An Article of Association along with the Memorandum of Association forms the constitution of a company which defines the framework of a company.
However, as per the new legislation, the articles of association will become the single constitutional document for a UK company and will cover majority of roles which was previously defined under memorandum of association.
Since a company is an incorporated body so there has to be some governing rules and regulations to ensure its smooth functioning, both internally and on external level.
Apart from defining rules and regulations, an Article of Association also defines the roles and responsibilities of the directors, the kind of business that company will be dealing with and the means by which the shareholders exert control over the board of directors.
An Article of Association, also known as AoA, is a very important document which is filed with the Registrar of the Companies and can cover a wide range of topics, such as:
Since articles of association form such an important and indispensable part of a company, its directors and company secretary should be well versed with the same for them to perform and act within their defined roles.
A timely and regular review of the same adds to the smooth functioning of the company because in today’s dynamic and ever-changing environment, some clauses may no longer be useful and thus they need to be replaced with the new ones, if applicable.
So, if the article of association is being timely reviewed and updated wherever required, the company will be able to strike off perfect balance between the needs of its directors and shareholders because its timely update will ensure that the former get the right powers to run the company whereas the interests of the later remains well protected.
An article of association is submitted during the incorporation of the company and it is filed with the Registrar of the Companies.
However contents the articles of association is not set in the stone and if after few years of running your business, if you wish to make certain changes in the same, you can do so by following the defined process for the same. However, as a company, you are binded by certain restrictions on your ability to do so, such as:
Once a legitimate need to update or modify the existing articles of association is identified, you can go ahead and implement the same by:
So once the need and required modification in the existing article is identified, you have to follow below mentioned steps to incorporate the suggested or required change, such as:
While it may sound easy to incorporate any change in the defined articles of association, it is quite a painful task when it comes to practice. Apart from time and effort it demands, it is quite cumbersome to seek frequent approval of shareholders every time you wish to incorporate any change in the articles. For the same reason, it is always a better practice to have a regular review of the articles of association so that all the required changes can be done in one go rather than doing it every now and then and it also helps you to schedule general meeting well in advance for special resolution.
Any questions? Schedule a call with one of our experts.
Sumit Agarwal Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.
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