Before any organization can get to work on its overall objectives, senior leadership figures must provide a solid foundation that ensures the business operates effectively while maintaining full compliance with current regulations. Part of that foundation is to create the articles of association. These articles define much of how your company conducts business and are a crucial element in demonstrating sound corporate governance to shareholders, employees, and other interested parties.
Read on to learn more about the importance of the articles of association and some advice on how to write articles of association that cover all your bases and give your organization a platform for building sustainable processes.
What Are Articles of Association?
Articles of association are a legal document that outlines the rules and regulations governing the operations of a company. Articles of association are a key part of a company’s constitutional documents. Broadly, articles of association detail and outline the company’s structure, roles and responsibilities of its directors and shareholders, and how the company will be managed.
Often referred to as simply “articles,” these documents explain how internal management and administrative officials should conduct their business and detail the relationship among the company, shareholders, directors, and other stakeholders. This gives the organization an overall clarity of purpose for how to proceed during general meetings, distribute dividends, and transfer the ownership of shares. Ultimately, this promotes greater transparency and leads to a more coherent decision-making process.
The articles of association are a combination of several documents such as the articles of incorporation, operating agreement, and corporate resolutions that establish a company’s organizational outlook.
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Components of Articles of Association
The format of the articles of association can differ between organizations depending on their preferences and needs (here are five articles of association templates if you want some visual examples), but the most common provisions include:
Company Name and Registered Office
The articles of association generally begin with the company’s name and registered office. The company name is the official title that the company is recognized by in all its business dealings. The name must avoid being identical to any other existing company’s name to prevent confusion and legal complications.
The registered office is the official address of the company and is used as the delivery destination for legal notices, communications, and other documents. The address is also used to explain where the organization is legally incorporated, which clarifies which regulations apply to the business.
Share Capital and Shareholders’ Rights
The share capital section provides a summary of the company’s financial structure by outlining the number of shares its capital is divided into and the maximum amount of capital the organization can raise through shares.
The shareholders’ rights section explains the extent of shareholder privileges and powers in regard to company decisions. This is done by specifying their voting rights, dividend entitlements, preemptive rights, and the process for transferring shares.
Board of Director Duties and Powers
This is where the organization defines the responsibilities and overall authoritative powers of the board to make decisions and dictate strategy for the company. This section may also include parameters to limit director power in the name of transparency and accountability and note how directors should act with other members of the organization to fulfill their roles in a reasonable and fair manner.
Shareholders’ Meetings and Voting Procedures
Most important discussions and decisions are made during shareholder meetings. This section of the articles details the operational procedures for different types of meetings, such as annual general meetings (AGMs) and extraordinary general meetings (EGMs). Some of the information listed here may include:
- The minimum notice period for convening a meeting
- The quorum of members needed to hold a meeting
- Voting procedures/voting rights
- The requirements for passing resolutions
Alteration of Articles and Decision-Making Process
The articles of association should provide a path to alter the document itself in the future. Changing the articles usually requires the approval of a special resolution passed by shareholders at a general meeting. In most cases, special resolutions need a higher threshold of votes to become official. This ensures that significant changes can only be made with broad support from a majority of shareholders.
Liquidation Process
The liquidation process section outlines the steps that will be taken if the company is dissolved. It includes provisions for the distribution of the company’s remaining assets among shareholders after all debts and liabilities have been paid. This section often details the appointment of a liquidator, the process for valuing and selling off company assets, and how the remaining funds will be distributed according to shareholders’ rights and priorities. This ensures clarity and fairness in the dissolution process, protecting the interests of all stakeholders.
How to Write Articles of Association
Follow these steps to write articles of association:
1. Understand Legal Requirements and Company Type
Before you start writing the articles of association, it’s best to be informed of the legal requirements that concern your company. Understanding the depth of regulations in your industry and local laws will help you avoid making any mistakes in the formation of your organization and remain compliant with all regulations going forward.
2. Draft the Purpose and Structure
Why does your company exist and what do you want to accomplish? If you don’t have a straightforward answer to these questions, then it will be tougher for your company to make consistent progress toward any goals. The same line of thinking applies to the management structure of your organization. Without a clear hierarchy, your decision-making process will be muddled and complications will ensue.
3. Define Share Capital and Rights of Shareholders
Specify the company’s share capital, detailing the number of shares, their value, and the rights attached to each share. Outline the rights and obligations of shareholders, including voting rights and dividend entitlements.
4. Establish the Roles and Responsibilities of Directors
When board members have plain definitions for their roles in company operations, they can make better decisions and work more efficiently. Establishing their responsibilities also means that board members will be more purposeful when they have the opportunity to collaborate on projects or discuss pertinent topics.
5. Set Guidelines for Meetings and Resolutions
Outline the procedures for calling and conducting meetings, including the types of meetings, notice periods, quorum requirements, and the process for passing resolutions. This ensures transparency and consistency in company operations.
Getting Started With OnBoard
Compounded together, the articles of association form the backbone of a company’s internal governance and serve as a crucial document in its legal framework. Complying with the articles is essential for a public and private company’s smooth functioning and ensures all stakeholders know their rights and responsibilities.
Board management software gives your team the platform to draft, distribute, and execute your articles of association thanks to numerous features that facilitate communication and teamwork.
Some of the features that make OnBoard stand out include:
- Agenda Builder: This allows users to easily create and customize meeting agendas, ensuring all relevant topics are covered.
- Secure Document Collaboration: We provide a secure platform for directors to access meeting materials and collaborate in real-time, reducing the need for paper-based documentation. Write articles of incorporation and other documents faster by reviewing files together.
- Voting and Approvals: OnBoard enables digital voting and approval processes, making it easier for directors to participate in decision-making, even remotely.
- Meeting Analytics: We offer valuable insights and analytics on meeting attendance, participation, and engagement, helping your board of directors improve their effectiveness.
OnBoard has plenty of expertise in this arena and we are more than willing to help your company find the right software for your needs. Our vendor comparison worksheet provides a list of features one should look for when evaluating potential options and lays out other factors to consider when searching for the best board management platform on the market.
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About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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