Articles of Association (AoA) is a document that contains the purpose of the company as well as the duties and responsibilities of its members defined and recorded clearly. It is an important document which needs to be filed with the Registrar of Companies.
A company is an incorporated body so there should be some rules and regulations formed for the management of its internal affairs and conduct of its business as well as the relation between the members and the company. Moreover, the rights and duties of its members and the company are to be recorded. This is why Articles of Association are necessary.
Functions of the Articles of Association (AoA)
Generally, the AoA are the legal basis for a company to do business with third parties, which provide the principles of a company’s management structure, business activities, rights and obligations etc., and can be seen as the basis for a company to do business with clients, business partners, investors, creditors or any other third party. After approval by the Chinese authorities, the AoA are binding regulations for the company, investors, directors, the management team as well as all parties related to the company.
For incorporating a company in China, the drafting and approval of the AoA is a mandatory step. The inspection by relevant authorities is a crucial point and should be taken seriously in order to save time as well as money.
What is more, the AoA form the self-governed rules of a company. Although the AoA have to be in accordance to the Chinese Company Law, but it is possible to implement company specific regulations. They provide a code of conduct for the company and the company itself can solve violations of the AoA internally as long as such is not violating the Chinese laws or regulations.
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Mandatory items of the AoA
The following points are mandatory items of the AoA:
(1) The name and domicile of the company;
(2) Business Scope of the company;
(3) Registered capital of the company;
(4)Names of shareholders;
(5) Forms, amount and date of capital contributions made by shareholders;
(6) The organizations of the company and its formation, their functions and rules of procedure;
(7) Legal representative of the company;
(8) Stipulations concerning the assignment of equity, the ratio of profit distribution and losses to be borne by parties of a joint venture;
(9) Principles governing finance, accounting and auditing;
(10) Labour management;
(11) Dissolution and liquidation.
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