Articles of Association: A Guide to Drafting AoA in Nepal

In the Nepali language Articles of Association or AoA it’s called " नियमावली".

In brief, Articles of Association are also referred to as AoA.

When registering a company, you have to give this document to the Company Registrar's Office and the Inland Revenue Department along with some other papers.

In simple terms, the Articles of Association is a important document that needs careful drafting.

In this article, we'll go through everything about Articles of Association, from what it is to how to draft it. We'll even include sample Articles of Association and highlight key elements to consider.

What is the Articles of Association (AoA)?

The Articles of Association is a document that tells you the rules and regulations of your company.

It provides information about the company's goals, decision-making processes and responsibilities of its members. This guide is important to maintain effective operations and governance in the company.

Why Are Articles of Association Important?

1. Legal Requirement:

   It is a legal requirement for a company to have Articles of Association. The AoA, along with the Memorandum of Association, makes up the company's constitution.

   These documents need to be submit to The Company Registrar's Office during the company registration process.




2. Corporate Governance:

   The Articles of Association set out the rules for how the company is run. They explain the duties of directors, how decisions are made, and the powers given to stakeholders.




3. Shareholders' Rights and Duties:

   The articles of association explain the rights and duties of shareholders. This includes things like voting, receiving dividends and how meetings are held. It's all about being clear and fair to shareholders.




4. Management Structure:

   The articles of association describe how the company is managed, who the directors are, what they can do, and the roles of the chief executives. This clarity is important for smooth operation.




5. Borrowing Powers:

   The Articles of Association often state when the company can borrow money or issue debentures. It guides responsible financial decisions.




6. Alteration and Amendment:

   The Articles of Association can be changed to fit new needs, but it must follow the law and get approval from shareholders.




7. Resolution of Disputes:

   If there are disagreements between members or between the company and its members, the articles of association offer a way to resolve them.




8. Credibility and Trust:

   Having well-drafted and clear articles of association increases the company's credibility. It demonstrates to stakeholders, investors, customers and partners that the company operates transparently and has a solid governance structure.

Legal Requirements for Articles of Association for Startups in Nepal

To write Articles of Association (AoA) for a company in Nepal, you must know the laws and regulations. The Company Act 2063 (2006) of Nepal, which is a law that talks about companies, gives a lot of information about what should be in the AoA.

Some of the important points to include in the Articles of Association (AoA) are:

• The name of the company
• What the company aims to do
• How many shares are there and how much are they worth?
• What are the rights and duties of persons owning shares
• How meetings will be organized and conducted
• How the directors of the company will be chosen and fired
• What the directors can and cannot do
• How the company will pay profits to shareholders
• How the AoA can be changed

Sample Templates of Articles of Association in the Nepali Language

The Company Registrar's office has given sample templates of Articles of Association for various types of companies. Here are a few:

Articles of Association	Sample Templates
Articles of Association for Private Limited Company	Download PDF
Articles of Association for Public Limited Company	Download PDF

Choose and download a sample template that is relevant to the type of company you are establishing (e.g., private limited, public limited, nonprofit).

Replace the placeholders in the template with the specific details of your company, such as its name, registered office address, and objectives.

How to Draft Articles of Association in Nepal

Once you have a clear understanding of the legal requirements, you can start drafting the Articles of Association.

Here are the 8 important steps to follow while drafting Articles of Association in Nepal:

Step 1: Start with the name and objectives of the company

When naming a company, it is important to choose a unique name. The company's goals should be clear and in line with its vision.

Step 2: Define the types of shares and share capital

When you write the Articles of Association, make sure to include the type of shares the company will offer. This includes ordinary shares and preference shares.

Step 3: Outline the rights and obligations of shareholders

The AoA should specify the responsibilities and privileges of the shareholders.

They have the right to vote and receive dividends. They are also responsible for the company's debts.

Step 4: Establish the procedure for calling and conducting meetings

The AoA should have guidelines for meetings, such as attendance, notice, and voting.

Step 5: Define the appointment and removal of directors

The AoA should specify how to choose and fire directors, including their requirements, term, and pay.

Step 6: Define the powers and duties of directors

The AoA should outline the powers and duties of the directors, including their role in managing the affairs of the company and their responsibility to the shareholders.

Step 7: Establish the procedure for the distribution of dividends

The AoA should explain how dividends will be paid, including when and how often.

Step 8: Define the procedure for amending AoA

The AoA should state how to change the articles of association, including the needed majority and notice period.

Review and approval

After drafting an AoA, it is important to review and revise it. This ensures it meets legal requirements and reflects the company's goals and policies.

Note: It is recommended to consult with legal experts or a professional company registration agency to ensure that your Articles of Association comply with Nepal's Company Act 2063 (2006). Seeking legal advice will help customize the document to meet your company's specific requirements and ensure its enforceability.

FAQs (Frequently Asked Questions)

Aspect	Articles of Association	Memorandum of Association
Purpose and Scope	Comprises rules and regulations governing the company’s internal affairs, management, and conduct.	It is the root document of the company, containing basic details required for incorporation.
Content	Specifies the company’s rules for administration.	Defines the company’s powers and objects.
Status	Subordinate to the Memorandum.	Subordinate to the Companies Act.
Retrospective Effect	Can be amended retrospectively.	Cannot be amended retrospectively.
Major Contents	Can be customized based on the company’s needs.	Must contain six clauses.
Obligatory	Only private companies need to frame AoA.	Required for all companies.
Alteration	Can be altered by passing SR in the Annual General Meeting (AGM).	Requires Special Resolution (SR) and approval from Central Government (CG).
Relation	Regulates the relationship between the company and its members.	Defines the relationship between the company and outsiders.

The articles of association have details about the company's money, leadership, voting, profits, and meetings.

Yes, if a company needs to change its articles of association, it can. But, all shareholders must agree through a special resolution to make decisions.

If a disagreement arises between the Memorandum of Association and the Articles of Association, the Memorandum typically takes precedence.

To ensure clarity and prevent any confusion, it is advisable to ensure consistency between both documents.

No, every company must have Articles of Association and Memorandum of Association. These papers are super important because they lay out how the company is set up and how it runs.

Yes, the Articles of Association can serve as a reference in resolving internal disputes. It provides a framework for decision-making and dispute resolution procedures within the company.