Articles of Assocation is important to all registering companies and within this article, we will go through what exactly is an Article of Association and how a business can go about drafting it.
Articles of association is a document which outlines the purpose of the business and specifies a set of regulations on how the business will be run on a day to day basis. Articles of Association can be viewed as a legally mandated manual or a rule book drawn up for each and every business.
The Articles of Association is a very crucially important step when it comes to legally registering your business because it specifies the internal governance of the business and makes up a half of the business’s constitution. This is only valid if a business is being registered as a Limited Company (either Private or Public Limited).
Articles of Association and the Memorandum of Association together are considered as the bylaws of the company which they are expected to adhere to in its daily activities. Articles of Memorandum sets up the company while Articles of Association seeks to underline how the company is run, managed and governed. Further attention should be given to make sure that the Articles of Association and Articles of Memorandum are not conflicting with each other.
It could be said that the Articles of Association could also serve as a form of contract between the shareholders and the company. However, it should be noted that the company’s directors are not a party to the Articles of Association.
When drafting Articles of Associations, businesses can either draw up a completely new Articles from the ground up or use the format, given in the Companies Act, No. 07 of 2007, adapted to the specific needs of the business.
Either way, Articles of Association consists mainly the below clauses :
The company name - As a legal entity all businesses have a distinct name that it uses to distinguish its identity and activities from their owners. The name should be unique and unused (both nationally & internationally). There are certain restrictions imposed by the authorities that prevent you from using certain words or phrases in your business name such as Presiden(tial), National, State, Municipal, National & Society.
The Purpose of the Company - This outlines the reason for the company’s existence, the motives, what it stands for and what the goals & objectives of the company are. Company’s purpose could vary from each business to business where some are intended for profit, social wellbeing, or both. The purpose should be clearly defined and laid out within the Articles of Association.
The Organization - Includes legal details of the company such as the company address, the details of the initial shareholders, the details of the original founders, the number of directors & officers in the company, etc. There may be more requirements based on the size, type and the jurisdiction of the business.
Share & Shareholders - If it is a private limited or a public limited company, then these types of companies are involved in the issuance & distribution of shares on a periodic basis. Which means articles of association should outline the process used to issue shares, the sale of shares, types of shares, certificates of shares, the process of transfer and donation of shares. It could also outline how much of the business’s capital is financed by issuances of shares.
Meetings - This constitutes from the first ever meeting between the company’s shareholders and the directors to the annual general meetings that are to be held every year from the company’s incorporation. This further outlines proceedings, resolutions, notices, quorum, meeting minutes, separate bookkeeping and voting rights presented at the annual shareholder meetings.
Director & Secretaries - This clause gives information about the duties, responsibilities and authority of each managing director and executive directors. This also defines the appointment, terminations, appraisals, conduct and remunerations of the company’s directors.
Accounts, Audits & Indemnity - This is where the company’s accounting, bookkeeping and auditing practices are established in accordance with the country or judiciary regulations. A more important aspect of this clause is the determination of the auditing process as annual audits are mandatory for all types of businesses.
Winding Down - The Articles of Association also provides procedures related to how the company will handle its shutdown and the activities surrounding the winding down processes such as remaining debts, bonds, leftover profits and etc.
However, in addition to the above mentioned clauses, businesses should be aware of certain practices when drafting the Articles of Association. One such requirement is that all the clauses have to be agreed by all the shareholders unanimously. Furthermore, when companies decide to draw up their own or customize the given format, the Articles of Association should be in line with the Companies Act.
Down the line, the established business may want to amend the way the company is governed, may have altered the core purpose of the company, change in address or to comply with new regulatory changes, whatever the core changes are, they can reflect those changes with amendments to the original Articles of Association. However, the need for the changes and the changes itself should be concluded & approved by a General meeting held between the Directors and the Shareholders.
With the above factors lined up and outlined, a company now possess the ability to finally start compiling their own Articles of Association for its business. However this could be a gruelling and time consuming task where it could better off investing on the core activities of the business, therefore you can outsource the complicated process to us, Simplebooks, who is a registered company secretariat who have helped 1000s of companies to get their Articles of Associations approved. Contact us to put the wheels on motion with you focusing your attention on your new company.
