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Why Articles of Association is Important for Your Business

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Why Articles of Association is Important for Your Business

Why Articles of Association is Important for Your Business

The Articles of Association  (AOA)  of a corporation is a primary statement of the nature,  purpose and objectives of the company, which together with the Articles of Association form the corporation’s Articles of Association. This must be submitted at the time of the association application. It clearly defines the responsibilities of the directors, the nature of the business to be transacted and how the shareholders exercise control over the board. It not only defines the regulation of the company but also defines the purpose of the company. This is one of the important and mandatory documents for any company. Hence a company or entity must possess Articles of Association. In this article, we will thoroughly discuss importance of Articles of Association which will give you an overview of the respective document that is Articles of Association. 

What is Articles of Association?

Articles of Association that is commonly known as AOA is a document which regulates the operations of the company. It defines the purpose and objective of the company to the public and to those who are interested in the company.  Through this document one can understand how tasks are going to accomplish in a company. This defines many things like how company is going to appoint its directors, preparation of the financial records, management of the financial records etc. 

Articles of Association must have all information like on whom has the distribution of power among directors, officers, shareholders, etc., who has voting and veto rights, and how the main business of the company is carried out will be carried out. the company’s internal corporate governance structure, the means of internal control by which managerial decisions are made, the bodies ultimately empowered to make such decisions as a last resort, the process and the number or percentage of votes cast, necessary to determine a majority and make some important decisions, etc. In addition, the rights and obligations of the shareholders, their names and number and other details related to the contributed share capital are included. 

Importance of the Articles of Association

Given below are some points which explains the importance of the Articles of Association- 

  1. Binds the Members 

The Article is not only binding on existing members, but also on future members who may join company in the future. The hiring of partners, legal successors and legal representatives is also subject to the provisions of the article. The Articles of Association bind the company and its members from the moment they sign the document. It is a contract between society and its members. Members have certain rights and responsibilities to the Company,  and the Company has certain responsibilities to its Members. At the same time, the company also expects some duties and obligations to be fulfilled by the member for the smooth operation of the company. 

  1. Gives Information About the Company 

The goals and purpose of the company are determined in advance by the shareholders and the Articles of Association (AOA), if separated, the name of the company, its parent company, address and directors (founders) and the main objectives of the company for public disclosure. It cannot be changed except at an annual general meeting or extraordinary general meeting (EGM) and statutory assignment. The AOA is filed with a Registrar of Companies, which is a person appointed by the Department of Corporate Affairs[1]. For their security, shareholders can elect an auditor at each general meeting.  There can be both internal auditors (employees) and external auditors. 

  1. Roadmap for running a Company

Articles of Association act as a user manual for the operation of a company. These articles provide specific details about business operations and may include tasks such as preparing a financial report or appointing new directors of the company.  The Articles of Association are useful to business owners and employees because they provide a roadmap for running a company in everyday life and in general. Although the general idea of ​​the Articles of Association is similar in all sectors, there are differences from one company to another. When preparing association documents, things like company statutes, signing authority and even shareholder agreement information should be considered. 

  1. Ensures Goals of the Company

Companies can ensure that their charter includes all the necessary components,  as long as the bigger picture of day-to-day goals is taken into account. When it comes to investing and the stock market, the charter is crucial. Corporate lawyers help companies define how stocks and bonds are issued, dividends are paid,  and information is documented and shared inside and outside the company. These documents are also a great place for companies’ to start setting weekly, monthly, or yearly goals and find a specific way to reach them. 

  1. Important Legal Compliance 

The Articles of Association is required any time a new LLC is incorporated. Submitting this legal document is a mandatory step in starting a new business. Until the Articles of Incorporation are filed with the state, the corporation is not recognized as a legal entity. A corporation is not considered “official” until the  Articles of Association  is filed with the state. It is also not advisable to do business before you have created and filed them as these documents set the rules, regulations and guidelines for the day to day activities of the company. AOA documents ensure company employees can comply with these standards and avoid unnecessary roadblocks.  

Conclusion 

Articles of  Association is a formal document which needs to be filed to incorporate new companies. This document contain information such as company personnel data, share offering amounts and dividend payment information etc.  Articles of Association also define certain rules and regulations that companies follow on a daily basis to run smoothly. Without AOA one cannot form a new company. It is mandatory to take this document. It is one of the legal compliances which need to be fulfilling before stating a company. It is suggested to take professional help to form an Articles of Association in case you have confusion. You can also reach at Bizadvisors.io. as they have a very good team of experts who can help you to form Articles of Association.

Read our article:Do you want to start a business: know how?

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