A Study On Binding Force Of Articles Of Association Of A Company

Articles of association of a company ("AOA") shall be the fundamental documents for the company. It is normally referred to as the"company constitution"in the western countries, which sufficiently reflects its importance to a company, no matter whether AOA is the real"constitution"or not. In fact, AOA usually regulates the most basic and crucial matters of a company. However, in China, AOA's status in real practice is quite embarrassing. During the incorporation procedures, it turns out that AOAs of all Chinese companies are almost completely identical and they are usually ignored during the daily operation of the companies. The latest amended PRC Company Law ("Company Law"), which came into force on 1 January 2006 shedding the light of the spirits of"Company Autonomy", reduces the compulsory provisions and increases the selective provisions therein and such strengthened the importance of AOA and to some extent exclude the application of the Company Law.According Article 11 of the Company Law, a legitimate AOA must be prepared for the establishment of a company. AOA shall be binding on the company, shareholders, directors, supervisors and senior management of the company. Therefore, to establish a company, a relevant AOA, as one important legal document shall be a must, which would regulate the organization and actions of a company. This article begins with the discussion of the basic legal principles of AOA. The content and the nature of an AOA would substantially affect the binding force of the AOA. The content provided in an AOA, which belongs to the absolutely mandatory issues, shall have stronger binding force and may directly be supported by laws or regulations, in other words, we may say the binding force of such content directly generates from laws and regulations. Where the content falls into the selective issues, then its binding force directly generates from the relevant AOA. According to Article 22 of the Company Law, binding force of laws or regulations is different from that of AOA. The discussion in respect of AOA's nature intends to find out the origin of AOA's binding force and therefore further distinguishes the AOA from the establishment agreement of a company which is very easily to be confused with AOA. The emergence of the binding forces also involves the time and object of such emergence. This article will discuss the beginning time and ending time of the AOA binding force as part of the basics legal theory of AOA. The object of AOA binding force will be the key-point of this article, which will be elaborated mainly based upon the AOA binding force on the company, shareholders, directors, supervisors, senior management which are provided in Article 11 of Company Law and other third party. This article will also assess the real problems in the practice and will make a relevant comparison with binding force of foreign company laws.Eventually, based upon the Company Law, this article will raise several proposals to enhance and perfect the AOA binding force so as to secure the better enforcement of AOA binding force in the real practice.