Definition of Articles of Association
The Articles of Association (AoA) is a document that governs the running of a registered company. It sets out the voting rights of shareholders, conduct of shareholders’ and directors’ meetings, and powers of management, among other regulations. When a company applies for incorporation, the AoA is typically submitted alongside the Memorandum of Association or the relevant model articles contained in the Companies Regulations are adopted. The AoA constitutes a binding contract between the company and its members, but it applies solely to the rights of shareholders in their capacity as members. Directors or company solicitors, for example, cannot enforce their rights through the AoA. The articles of a public company may be altered by a special resolution of the members in a general meeting or by a written resolution.
Examples
Example 1: Voting Rights
The AoA may specify that each share entitles the shareholder to one vote at general meetings. This voting right is fundamental to influencing major corporate decisions such as electing the board of directors.
Example 2: Director’s Powers and Duties
The AoA might outline the specific powers granted to directors, including the authority to make investments, enter into contracts on behalf of the company, and oversee the day-to-day management of the business.
Example 3: Conduct of Meetings
The AoA often includes procedures for conducting shareholder and board meetings, such as quorum requirements (minimum number of attendees required for a valid meeting), notice periods, and the format of minutes.
Frequently Asked Questions
Q: What is the difference between the Articles of Association and the Memorandum of Association?
A: The Memorandum of Association outlines the company’s external relations, including the purpose of the company and its initial shareholders, while the Articles of Association detail the internal governance and operational rules of the company.
Q: Can the Articles of Association be changed?
A: Yes, the articles can be amended by a special resolution passed at a general meeting of the shareholders or by a written resolution.
Q: Do the Articles of Association apply to directors and company solicitors?
A: The AoA apply mainly to the rights and obligations of shareholders as members. Directors and company solicitors cannot enforce their rights under the AoA.
Q: Who drafts the Articles of Association during company formation?
A: The articles are usually drafted by the founders of the company, often with the assistance of legal advisors or company secretaries to ensure compliance with the regulations.
Q: Are the Articles of Association public documents?
A: Yes, when a company is incorporated, it typically submits the AoA to the relevant regulatory authority, where they become public record.
Related Terms
Memorandum of Association
A legal statement signed by all initial shareholders (also known as subscribers) agreeing to form the company. It sets out the company’s name, purpose, registered office, and capital.
Special Resolution
A shareholder resolution that requires at least a 75% majority vote to pass. It is typically used for significant changes like altering the Articles of Association or approving major transactions.
Written Resolution
A resolution passed by shareholders without a meeting, by having them sign written copies of the resolution. It is commonly used for smaller companies or matters not requiring a meeting.
Quorum
The minimum number of members required to be present at a meeting to make the proceedings valid. The quorum is usually specified in the Articles of Association.
Online Resources
- Companies House (UK) - Guide on Articles of Association
- Harvard Law School Forum on Corporate Governance - Articles of Association
- Investopedia - Articles of Association Definition
Suggested Books
- “Company Law” by Alan Dignam and John Lowry: This comprehensive guide covers all aspects of company law, including the Articles of Association.
- “Blackstone’s Statutes on Company Law 2021-2022” by Derek French: A reliable collection of statutes and key regulations relevant to company law.
- “Business and Company Law” by Denis Keenan and Sarah Riches: A useful resource for both students and practitioners on the principles guiding company law, including governance rules encapsulated in the AoA.
Accounting Basics: Articles of Association Fundamentals Quiz
Thank you for exploring the concept of Articles of Association with us. We hope this detailed guide has provided clarity and deepened your understanding of this essential company governance tool!
