Definition: An article of association is a legal agreement between two or more parties that governs how they share information, services, assets, liabilities, revenue, expenses, profits, assets in various business capacities, rights and duties, and ownership of the real estate, vehicles, vessels, aircraft, and other assets.
Articles of association may provide general guidance on the business’ rules and requirements, thereby facilitating the smooth operation of the joint venture. The document outlines the responsibilities of each party in the business relationship, including employees, subsidiaries, contractors, and vendors.
The articles of association are what establishes a legal and commercial relationship between an organization and its members. They set out the specific rules, regulations, and conditions that every member must adhere to work for the company. The purpose of the articles of association is to promote business efficiency and member loyalty by encouraging the efficient and effective management of affairs by clearly defining responsibilities, focusing resources, facilitating communication, and Setting the Standards for Work Performance.
Although the purpose of the articles of association may vary, there are typically provisions related to (i) Identification of common ownership interests; (ii) The election of officers; (iii) Definition or designation of the register of members; (iv) Notification requirements for non-compliance issues; (v) Payment of membership fees and interest; and (vi) Duties of members about the company. The articles may also contain references to other common elements such as regional members, events, trade names, and trademarks, indicating the nature of the pieces created last.
An article of association is a document by which a particular person, partnership, or company is regarded as being in good standards with the community of industry and trusts. This status provides certain rights and benefits, including the right to issue shares of stock in the company and vote on important matters.
A typical article of association should contain:
- Company Name
- Purpose of the Company
- Share Capital
- Organization of the Company
- Shareholder Meetings
In a nutshell, articles of association are contracts between an entrepreneur and his or her investors, lenders, or other stakeholders. At the same time, they may at first seem like little more than a legal framework. In actuality, they form the heart of any successful business plan. In other words, they should not be broken or ignored without proper review. An effective article of association establishes the relationships between all parties involved so there can be peace of mind while operating and eliminating potential problems down the road that could compromise your business goals.