When creating a business, it is normal to have many questions about the procedures to follow or the regulations to comply with. One of the first things you will need to do if you want to incorporate a commercial company is to prepare the articles of association.
For this reason, in this article we explain what they are, what they are used for, what content they should include and how they can be amended.
What are articles of association?
Index of contents
Articles of association are a set of internal rules that regulate how a company operates. They form part of the deed of incorporation and establish the company’s structure, the roles and responsibilities of shareholders and directors, and how certain decisions will be made.
In simple terms, the main purpose of the articles of association is to act as an operating framework. They do not regulate every detail of day-to-day activity, but they do prevent decisions from being made outside the legal bases on which the company is organised.
In capital companies, such as limited liability companies or public limited companies, the articles of association are essential to incorporate the company and register it with the Commercial Registry.
What are a company’s articles of association used for?
Articles of association are used to provide order, certainty and predictability to the company’s operation. They are not only necessary to incorporate a company, but also to avoid doubts at key moments in its development.
In practice, well-drafted articles of association make it possible to:
- Define the activity that the company may carry out.
- Regulate the relationship between shareholders.
- Establish how the company is managed.
- Define how resolutions are adopted.
- Anticipate certain situations of change.
- Reduce the risk of internal disputes.
This is especially important when there are several shareholders, when the entry of investors is expected or when the company may grow, diversify its activity or reorganise in the future.
Standard articles of association may be sufficient for very simple companies. However, they do not always respond properly to the real needs of a business. For this reason, before signing them, it is advisable to check whether they correctly reflect the company’s structure, activity and objectives.
What should articles of association include?
The Spanish Companies Act establishes minimum content that must appear in the articles of association. From that point onwards, other clauses may be added, if they comply with the regulations and are useful for organising the company’s operation.
| Element of the articles of association | What it regulates | Why it is important |
| Company name | The company’s legal name. | It identifies the company and differentiates it from other companies. |
| Corporate purpose | The activities that the company may carry out. | It prevents problems if the real activity does not fit with what has been declared. |
| Registered office | The company’s legal address. | It determines registry-related matters and may have effects before third parties. |
| Share capital | The amount of capital and its division into equity interests or shares. | It reflects the initial economic structure and the participation of the shareholders. |
| Equity interests or shares | Their number, value and associated rights. | It affects voting rights, transfers and shareholders’ rights. |
| Management body | Who manages and represents the company. | It avoids doubts regarding management, representation and decision-making. |
| Method for adopting resolutions | How the corporate bodies deliberate and decide. | It helps prevent deadlocks and internal conflicts. |
In addition to this minimum content, the articles of association may include other provisions relating to the transfer of equity interests, remuneration of the management body, financial year, duration of the company or certain internal rules.
The key is not only to include what is mandatory, but to draft it consistently with the company’s reality.
Articles of association in a limited liability company
A limited liability company, or SL, is a company in which the shareholders’ liability is limited to the share capital contributed. Therefore, shareholders are not liable for company debts with their personal assets.
Some of the most relevant features of this type of company are the following:
- The company name must be followed by the expression Sociedad de Responsabilidad Limitada (S.R.L.) or Sociedad Limitada (S.L.).
- The minimum share capital is one euro, with no maximum, and contributions may be made in cash or in kind.
- The share capital is divided into equity interests.
- The minimum number of shareholders is one, with no maximum.
- Shareholders’ liability is limited.
- Shareholders may be working shareholders or capital shareholders.
The articles of association of a limited liability company are particularly important, as the SL is one of the most used legal forms by companies and SMEs in Spain.
In addition, in an SL it is advisable to pay attention to issues that may have a direct impact on the relationship between shareholders, such as:
- The transfer of equity interests.
- The entry of new shareholders.
- Rights linked to certain equity interests.
- The way General Meetings are called and held.
- The majorities required to approve certain resolutions.
- The structure of the management body.
For example, if a limited liability company is incorporated with several shareholders, using basic articles of association is not the same as adapting the internal rules to possible future situations. These may include the exit of a shareholder, the entry of investors, capital increases or conflicts in decision-making.
Articles of association and corporate purpose: why it is important to define it properly
One of the most relevant points in the articles of association is the corporate purpose. This section defines the activities that the company may carry out.
Its wording must be precise, but also sufficiently thought through to avoid future problems. If the corporate purpose is too limited, it may become insufficient when the company grows or incorporates new lines of activity. In that case, it may be necessary to amend the articles of association.
In other words, articles of association are not unchangeable. They can be amended to adapt to internal or external changes experienced by the commercial company.
These amendments must follow the procedure established by law:
- Drafting of the amendment proposal. The initiative may come from the directors or from the shareholders.
- Calling of the General Meeting. The shareholders must be called to discuss and approve the amendment to the articles of association. The notice must include the reason for the amendment, the points to be amended and the shareholders’ right to review the text.
