Demystifying Articles of Association: A Simple Guide
When starting a company, there are various legal aspects to consider, and one of them is the “Articles of Association.” You might wonder what this document is all about and why it’s important. In this article, we’ll break it down in easy-to-understand language.
What Are Articles of Association?
Think of the Articles of Association as a manual that tells everyone, including the Registrar of Companies, what your company is all about. It covers the following key areas:
- Objectives of the Company: This section explains the main goals and purpose of your company.
- Rights and Obligations of Shareholders: It outlines the rights and responsibilities of the people who own shares in your company.
- Management and Administration: This part talks about how your company will be run and who will be in charge.
Why Do You Need It?
In Sri Lanka, the Companies Act No 07 of 2007 requires every company to create a set of Articles of Association when registering. When you submit these articles, the registrar gets a clear picture of your company’s structure, functions, and operational methods.
Now, let’s dive into how you can create your Articles of Association.
Content of the Articles of Association of the Company
Your Articles of Association will consist of various clauses that discuss essential aspects of your company. These clauses are divided into the following sections:
- The Company Name
- Object or the Purpose of the Company
- Shares and Shareholders
- Directors and Secretary
- Accounts, Audits, and Indemnity
When drafting your articles, make sure to cover all these topics. These are often referred to as “model clauses” because they must be included.
How to Draft Your Articles of Association
There are two ways to create your Articles of Association:
- Use the Model Set from the Companies Act: You can access a standard set of Articles of Association provided by the Companies Act.
- Draft Your Own: Alternatively, you can create your custom Articles of Association.
If you choose the model set, it will include what we call “model clauses.” Let’s take a closer look at these clauses and understand what each one is about.
Mandatory Model Clauses
- The Company Name: This clause is all about showcasing your company’s unique legal identity through its name. (read article about the company name)
- Object or the Purpose of the Company: Here, you explain why your company was created, its goals, and what it aims to achieve in the future.
- Shares and Shareholders: This clause details how shares are issued, and it explains the process for maintaining share records, share certificates, and transferring shares. It also covers rules for shareholder meetings.
- Directors and Secretary: This section provides information on the powers and duties of directors and secretaries. You can specify different types of directors and describe their appointments, removals, and conduct at meetings.
- Accounts and Audits: Here, you explain how your company will handle its financial records and audits, which are mandatory for running a company.
- Liquidation and Removal from the Register: In this clause, you outline how your company will be closed down, including the appointment of a liquidator and the distribution of assets.
- Miscellaneous: This section includes various details such as the documents to be kept by the company, the rights of directors and shareholders regarding these documents, the company’s name, and information about notices, insurance, indemnity, and modifications concerning private companies.
In summary, your Articles of Association are a vital part of establishing and running your company. They ensure that your company operates smoothly, and everyone knows the rules and procedures. So, when creating your company, don’t forget to include these mandatory model clauses in your Articles of Association.