What are Articles of Association?
An Articles of Association is an internal corporate document that sets the rules for how a company is governed and run. Think of it as the company’s operating rulebook: it states the company’s purpose, how management is appointed, how decisions are made, how financial matters are handled, and how shares (ownership units) are managed.
Key components (what the articles commonly include)
– Company identity: official name and, often, a brief description of the company’s purpose.
– Share structure: whether shares exist, classes of shares, and how they may be issued or transferred.
– Voting rights: who votes, how votes are counted, and meeting procedures.
– Director rules: how directors are appointed, removed, and what powers they hold.
– Financial controls: rules for preparing audits, keeping records, and distributing profits (dividends).
– Administrative details: company address for business records and other contact information.
Definitions of key terms (first use)
– Share: a unit of ownership in a company.
– Dividend: a payment made to shareholders from company profits.
– Audit: an independent review of financial records.
– Articles of Incorporation: a public registration document filed with government authorities to legally form a corporation (distinct from the internal articles).
– Articles of Organization: the state-level filing used to create a limited liability company (LLC).
– Agent for service of process: a person or office authorized to receive legal documents for the company.
How Articles of Association differ from Articles of Incorporation
– Articles of Association: an internal rulebook that describes governance and internal procedures.
– Articles of Incorporation (also called Certificate of Incorporation in some jurisdictions): a formal document filed with a government agency to create the legal entity; it typically records the company name, registered address, agent for service of process, and broad stock information. The incorporation document establishes the company in law; the articles of association govern its internal operation.
How Articles of Association differ from Articles of Organization
– Articles of Organization are the formation filing used for limited liability companies (LLCs) in many U.S. states. They play the role for LLCs that Articles of Incorporation play for corporations. Companies formed as corporations typically use Articles of Association for internal governance, while LLCs use an operating agreement (or similar) plus the Articles of Organization for formation.
Who prepares the Articles of Association?
Founders draft the articles, usually in consultation with legal and accounting advisors. Because the document governs management, ownership rights, and financial procedures, input from corporate lawyers and accountants is standard practice. After creation, the company registers or files whatever is required by the local regulator and adopts the articles as its internal rules.
Important practical points
– Jurisdictions vary: the required content and formalities differ by country and by state; always check local corporate law.
– Amendments: the articles can typically be changed, but changes usually require approval by directors and/or shareholders, and sometimes a specific filing with the authorities.
– Relationship to public filings: some information in the articles may also appear in public incorporation filings; other provisions remain internal.
– Legal effect: while internal, the articles are binding on the company and its officers and can affect shareholder rights and dispute outcomes.
Checklist: drafting or reviewing Articles of Association
– Confirm jurisdictional requirements (what must be included by law).
– Define company name and stated purpose.
– Decide whether to authorize shares; if so, specify classes and rights.
– Specify voting rules and shareholder meeting procedures.
– Set director appointment/removal procedures and director powers.
– Establish rules for financial records, audits, and dividend distribution.
– Include amendment procedure (how to change the articles later).
– Identify who will hold registered office and, where applicable, agent for service of process.
– Have a lawyer review for compliance with local corporation law.
Small business worked example (share issue and dividend)
Scenario: A startup is formed with 10,000 shares authorized. Founders allocate shares as follows:
– Founder A: 5,000 shares
– Founder B: 3,000 shares
– Founder C: 2,000 shares
If the company’s board declares a dividend of $20,000 to be paid pro rata (in proportion to shares held), calculate each founder’s dividend:
– Dividend per share = Total dividend / Total outstanding shares = $20,000 / 10,000 = $2.00 per share
– Founder A receives = 5,000 × $2.00 = $10,000
– Founder B receives = 3,000 × $2.00 = $6,000
– Founder C receives = 2,000 × $2.00 = $4,000
This example assumes: (1) all shares are the same class with equal dividend rights, (2) no retained earnings or legal restrictions prevent payment, and (3) board has authority to declare dividends under the articles.
Practical steps to adopt Articles of Association
1. Decide corporate form (corporation vs LLC) and jurisdiction.
2. Draft articles addressing the checklist items above.
3. Obtain legal and accounting review.
4. File required formation documents with the appropriate government agency (e.g., state or national registrar).
5. Adopt the articles at the first board or shareholder meeting and record the adoption in minutes.
6. Maintain copies and update procedures when amendments are made.
Sources for further reading
– Investopedia — Articles of Association: https://www.investopedia.com/terms/a/articles-of-association.asp
– U.S. Small Business Administration — Register Your Business: https://www.sba.gov/business-guide/launch-your-business/register-your-business
– UK Government (
– UK Government — Set up a private limited company: https://www.gov.uk/limited-company-formation
– Companies House — Guidance on company formation, filing and managing a company: https://www.gov.uk/government/organisations/companies-house
– Legislation.gov.uk — Companies Act 2006 (primary UK company law): https://www.legislation.gov.uk/ukpga/2006/46/contents
Disclaimer: This information is educational only and does not constitute legal, tax, or investment advice. For specific legal or financial decisions about articles of association, company formation, or dividend policy, consult a qualified lawyer or accountant.