Articles of Association

What are the articles of association?

The Articles of Association (AoA) outlines the fundamental rules upon which a company is allowed to operate. In essence, the AoA is a set of principles or rules governing the operations of a company. Only companies that are registered in Nigeria can use the AoA.

It outlines the internal mechanisms of the company, including shareholder and member rights, powers and limitations of directors and officers of the company, the various classes of shares and their associated rights, procedures for the transfer of shares, and rules regarding general and board meetings.

What type of companies need the articles of association?

The following are the types of companies in Nigeria:

• Private Company Limited by Shares: This is the most common type of company. The liability of the members is limited by the shareholders' unpaid shares in the company. This means that in the event of winding up, the members are only liable to pay such amount of unpaid shares (if any). Under the law, a private company should have a minimum of one member, and the total number of members must not exceed 50. The AoA of a private company must restrict the transfer of shares of the members of the company. Also, this type of company does not offer its shares to the members of the public. The name of the company must end with "Limited".
  
  
• Public Company Limited by Shares: This is similar to a private company limited by shares but it can invite the members of the public to subscribe to its shares (that is, it may be listed on the Nigerian Stock Exchange). There is no limit to the membership of the company. The name of the company must end with "PLC".
  
  
• Unlimited Liability Companies: An unlimited liability company is a company that has no restriction on the responsibility of the members of the company. Consequently, members of an unlimited liability company will be held responsible for all the debts of the company until the debts are fully paid and there is no extent of their liability. The name of the company must end with "Unlimited".
  
  
• Company Limited by Guarantee: A company limited by guarantee is a company usually used for non-profit organizations, the members are only responsible for the debts of the company to the extent of the amount they have undertaken to contribute. This company does not offer shares, it does not have share capital. The name of the company must end with "LTD/GTE" or "Limited by Guarantee".

What is the difference between the articles of association and a memorandum of association?

The Memorandum of Association (MoA) and AoA are fundamental documents required for the incorporation and governance of a company.

The MoA consists of basic information about the company structure, including the company's objects, the type of company, share capital, etc. The AoA on the other hand is a more robust document that governs the internal management and operations of the company.

Is it mandatory to have articles of association?

Yes, this is a required document for company registration.

What is the minimum share capital of a company?

In Nigeria, the minimum share capital for private companies in Nigeria is ₦100,000, while public companies have a minimum share capital of ₦2,000,000.

A share capital consists of the total amount of money that was raised by a company through the issue of shares.

What must the articles of association contain?

The AoA includes the following key components:

• Classes of shares: This provision includes the different types of shares the company can issue, such as ordinary shares, preference shares, and any other classes. It also outlines the rights attached to each class, including voting rights, dividend entitlements, and rights on winding up.
  
  
• Share capital: The AoA outlines the minimum or maximum amount of share capital that the company is authorized to issue.
  
  
• Shareholders' rights and responsibilities: This includes the voting rights attached to each class of shares the company offers.
  
  
• Appointment and removal of officers of the company: This part outlines the procedures for appointing key officers, including the managing director and chairman. It may also define their roles, powers, and responsibilities. It also outlines the situations or events in which a director can be disqualified or removed from office.
  
  
• Powers and responsibilities of the directors and their limits: This outlines the powers and duties of directors of a company and the limits on their powers. It can also include specific actions that directors can or cannot take without shareholder approval.
  
  
• Procedure for transfer and transmission of company shares: This provision outlines the procedures for transferring shares from one shareholder to another and the transmission of shares in the event of a shareholder's death or insolvency. It may include restrictions on transfers.
  
  
• Distribution of dividend: This outlines when and how the company distributes dividends to its shareholders.
  
  
• General meetings: This outlines the procedure for calling and conducting general meetings, including notice periods, quorum requirements, and agenda items. It also includes the circumstances under which a company can call a general meeting and the procedures for calling the meetings.
  
  
• Board meetings: This outlines the procedures for calling, conducting, and voting at directors' meetings, including notice periods, quorum requirements, and agenda items.
  
  
• Financial: This includes the fiscal year end of the company, requirements for auditing and the periods in which financial audits will be conducted.
  
  
• Winding up: This includes conditions and procedures for the voluntary or compulsory winding up of the company. It also specifies how the assets of the company will be distributed upon the dissolution of the company.

