What are the Articles of Association (AoA)?
The Articles of Association, or AoA, is an official document that outlines all the rules and regulations of a private company. In Nepali language, it is called ‘नियमावली‘.
The Articles of Association (AOA) serve as a guide for a company. They outline the company’s goals, decision-making processes, and the responsibilities of its members. This document is crucial for ensuring smooth operations and effective governance within the company.
In summary, the Articles of Association is an important legal document that requires careful drafting during the company registration process.
Read More: How to Register a Company in Nepal
Sample Format of Articles of Association in the Nepali Language
The Company Registrar’s office has provided sample formats of Articles of Association for various types of companies. Here they are:
| Articles of Association | Sample Format |
|---|---|
| Articles of Association for Private Limited Company | Download PDF |
| Articles of Association for Public Limited Company | Download PDF |
Choose and download a sample format relevant to the type of company you are establishing. Replace the placeholders with specific details such as the company name, registered office address, and objectives.
Why Are Articles of Association Important?
- 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.
- 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.
- 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.
- 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.
- Borrowing Powers:The Articles of Association often state when the company can borrow money or issue debentures. It guides responsible financial decisions.
- 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.
- 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.
- 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 fire.
- What the directors can and cannot do.
- How the company will pay profits to shareholders.
- How the AoA can be change.
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:
- Start with the name and objectives of the company
- Define the types of shares and share capital
- Outline the rights and obligations of shareholders
- Establish the procedure for calling and conducting meetings
- Define the appointment and removal of directors
- Define the powers and duties of directors
- Establish the procedure for the distribution of dividends
- Define the procedure for amending AoA
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 AoA, 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.
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FAQs
What is the Difference Between Memorandum of Association and Articles of Association in Nepal?
| 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. |
What Information Should be Included in the Articles of Association for a Private Limited Company in Nepal?
For a Private Limited Company in Nepal, the Articles should include details on share capital, shareholder rights, directorial powers, and procedural rules for decision-making.
Can Articles of Association be Amended in Nepal?
Yes, Articles of Association in Nepal can be amended. However, any changes must adhere to legal procedures and require the approval of shareholders.
What happens if there is a conflict between the Memorandum of Association and the Articles of Association?
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.
Can a company operate without Articles of Association?
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.
Can the Articles of Association be used to resolve disputes within the company?
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.
