AN OVERVIEW ON WHY EVERY COMPANY NEEDS ONE.
Articles of Association is the second most important document of a company after a Memorandum of Association and both are part of a company’s incorporation documents. Articles of Association can be described as a document that specifies the regulations for a company’s operations and defines the company’s purpose. It lays out how tasks are to be accomplished within the company, including the process of appointing directors and the handling of financial records and can be thought of as a user’s manual for a company, defining its purpose and outlining the methodology for accomplishing necessary day-to-day tasks. In other words, it can be considered as the “Constitution of a Company.”
The contents of Articles of Association include but are not limited to Company Name, Objectives of the Company, Details of the Company’s address, Share Capital, organization of the company, financial provisions, Provisions on Resolutions and provisions regarding the Company meetings.
Pursuant to the Rwandan Law governing Companies, a company may or may not have an Articles of Association and under such circumstances where a company does not have Articles of Association, the rights, powers, duties and obligations of the company, of the Board of Directors, of each director, and of each shareholder of the company are those set out in the law governing companies in Rwanda.
Notwithstanding the fact that having Articles of Association is optional in Rwanda, it is fundamental that a company adopts Articles of Association due to the following reasons;
- It outlines the rules and regulations or by-laws for governing a company’s internal affairs and conduct of the company
- It puts in place the internal rules and regulations for the governing of the company, powers of the directors and officers of the company as well as the rights of shareholders.
- It specifies the way a company issues stocks, distributes dividends, and performs financial records.
- It provides for the relationship between the Board and shareholders and as well the relationship among Directors and shareholders themselves.
- It governs the relationship between the company and its constituent members by prescribing the rights and obligations of the members of the company.
That said, I infer that even though an Articles of Association is optional in Rwanda, it is essential that a company adopts it since it provides for the management and organization of the company. I am also inclined to believe that with an Articles of Association in place, there is limited room for conflicts in the day-to-day management of the company since there are express clear provisions in the Articles of Association about how the company should be managed and who does what. In addition, in the absence of Articles of Association in a company, provisions in the law governing companies in Rwanda apply but in most cases these provisions are general and wouldn’t shush such dispute as good and better as Articles of Association which has specific provisions, thus to that effect would.
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