What is not allowed in the articles of association?

The AoA cannot include provisions that are contrary to the Memorandum of Association. This is because if there is any inconsistency between the MoA and the AoA, the MoA will take precedence.

Who can become a member or shareholder of a company?

A share is a unit of ownership in a company. Hence, shareholders or members are parties who own shares or an ownership stake in a company. The following parties can be shareholders of a company:

• Individuals who are 18 years of age and above;
  
  
• Companies: A company can own shares in another company, becoming a corporate shareholder;
  
  
• Business names and non-profit organizations: Organizations registered as business names, such as sole proprietorship and partnership businesses or incorporated trustees can hold shares in a company. Charities and other non-profit organizations can own shares in a company.

Who cannot become a member or shareholder of a company?

The law prevents some parties from joining in forming a company as subscribers (or members) of the company. The parties who cannot join in the formation of a company are:

• Minors: Individuals under the age of 18 years cannot become members of a company.
  
  
• Persons of unsound mind: Individuals who have been legally declared as mentally incapacitated or of unsound mind are not permitted to enter into binding contracts and cannot become members of a company.
  
  
• Undischarged bankrupts: Persons who are currently undischarged bankrupts are generally prohibited from forming a company or signing the AoA as initial subscribers.
  
  
• Companies under liquidation cannot become members of the company.

Who is involved in the articles of association?

The subscribers of the MoA and AoA are the initial shareholders or members of the company. Other parties involved in the AoA are:

• Founders: The founders of the company are usually part of the initial subscribers of the company. They are typically involved in drafting the initial articles of association. They are the persons who established the company.
  
  
• Shareholders: Shareholders or members play a crucial role as they must approve the Articles of Association and any subsequent amendments. Shareholders own shares in the company and are the owners of the company.
  
  
• Directors: The board of directors is responsible for managing or running the affairs of the company.

What has to be done once the articles of association is ready?

The AoA may be used during incorporation and after incorporation to amend an already existing AoA.

• If the AoA is submitted during registration, it should be filed at the Corporate Affairs Commission (CAC) along with the Memorandum of Association.
  
  
• If the AoA is used to amend an existing AoA, the newly amended AoA should filed at the Corporate Affairs Commission (CAC) along with a Special Resolution of the members of the company approving the amendments.

Which documents should be attached to the articles of association?

After registration with the CAC, the AoA may be sent to the members of the company along with the following documents:

• Memorandum of Association;
• Company Bylaws;
• Shareholders Agreement.

Is it necessary to notarize the articles of association for it to be valid?

No, it is not necessary to notarize a MoA.

Is it necessary to register the articles of association?

Yes, the AoA should be registered with the Corporate Affairs Commission (CAC).

If the AoA is submitted during registration, it should be filed at the CAC along with the Memorandum of Association.

If the AoA is used to amend an existing AoA, the newly amended AoA should filed at the CAC along with a Special Resolution of the members of the company approving the amendments.

Is it necessary to have witnesses for the articles of association?

No, it is not necessary to have witnesses in an AoA.

What are the costs involved in the finalization of the articles of association?

The cost of registering the AoA can range from ₦40,000 to ₦150,000, not including attorney fees. The registration fees also depend on the company's share capital and the type of the company.

Who is a director of a company?

A director is an individual or a company that is in charge of running or managing a company and making key decisions that affect the company.

In Nigeria, an individual or a registered company can be a director, and every company should have at least two directors.

Directors must act in good faith and the best interests of the company and are expected to perform their duties with reasonable care, skill, and diligence.

Under the law, the following persons cannot become a director of a company:

• A minor;
• A person of unsound mind;
• An undischarged bankrupt or an insolvent person;
• A person suspended; and
• A party who has been convicted of fraud by a court.

The procedure for the appointment and removal of a director is governed by the law and the AoA. Notwithstanding, under the law, generally, a director can be appointed by the members of a company in a general meeting. A director may also be elected by the board of directors to fill a vacant position. In the same vein, directors can also be removed by the members of a company in a general meeting.

Which laws are applicable to the articles of association?

The Companies and Allied Matters Act, 2020 is the applicable law.

How to modify the template?

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.