What are the company’s articles of incorporation? What should be written or included in the articles of incorporation? Why does a company need articles of incorporation? What are the similarities and differences between articles of incorporation and shareholders’ agreement? In case of discrepancy, will articles of incorporation prevail over the shareholders’s agreement? This article will answer to these questions.
1. What are company’s articles of incorporation?
Law on Commercial Enterprises (LCE), in particular Article 88, does not clearly define the term “articles of incorporation”. However, according to the glossary of the Civil Code, “articles of incorporation” refer to document or instrument used for incorporating a legal entity and such instrument must prescribe the necessary information or contents such as purpose, name, location of the head office, etc., of that legal entity.
2. What should be written or included in the articles of incorporation?
Pursuant to the Law on Commercial Enterprises, Article 93, the company’s articles of incorporation must stipulate the following information or contents: (1) the name of the company; (2) the registered office of the company in the Kingdom of Cambodia; (3) the business objectives of the company and the determination of the business in which the company operates; (4) the capital of the company to be declared in the national currency; (5) the classification of the maximum number of shares, the inscription price on the shares and the description of the rights, restrictions and conditions associated with each type of the shares; (6) the actual name and address of each member or shareholder of the company; and 7) Number of directors or the minimum and maximum number of directors of the company. In addition, the company’s articles of incorporation may include any other information, conditions or contents as necessary. (Article 54, LCE)
The articles of incorporation can be made in the form of a private or notarized document, and all pages of these articles of incorporation must be signed or initial by all members of that company. (Article 95) This means that all shareholders must sign all pages of the articles of incorporation while the directors are not required to do so.
3. Why does a company need articles of incorporation?
One of the conditions for the incorporation of a company (limited liability company) is the filing of the company’s articles of incorporation with the Director of Companies who are the officers appointed by the Minister of Commerce to administer the Law on Commercial Enterprises. (Article 88 and Article 91, LCE)
The Company has acquired legal personality, that is, the ability to acquire the same rights and assume obligations as a natural person from the date of its registration in the commercial register (Articles 98 and 99, LCE). Unlike a natural person who has the ability to act on his own, the company cannot act on its own. Hence, the company needs an agent or representative who is a natural person to perform all activities of the company.
Therefore, it is necessary to have a law (articles of incorporation) to protect the interests of the company, shareholders, directors, officers and employees of the company and to protect the rights and interests of other stakeholders. For example, Article 103 of the Law on Commercial Enterprises, states that a company must not engage in any business or exercise any rights that its articles of incorporation prohibit or exercise any rights contrary to its articles of incorporation.
And for the purpose of protecting the relevant person, Article 104 stipulates that the act of the company that violates its articles of incorporation does not lead to the annulment of such act. Therefore, even if the actions of the company (such as the transfer of assets to the company or the transfer of assets from the company) are contrary to the articles of incorporation, such actions are valid.
4. What are the similarities and differences between articles of incorporation and shareholders’ agreement?
We observe that in practice there is a shareholders’ agreement in addition to the company’s articles of incorporation. Both documents are similar as they are created by the consent or agreement of all parties who are shareholders of the company. There are also cases where the information which is stated in the shareholders’ agreement can also be stated again in the company’s articles of incorporation.
However, the difference is that the company’s articles of incorporation are the document required by law. They must include some information required by law and must be filed with the Ministry of Commerce (Article 96, LCE). In addition, any amendments to the articles of incorporation must also be filed with the Ministry of Commerce (Articles 239 and 240, LCE). On the other hand, the shareholders’ agreement is a private document or contract that governs the relation between the shareholders. The formation, content and amendment of this agreement are not required to be filed with the Ministry of Commerce or disclosed to third parties.
Accordingly, we can say that in the event of a dispute between the company and persons who are not shareholder of the companies, the articles of incorporation must be used. In the event of a dispute among the shareholders, the articles of association and the shareholders’ agreement can be used to resolve the disputes.
5. If there is discrepancy between the terms of shareholders’ agreement and those of the articles of incorporation, which one will prevail over the other?
In this case, as interpretation, the company’s articles of incorporation should prevail over the shareholders’ agreement. This is because shareholders’ agreement is more private and confidential than articles of incorporation, which are filed with the Ministry of Commerce through which third parties (for example, a creditor or a person who wants to buy shares or a company) can easily obtain a copy of articles of incorporation. Moreover, the determination of rights and obligations of shareholders in the shareholders’ agreement that are contrary to those in articles of incorporation may affect the expectations of third parties who have interest or benefit with that company.
In conclusion, articles of incorporation or memorandum and articles of association are statute or constitutional document of the company.
This article is not legal opinion or legal advice.