Articles of Association
What does the Articles of Association mean?
Articles of Association is an important document you need to prepare before registering your company in Sri Lanka. It acts like a contract between the company and its shareholders. All shareholders must sign the Articles of Association.
What should be included in the Articles of Association?
The Articles of Association can include any rules that follow the Companies Act, 2007.
Key points to include are:
- The objects of the company
- The rights and obligations of shareholders
- The management and administration of the company
- Responsibilities, powers, and duties of directors and company officers
- Requirements for company meetings
- Financial records and statements
- Audit requirements
- Shares and share transactions
How to draft your Articles of Association
You have two options to prepare your Articles of Association.
- Using model articles
- You can use the standard template provided in the Companies Act, which includes the essential clauses. The model articles can be applied to any company other than a company limited by guarantee. sample articles.
- Creating a custom articles
- You can create a custom Articles of Association to fit your company's needs, as long as they follow the Companies Act.
- If you need to change the Articles of Association later, you must get approval from shareholders and inform the Registrar within ten days.
What the model articles say, section by section
The model articles are set out in the First Schedule to the Companies Act, No. 07 of 2007. If you adopt them, these are the rules your company runs by. The article numbers below match the DRC's copy of the model articles.
A. Shares (articles 1 to 4)
- Issuing shares (article 1). The board decides who gets new shares and the consideration for them, which must be fair and reasonable to the company and to existing shareholders. New shares that rank equally with or ahead of existing shares must first be offered to the existing shareholders, so that each keeps their share of the votes.
- Calls on shares (article 2). If a share carries an obligation to pay, the board can call for payment by written notice of at least twenty working days. Late amounts carry interest fixed by the board, of up to ten per cent a year.
- Distributions (article 3). Every dividend must be approved by the board and by an ordinary resolution of the shareholders, and the board must be satisfied the company will pass the solvency test immediately afterwards. The board can pay an interim dividend without a shareholder resolution.
- Share register and transfers (article 4). The company keeps a share register at its registered office, or at any other place in Sri Lanka that the Registrar has been notified of. A transfer is made by a signed form of transfer delivered to the company. The board can refuse to register a transfer only if money owed on the share is unpaid, and must decide within six weeks of receiving the transfer. If it refuses, it must give notice of the refusal to the shareholder within one week of the date of the resolution.
B. Meetings of shareholders (articles 5 to 19)
- Notice (article 6). Written notice of a shareholder meeting goes to every shareholder, director and the auditor at least ten working days before the meeting, and must set out the business and the text of each resolution.
- Quorum (article 8). A meeting is quorate if the shareholders present, in person or by proxy, can cast a majority of the votes. If there is no quorum within thirty minutes after the time appointed for the meeting, the meeting is adjourned by a week.
- Annual general meeting (article 17). The board must call an annual meeting once each calendar year, no later than six months after the balance sheet date and no later than fifteen months after the previous one. The first annual meeting must be held within eighteen months of incorporation.
- Voting, proxies, minutes and shareholder proposals are covered in articles 10 to 13.
C. Directors and secretary (articles 20 to 32)
- Appointing and removing directors (article 20). Shareholders fix the number of directors and appoint or remove them by ordinary resolution. A director can resign by delivering signed written notice to the registered office.
- Board meetings (articles 25 to 28). Any director or the secretary can call a board meeting with at least twenty-four hours' notice to every director in Sri Lanka. A majority of the directors is a quorum, each director has one vote, and the chairperson has a casting vote.
- Written resolutions (article 30). A resolution signed by all directors is as valid as one passed at a board meeting.
- Secretary (article 32). The company must always have a secretary, appointed and removed by the board. The secretary cannot be the sole director of the company. See choosing a company secretary.
D. Accounts and audit (article 33)
The board must make sure the company keeps accounting records that correctly record its transactions and show its financial position with reasonable accuracy at any time. Financial statements and the audit are covered in the same article.
E. Liquidation (articles 34 and 35)
Shareholders can wind the company up voluntarily by special resolution. Once all creditors are paid, surplus assets go to shareholders in proportion to the shares each holds, subject to the terms of issue of any shares.
F. Miscellaneous (articles 36 to 41)
Documents the company must keep, shareholders' and directors' rights to see them, the company name, notices, and insurance and indemnity for directors.
Article 41 applies only to private companies. A private company must not offer its shares to the public, and must not have more than fifty shareholders, not counting employees and former employees who became shareholders while employed. If all shareholders agree to an action, it is treated as validly authorised even where the articles say otherwise.
Special rules for companies limited by guarantee
- These companies must include their goals and how much each member will contribute if the company is closed.
- you cannot change the AoA without getting written approval from the registrar.
By following these steps, you can make sure your company's Articles of Association are clear, legal, and suited to your business needs.