What Are Articles of Association?

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What Are Articles of Association?

Articles of Association are internal documents and rules to specify the regulations for a company's operations and define the company's purpose. It outlines how tasks are to be accomplished within the organization, including the process of appointing directors and handling financial records.

Key Takeaways

• Articles of Association define a company's purpose and outline the methodology for day-to-day tasks.
• The "articles" typically include provisions on the company name, its purpose, share structure, and the company's organization.
• Articles of Association are often called "articles" for short in the U.S. and Canada.

What the Articles Include

Articles of Association identify how a company issues shares, pays dividends, audits financial records, and provides voting rights. This set of rules can be considered a user's manual for the company. The content varies from jurisdiction to jurisdiction but this document holds a similar format globally and commonly outlines:

• Company Name: As a legal entity, the company must have a name that can be found in the articles. Usually, a suffix such as "Inc." or "Ltd." must be used to show that the entity is a company. Some words such as "government" or "church" cannot be used or must be used only for specific types of entities.
• Company Purpose: The reason for the company must be stated. Some jurisdictions accept broad purposes like "management," while others require greater detail such as "the operation of a wholesale bakery," for example.
• Share Capital: The number and type of shares that comprise a company's capital are listed in the articles of association. At least one form of common share makes up a company's capital. In addition, there may be several types of preferred shares.
• Legal Organization: The legal organization of the company, including its address, the number of directors and officers, and the identity of the founders and original shareholders, are found in this section.
• Shareholder Meetings: The provisions for the first general meeting of shareholders and the rules that govern subsequent annual shareholder meetings—such as notices, resolutions, and votes—are detailed in this section.

A company may or may not issue shares, but if they are found in the articles of association, they can be issued if needed.

Small Business Example

A person, or group of people, starting a business will typically refer to a lawyer, accountant, or both for advice when setting up a company. The company will choose a name and define its purpose. The company is then registered at the state or federal level.

A company may issue shares to divide the company but it doesn't need to. The articles lay out how this can be done. The lawyer or accountant will typically work with the company directors to define how they structure the company.

The articles include the company directors, along with their personal information and a business address. Changes can be made to the Articles of Association with director(s) approval.

How Do Articles of Association Differ From Articles of Incorporation?

Articles of Association are internal documents that define a company's purpose as a business, key information such as the name, and how shares are structured. Articles of Incorporation are formal documents filed with a government body to form a corporation legally. Articles of incorporation include the firm’s name, street address, agent for service of process, and the amount and type of stock to be issued.

What Are Articles of Organization?

Articles of Organization are legal documents used to establish a limited liability company (LLC) at the state level.

Who Creates the Articles of Association?

A company's founders typically create its Articles of Association. Because it is an important document addressing the company's management and finances, the creators do so in consultation with lawyers, accountants, or both.

The Bottom Line

Articles of Association define what a company is and how it operates. This includes fundamental information such as the company's name, its founders and original shareholders, the purpose driving the company, how shareholders meetings are conducted, and how directors are hired.

1. U.S. Small Business Administration. "Register Your Business."

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