What are Articles of Association?

What are Articles of Association? A corporate governance education guide to this crucial collection of documents that ultimately underpin entire corporate structures.

A company’s Articles of Association are a set of documents that lay out its purpose as well as the core rules that will govern how it operates. With this in mind, the Articles will almost always lay out basic rules for directors, from how they acquire their board seats to their fundamental decision-making powers. It’s important, therefore, for directors to be familiar with what’s written in their company’s Articles of Association.

Articles of Association are commonly considered foundational documents for the business.

From one viewpoint, they’re a contract between the company’s decision-makers and its owners (shareholders, in the case of a public company). From another viewpoint, they’re a “user manual” for the company’s leaders, explaining how they carry out their roles, what rights they have, and how they should carry out vital processes like shareholder meetings.

1. Basics about the company: official name, registered address.
2. Core rules for directors: how they’re hired and fired, the scope of their powers, and any remuneration.
3. Core rules for shares: a breakdown of specific classes, valuation and transfer.
4. Core rules for shareholders: their rights, their opportunities to vote (either in person or by proxy), meeting schedules and details on quora.
5. Core rules for finance and admin: the company secretary’s role, dividend specifics, accounts procedures and external audit processes.

Yes, a company can change its Articles of Association. It’s important to be able to do so, as companies change over time, and their foundational documents need to change with them.

The process of changing Articles can vary by jurisdiction and company, but the general rule is that such a change will involve a proposal and review involving the board, then a communication to shareholders (or investors/stakehholders etc depending on the company’s ownership structure), then a vote, then a filing of the new Articles with the relevant regulator, assuming the vote is successful.

Reasons for changing the Articles of Association include an upcoming IPO, a shift in strategy prompted by external market factors, or a merger.

The articles and the memorandum of association are required documents in many countries.

The company secretary and directors must sign them. They are vital when it comes to investor relations and the stock market.

They are also a good place to set out regular goals for the organisation.

The articles may also be needed when setting up a company bank account or applying for business loans.

Until the articles of association have been filed, the company will not be considered an official company.

Technically, no. In practice, they are both sets of foundational documents, crucial to laying out how a company will be run. However, they are distinct from each other in a legal sense. The difference often lies in the country you’re operating in.

Jurisdictions that commonly require you to file documents called “Articles of Association” are usually connected to the UK legal system, either currently or through historic ties. So, it’s required in the UK itself, India, and Ireland (in some cases).

In contrast, the US and Canada will often require “Articles of Incorporation” – not “Association”. They are usually filed at the state/provincial level rather than federally/nationally, alongside another document called “Corporate bylaws”.

Confusion often arises between the above three terms because they cover a lot of the same material. As a director, the important thing is to know the rules of your jurisdiction and what your documents ought to contain.

Companies must keep a copy of the articles at their registered office address. There should also be a copy of them held on public record at the company’s registration office.

The articles act as a contract between the company and its shareholders. This is a binding agreement between parties, and changes can only be made via a special resolution, which is agreed by a pre-defined percentage of shareholders or voting power – usually quite a large percentage to demonstrate extensive support for the measure.

As mentioned, the articles bind the company and its members. If a company should breach the articles, then members can take action to restrain the company.

For example, by signing the articles, the members agreed that any monies owed to the company are considered debts and the articles can be used to enforce payment.

They are binding between members in that they govern how and when members should inform each other of their intention to transfer shares.

However, they are not binding in terms of outside parties who are not included in the agreement.

Alterations to the articles must not be illegal or against public policy, and they cannot be inconsistent with a court order. They must not be fraudulent, and they must not increase the liability of members. In summary:

• Articles of Association are rules that govern the company, and which shareholders and directors have agreed on.
• The articles outline the managerial and administrative structure and responsibilities of the business and include information on the rights of shareholders.
• Although a company can change its Articles of Association, a special resolution will be needed where a majority of shareholders must vote on the change.
• The articles are essential documents that set out the company’s rules and are vital when it comes to investing and the stock market.
• They also set out how shares can be transferred and other fiduciary duties.
• The articles are a binding legal document between shareholders and directors, but not outside parties.

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