The Articles of Association can be thought of as a company’s rule book. Along with the memorandum, this is a document that is part of the company’s constitution. This paper offers internal details on the organization’s governance. These include shares (their issuing and rights), the conduct of company meetings, and the directors’ function and powers. The Articles lay out the principles that regulate director behaviour, shareholder rights, and the relationship between the two.
The articles of association describe how the business is managed, regulated, and owned. The articles can limit the company’s powers, which might be important if shareholders seek assurance that the board of directors will not take specific actions without shareholder permission. The Companies Act 2006, on the other hand, grants a business infinite rights by default.
In addition to the articles, which are public, the shareholders may sign into a shareholders’ agreement to supplement the articles with information about the company’s operations, governance, and ownership that they prefer to keep out of the public realm.
The articles of association must include provisions regarding the following:
1) Business name
The phrase must be included in the name of a private limited liability business. The names in other languages must be stated in the articles of association if the firm plans to utilise its company name in two or more languages.
2) The company’s headquarters are in a Finnish municipality.
A firm can operate in many locations, even abroad, but its registered office can only be in one Finnish municipality. The registered place of business is important because general meetings of shareholders must normally be held in the municipality of the company’s registered place of business, and any legal actions against the company must be brought in the court of the municipality in issue (forum domicilii).
3) The business’s field of operation
The word “field of activity” refers to the various areas in which a firm conducts business. The company’s scope of operation can be any activity that can be legally pursued in the form of a limited liability corporation. A business can operate in multiple industries, but they must all be registered. Although the regulation is vague on how precise the scope of activity description must be, inexact and overly broad definitions should be avoided. When evaluating the capacity of the company’s organs to handle corporate problems, the definition of the scope of activity has legal relevance. Furthermore, when analysing the usage of firm assets, the field of activity is critical. A general field of activity might also be included in the field of activity. Too limited definitions of the sphere of operation might result in additional costs and hassle, as expanding the company’s activity necessitates amending the articles of association and registering the modifications with the Trade Register.
In addition, the articles of association may include the following provisions:
4) Investment capital
A private limited liability company’s share capital must be at least 2,500 euros. The minimum share capital requirement for a public limited liability company is 80,000 euros. The share capital can be expressed as a definite sum or as a range of values between minimum and maximum. If the share capital has been set as a minimum and maximum amount, it can be increased or decreased within these limitations without having to change the articles of organisation.
5) Nominal value and share count
All shares must have the same nominal value if the nominal value is defined in the articles of organisation.
6) The minimum and maximum numbers of members of the board of directors and auditors, as well as possible deputy members. The articles of organisation may specify the number of members of the board of directors and auditors, as well as possible deputy members and their terms of service. The number of members can alternatively be expressed as a minimum or maximum. Unless the National Office of Patents and Registration of Finland allows the firm permission to deviate from this criterion, at least one member of the board of directors must have his or her place of residence in the EEA. Natural or legal people who are legally incapable or bankrupt are not permitted to serve on the board of directors. Special requirements regarding the eligibility of a board member and a deputy member may also be included in the articles of organisation.
There could be multiple auditors. The Auditing Act [5.1.7 Audit] regulates an auditor’s competence. If only one auditor is chosen and the auditor is not an auditing KHT or HTM firm approved under the Auditing Act, at least one deputy auditor must be elected as well.
7) Notice of a general meeting of shareholders
The means and time for giving notice to the annual general meeting of shareholders may be specified in the articles of organisation. The notice can be given in a variety of ways, including a newspaper announcement or a written notice delivered to the people listed in the share and shareholder registers. The notice must be issued in private limited liability companies no later than one week prior to the date of the general meeting, or the special date of registration stated in the articles of association, and no earlier than two months prior to the date of the general meeting or the registration date, unless otherwise specified in the articles of association.
8) The annual general meeting’s agenda
The annual general meeting’s agenda may be specified in the articles of association. The agenda must include include items that must be discussed at the annual general meeting under necessary legal obligations.
9) The company’s accounting period
According to the Auditing Act, the company’s accounting period can be a calendar year or any other twelve-month term. When a company’s activity is started or stopped, or when the time for financial statements is changed, the accounting period may be shorter or longer than this. The accounting period can last up to eighteen (18) months.
10) Additional provisions
The Limited Liability Companies Act gives a number of legal options, each of which needs the incorporation of additional provisions into the articles of association. If the firm wants to gain legally from the alternative, regulating the topic in the articles of association is usually required. For example, if the topic is not indicated in the articles of organisation, a redemption right does not correspond to a share (a so-called redemption clause). However, including such provisions in the articles of organisation is absolutely optional. Its application is contingent on the company’s desire to use the legislatively mandated alternative.
11) Additional provisions
In addition to the necessary elements, the shareholders may include extra terms in the articles of association at their discretion. Other clauses may not, however, contradict the Limited Liability Companies Act’s mandatory principles, such as limiting the transferability of shares in a method other than through a redemption or consent clause as required by law. These optional provisions may cover, for example, the following topics: # appointment of a managing director # method of calling the general meeting; # nomination of the general meeting chairman or election of a director of the board; # minimum attendance at the general meeting; # expansion of the scope of the general meeting’s tasks to include, for example, decisions on transfers of fixed assets or mortgages on floating charges; # determination of the majority requisitionEntrenchment
The articles of incorporation may include measures for entrenchment. The Companies Act of 1956, on the other hand, does not include the idea of entrenchment. The phrase entrench refers to firmly establishing an attitude, habit, or belief to the point where modification is difficult or impossible. As a result, an entrenchment clause is one that prevents or makes difficult certain modifications.
In its articles of association, the firm has the option to insert entrenchment measures. Such a clause could say that certain provisions of the articles can only be changed if certain requirements or procedures are met or followed, which are more stringent than those that apply in the event of a special resolution. An entrenchment provision can be made at the time of the company’s incorporation or afterwards by amending the company’s articles of association.
The format for a company’s articles of association must follow the guidelines set forth in Schedule I of the Companies Act, 2013.
The articles of association of a public limited company are usually prepared with the help of experienced advisors and are meticulously prepared from the start. Only private limited businesses must pay attention to the following while creating their articles of association:
1. Section 5 of the Companies Act of 2013 establishes the model articles of incorporation. It is important to recall that when the term “preparation of articles” is used when a company is formed, it simply refers to the adoption of the model articles as specified by the act, with a few alterations as the promoters may require.
2. The promoters must make every effort to avoid making any additions, revisions, alterations, or deletions to the model articles given by the act. This is due to the fact that Schedule I of the Corporations Act, 2013, from table to table, contains forms for articles of various types of companies. As a result, the model articles almost always contain the needed content for a certain company. Additions or changes must only be made if a new regulation in the articles of association is required for the company’s promotion or if a new regulation is required for the company’s promotion.
3. Any additions, revisions, or alterations to the model articles shall be done in accordance with the provisions of the Companies Act of 2013.
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