government, church, etc.) may be prohibited or restricted.
- Purpose of the company: The company must state its main objectives and activities, which may be broad or specific depending on the jurisdiction. Some jurisdictions may also require the company to state its social or environmental impact or contribution.
- Share capital: The company must specify the number and value of shares that it can issue, as well as the types and classes of shares (e.g., common, preferred, etc.) that have different rights and privileges (e.g., voting, dividend, etc.). The company must also state how shares can be issued, transferred, forfeited, or redeemed.
- Directors: The company must state how directors are appointed, removed, and replaced, as well as their qualifications, duties, powers, and remuneration. The company must also state how directors' meetings are held, including the frequency, notice, agenda, quorum, voting, and minutes.
- Shareholders: The company must state how shareholders' meetings are held, including the frequency, notice, agenda, quorum, voting, resolutions (ordinary or special), proxies, and minutes. The company must also state how shareholders can exercise their rights and obligations (e.g., inspecting records, receiving dividends, etc.).
- Management: The company must state how the company's affairs are managed by the directors or by other authorized persons or committees. The company must also state how the company's financial records are kept and audited, as well as how the articles of association can be amended or altered.
