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What is the article of association?

Many people are confused in the legal terms. Article of association is the requirement to incorporate a company. We have made it easier for you to understand the meaning of article of association.

Article of association

It is the document that includes the aim and rules of the company that is agreed by all the partners/proprietors/directors. It is a guide for the management of the company. It includes all the company affairs including hiring and finance. The article of associate determines how a task will be carried out in the incorporation.

Most of the time, it also includes the details regarding the shares. For instance, rights, dividends, and operations. 

What should we include in the article of association?

The AOA has the following points:

  1. Share dividends
  2. Intents of the incorporation
  3. Particulars of the company
  4. Details of the directors
  5. General meetings

What are the share dividends?

It is a form of payment that is paid to the shareholders from the profit of the company. All the shareholders and directors should agree on the decided dividends. The shareholders can receive the dividend through cash, property, or stock share. The dividend can also be referred to as the reward to the shareholders. The reward is given in the return of their investments.

Moreover, the company’s earnings are divided into two parts. One is for the company’s management and the other one is used in the dividends.

The reasons for paying a dividend is majorly to encourage the shareholders. Plus, this will also develop the trust of the investors in the company. 

What is the meaning of the intent of the incorporation?

The purpose of the company should be mentioned in the article of association. 

What are the particulars of a company?

You have to include the company name, address, phone numbers of the director, and CNIC of the members. 

What are the general meetings?

You may include the rights to vote of the shareholders in this portion.

Which companies need an article of association?

Unlimited companies and private limited companies require an article of association.

What is the difference between article and memorandum of association?

As mentioned above, the article of association contains the rules and regulations of the incorporation. Whereas, the memorandum of association is basic of the company. It includes all the fundamental details about the company. The memorandum of association contains information regarding the power of the incorporation. Furthermore, the MOA should have six clauses. Whereas, the AOA can have as much as the company wishes to have. 

Also, public limited companies do not need an article of association. 

A company requires a memorandum of association for incorporation. You can also call the memorandum as the charter of the company! So, that was the basic difference between these two.

How Spectrum Consultancy will help you?

We offer leading taxation and company registration services all over Pakistan. Plus, we have a team of professional lawyers who will help you in all legal matters. You may contact us now if you need consultation regarding any legal matter.