What are Articles of Association?

Every organization has articles of association, whether they realize it or not. They are simply the basic internal rules of operation for a business or non-profit organization that govern what tasks need to be done, what positions are required to perform the necessary functions, and how the processes in place are to be performed.

Often, articles of association deal with such operating issues as the calling of general meetings and the process for appointing and selecting directors and managers within the organizational structure. These rules also address how the company will go about issuing shares of stock, paying dividends to investors, and how and when audits on the financial records will be conducted.

One of the strengths of the articles of association is that the focus is on the content, rather than the form. They may include organization charts, escalation procedures to handle the hiring process for upper level executives, process charts showing the orderly process of providing goods and services, and a simple flow chart for basic accounting procedures such as payables and receivables. Normally, there is a great deal of flexibility in the way the information contained in these rules can be structured. However, it is important to remember that in order to register the company to do business in one or more countries, there must be formal articles of association in place, and they must address at least the minimum issues required by the governing laws of the country.

One of the easiest ways to prepare articles of association is to simply think in terms of the day-to-day operations of the company, and define what has to happen, and what positions are responsible for keeping the process moving along. Using this information as a foundation, it is then easy to think in terms of what process needs to be in place to provide proper communication to investors of the company and how to go about replacing top level executives and managers in the event that a change is required. What will normally emerge is a document that is somewhat detailed, but also a very common sense presentation of the business purpose of the company.

Not for profit organizations can also benefit from the preparation of articles of association. Many countries around the world require non-profit entities to provide these articles before registering for operation in the country. This is true even in the case of not for profits such as religious organizations. In actual practice, the preparation of such guidelines simply makes sense, as the documents help to ensure the efficient function of the non-profits, making it easier for the organization to accomplish more with the resources available.