- Approval of the amendment. On the scheduled date, the General Meeting is held and the vote takes place. Once the amendment has been approved, the minutes of the meeting are prepared.
- Execution as a public deed. The minutes, together with the certification, are executed as a public deed before a notary.
- Registration with the Commercial Registry. Finally, the deed is registered with the Commercial Registry so that the amendment becomes effective and enforceable against third parties.
For example, a company that is initially created to provide technology consulting services may need to include activities related to software development, support, training or maintenance if they form part of its real or foreseeable activity.
However, adding completely unrelated activities just to “cover possibilities” may reduce clarity.
The recommendation is to define the corporate purpose with a business perspective: reflecting what the company does, what it may reasonably come to do and what it needs to operate with legal certainty.
When should articles of association be reviewed or amended?
Articles of association do not have to remain unchanged throughout the company’s life. In fact, there are many situations in which it is advisable to review them to check whether they still reflect the company’s reality.
Some common cases in which it may be necessary to review or amend the articles of association are:
- Change of registered office.
- Amendment or extension of the corporate purpose.
- Entry or exit of shareholders.
- Capital increase or reduction.
- Change in the management body.
- Modification of the system for adopting resolutions.
- Reorganisation of the business structure.
- Need to better regulate the transfer of equity interests.
For example, if a company expands its activity and the corporate purpose does not include that new business line, it may be necessary to amend the articles of association. The same applies if the way the company is managed changes, or if a capital increase alters the ownership structure.
In general, any relevant change in the life of the company should involve a review of the articles of association. It will not always be necessary to amend them, but it is advisable to check whether they remain appropriate.
Common mistakes when drafting articles of association
Although articles of association may seem like a formal document, their wording has practical consequences. An error or lack of foresight may complicate the company’s management in the future.
One of the most common mistakes when drafting articles of association is using standard templates without assessing whether they suit the company. This may work for very simple companies, but it is not always enough when there are several shareholders, different lines of activity or growth expectations.
Other mistakes may include:
- Using articles of association that are too generic. The company may not have clear rules for important decisions.
- Defining the corporate purpose incorrectly. It may be necessary to amend the articles if the activity changes or does not fit properly.
- Not regulating management properly. There may be doubts about who manages, represents or makes decisions.
- Not anticipating the entry or exit of shareholders. This increases the risk of internal disputes.
- Not reviewing the articles after relevant changes. The company’s reality may stop matching its legal framework.
Difference between articles of association and shareholders’ agreement
Articles of association and a shareholders’ agreement are not the same, although both may influence how a company operates.
The articles of association form part of the deed of incorporation, are registered with the Commercial Registry and have effects before the company and third parties under the terms established by law.
A shareholders’ agreement, on the other hand, is a private agreement between the shareholders. It is usually used to regulate more specific matters, such as permanence commitments, the entry of investors, tag-along or drag-along rights, deadlock mechanisms or internal rules governing the relationship between shareholders.
In many companies, both documents complement each other. The articles of association establish the main corporate framework, while the shareholders’ agreement allows more specific rules to be developed between the shareholders.
For this reason, when reviewing the articles of association, it may also be advisable to check whether there is a shareholders’ agreement and whether both documents are aligned.
Frequently asked questions about articles of association
What are a company’s articles of association?
Articles of association are the internal rules that regulate the organisation and operation of a company. They define essential aspects such as the corporate purpose, registered office, capital, management body and method for adopting resolutions.
Are articles of association mandatory?
Yes. In capital companies, the articles of association form part of the deed of incorporation and are necessary to register the company with the Commercial Registry.
What should the articles of association of a limited liability company include?
The articles of association of a limited liability company must include, among other elements, the company name, corporate purpose, registered office, share capital, equity interests, method of organising management and the way resolutions are adopted.
Can articles of association be amended?
Yes. Articles of association can be amended when the company needs it, for example due to a change of registered office, a capital increase, a change in activity or a change in the management body.
What is the difference between the deed of incorporation and the articles of association?
The deed of incorporation is the notarial document through which the creation of the company is formalised. The articles of association form part of that deed and regulate how the company will operate internally.
Is it advisable to use a template for articles of association?
A template may serve as a starting point, but it does not always respond to the company’s real needs. In companies with several shareholders, growth expectations or specific circumstances, it is advisable to adapt the articles of association to the case.
Advice on drafting or amending articles of association
Articles of association are not only a necessary document to incorporate a company. They are also a tool to organise the company’s activity, regulate the relationship between shareholders and anticipate situations that may arise during its growth.
From LEIALTA’s legal and corporate department, we support companies and shareholders in the drafting, review and amendment of articles of association, integrating the legal and corporate perspective with the other areas that may be affected by the company’s structure.
