AOA for a Startup
A company’s Articles of Association (AOA), also called articles of incorporation in some jurisdictions, constitute a seminal founding document. An AOA has the status of a contract between the company and its shareholders and between the shareholders themselves. Every company is required to have an AOA, which takes effect on the date the company is established.
Our law office specializes in Israeli corporate law. In this article, attorney Michael Decker will explain the goals and content of an AOA for a startup company.
What must be included in the Articles of Incorporation:
There are nine main items that must be included in the AOA:
1) The name of the company; 2) its goals; 3) its registered shares, including different types of shares; 4) the limiting of liability of company shareholders; 5) the names, addresses and details identifying the initial shareholders; 6) the shares allocated to the initial shareholders; 7) the signatures of the initial shareholders; 8) confirmation by a lawyer of the identities of the initial signatories; and 9) the number of directors of the company. More on these below.
Characteristics of an AOA:
1) Company name and limitations on liability: The Articles of Association must state the name of the company and any limitations of liability to its equity holders. The exact term is “limited liability,” or its abbreviation, “Ltd.” A company may not assume a name which belongs to an existing company registered with the registrar of companies or that comprises a trademark. Likewise, the company name must not be construed as deceptive or infringing on a public ordinance or the general sensibilities of the public, as determined by the registrar of companies.
2) Goals: The Articles of Incorporation must specify the activities in which the company will be engaged. It may simply state the company will engage in all lawful activities or it may be more specific. As mentioned, a company need not state its goals, as it is taken for granted that it will pursue its business interests towards the end of maximizing its profits. The AOA may not state goals deemed to be unlawful, immoral or in violation of a public ordinance.
3) Shares: The relative equity held by each of the shareholders of the company. The AOA must list the registered shares, specify those that are allocated into different types of shares and state their nominal value. For shares allocated into different types, the company may not make changes that could be harmful to the equity holders of these different types without holding a general assembly constituting their representative shareholders. A change to the AOA requiring equity holders to purchase further shares must also be subject to their consent.
4) Limiting of liability: Should the company not limit the liability of its equity holders, this must be stated in its Articles of Incorporation. Alternately, the AOA must address the manner in which a company does limit the liability of its shareholders. A change to the AOA in which a company increases the liability of its shareholders will not be binding without their consent.
5) Office holder liability: Should the company wish to exempt, indemnify or insure its office holders, this must be addressed in the AOA. This can be changed by the same majority vote needed to change the AOA.
Changes to the Articles of Association:
A company may set limits on its ability to make changes to the Articles of Association in the AOA itself. The articles can be altered in a decision reflecting the vote of the company’s general assembly requiring a simple majority, unless the AOA specifies otherwise. The decision must be reported to the registrar of companies within 14 days of its acceptance, although it takes effect, absent the specification of an alternate date, on the date it is made. The exception to this is if the company votes to change its name or its goals and these will only take effect upon registration with the registrar of companies. This may be accomplished through a vote requiring the same majority required to make changes to the AOA.
In Summary
To summarize, the terms of the AOA of a company should be given careful thought. They encumber all aspects comprising the company, from the activities in which it may engage, to the liability of its equity holders to the manner in which decisions affecting the company may be reached.
Our offices in Tel Aviv and Jerusalem help clients establish, register, and manage commercial companies in Israel. Contact us for advice and help in writing an AOA or for any other commercial law issue.
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