What are articles of association and what role do they play in the company?
The articles of association establish the general functioning of a company, hence their importance. Most companies are obliged to establish bylaws on a mandatory basis, in this post we will tell you step by step how they are drawn up and their function once they have been approved.
What are the articles of association of a company
A company’s articles of association are a set of internal rules and regulations governing the organisation, operation and activities of a corporate entity.
These documents establish the basic rules under which a company operates and are fundamental in defining aspects such as the governance structure, rights and duties of the partners or shareholders, the corporate purpose and the rules for decision-making.
Generally, the articles of association include detailed information on the name of the company, its registered office, share capital, shares or participations, the duration of the company and how the company is to be managed and represented.
In addition, the articles of association are a public document that must be registered in the corresponding Commercial Register, which gives legal certainty both to the partners or shareholders, as well as to third parties interacting with the company.
This registration, therefore, formalises the legal existence of the entity and ensures that its internal rules are accessible to all interested parties.
Which companies are obliged to establish articles of association?
All commercial companies, regardless of their size or type, are obliged to establish and register their articles of association, including public limited companies (SA), limited liability companies (SRL), cooperatives, and other legal forms of companies.
The mandatory nature of articles of association lies in the need to provide a clear and defined legal framework, which regulates business activity and guarantees the rights and obligations of the partners or shareholders.
Particularly in the case of public limited companies and limited liability companies, the articles of association are an essential requirement for their incorporation.
Without this document, these companies cannot be formally registered or start operations.
Small and medium-sized enterprises (SMEs) that opt for a corporate legal form must comply with this obligation, although in some cases the requirements may be simpler.
All companies that are incorporated as separate legal entities in Spain need to have articles of association, which includes both large corporations and SMEs.
Your role once the company is established
Once the company is established, the articles of association serve several essential functions. First, they provide a regulatory framework that facilitates the orderly functioning of the company, ensuring that all operations are carried out in accordance with the rules and avoiding internal conflicts.
This includes aspects such as the holding of general meetings, the distribution of profits, the increase or reduction of share capital and strategic decision-making.
The articles of association serve as a guide for the management of the company.
They define the responsibilities and powers of the governing bodies, such as the board of directors or the directors, and set out the rules for the election and renewal of these positions.
This ensures transparent and efficient management that is in the best interests of the shareholders.
Articles of association protect the rights of members or shareholders by providing mechanisms for resolving disputes and ensuring that all members of the company are treated fairly.
For example, they may include clauses on pre-emptive rights in the purchase of shares, distribution of dividends and procedures for dissolution of the company.
Articles of association are a key element for good corporate governance and the long-term stability of the company.
Is it possible to vary the articles of association?
Yes, it is possible to amend a company’s articles of association, but the process for doing so is usually subject to certain legal formalities.
Amendments to the articles of association may be necessary for a variety of reasons, such as changes in the company structure, adjustments to the company’s object, capital increases or adaptations to new legal regulations.
In order to make an amendment, the approval of the general meeting of members or shareholders, called specifically for this purpose, is generally required.
The notice of meeting must include a detailed agenda, specifying the proposed changes.
Depending on the law and the articles of association themselves, a specific quorum and a qualified majority may be required to approve the amendments.
Once approved by the meeting, the amendments must be formalised in a public deed and registered in the relevant commercial register.
This process ensures that the changes are public and binding for all shareholders and interested third parties.
The drafting and approval of the Articles of Association is one of the most complex processes when founding a company in Spain, at Asesoría Orihuela Costa we offer you the support you need, so that you do not have to worry about resolving the Articles of Association of your new business.
