What Are Articles of Association?

Articles of association form a document that specifies the regulations for a company’s operations and defines the company’s purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records.

Understanding Articles of Association

Articles of association often identify the manner in which a company will issue shares, pay dividends, audit financial records, and provide voting rights. This set of rules can be considered a user’s manual for the company because it outlines the methodology for accomplishing the day-to-day tasks that must be completed.

While the content of the articles of association and the exact terms used vary from jurisdiction to jurisdiction, the document is quite similar throughout the world and generally contains provisions on the company name, the company’s purpose, the share capital, the company’s organization, and provisions regarding shareholder meetings.

In the the U.S. and Canada, articles of association are often referred to as “articles” for short.

Company Name

As a legal entity, the company must have a name that can be found in the articles of association. All jurisdictions will have rules concerning company names. Usually, a suffix such as “Inc.” or “Ltd.” must be used to show that the entity is a company. Also, some words that could confuse the public, such as “government” or “church,” cannot be used or must be used only for specific types of entities. Words that are offensive or heinous are also usually prohibited.

Purpose of the Company

The reason for the creation of the company must also be stated in the articles of association. Some jurisdictions accept very broad purposes—”management”—while others require greater detail—”the operation of a wholesale bakery,” for example.

Share Capital

The number and type of shares that comprise a company’s capital are listed in the articles of association. There will always be at least one form of common share that makes up a company’s capital. In addition, there may be several types of preferred shares. The company may or may not issue the shares, but if they are found in the articles of association, they can be issued if and when the need presents itself.

Organization of the Company

The legal organization of the company, including its address, the number of directors and officers, and the identity of the founders and original shareholders, are found in this section. Depending on the jurisdiction and type of business, the auditors and legal advisors of the company may also be in this section.

Shareholder Meetings

The provisions for the first general meeting of shareholders and the rules that will govern subsequent annual shareholder meetings—such as notices, resolutions, and votes—are laid out in detail in this section.

Small Business Example of Articles of Association

A person, or group of people, starting a business will typically refer to a lawyer, accountant, or both for advice when setting up a company.

The company will choose a name and define its purpose. The company is then registered at the state/province or federal level. Note that trademarking a name is a different process.

A company may issue shares to divide up the company if it wishes, but it doesn’t need to. The articles will lay out how this can be done. The lawyer or accountant will typically work with the directors of the company, asking them questions to help figure out how they wish to grow and how the company may end up being structured in the future.

Company directors are listed, along with their personal information. A business address is also provided.

Changes can be made to the articles of association with director(s) approval.

What Is an Account Number?

An account number is a unique string of numbers and, sometimes, letters and other characters that identify the owner of an account and grant access to it. In the U.S., the Social Security number was the primary identifier until its vulnerability to identity theft forced the practice to be abandoned. In today’s electronic age, the most important account number for many people is the checking account number.

How an Account Number Works

The checking account number is located at the bottom of the paper check. You’ll see three sets of numbers in a computer-readable font at the bottom of the check:

• The first number on the left is the nine-digit bank routing number.
• The middle number is your account number.
• The third number is the number of the check.

Payroll processing offices use checking account numbers to set up direct deposit payments for employees.

In addition to checks, account numbers are attached to just about any transaction a consumer or business can make. Sales receipts, subscription services, credit card accounts, and store club memberships all have them.

Protecting Account Numbers

Identification numbers, in addition to passwords, are vulnerable to identity theft and fraud. This is why we have to answer annoying questions about our mothers’ maiden names when we try to make routine changes to an account. The means of making it difficult for hackers to steal account numbers currently are taking the form of password managers along with multi-factor authentication systems.

Modern businesses now often employ a hard-to-hack master password to unlock an electronic vault of customers’ account numbers and other sensitive data. Consumers are becoming accustomed to multifactor authentication, which adds another step before accessing an account, such as a fingerprint, voice activation, or a time-sensitive code sent to the cellphone number on record.

These are just some of the means of protecting users’ account numbers in an increasingly vulnerable online environment.

Account Number vs. Routing Number

On a paper check, the nine-digit routing number identifies specific financial institutions within the U.S. The number identifies the check as having been issued by a federal- or state-chartered bank that maintains an account with the Federal Reserve.

This system dates back to 1910 and was developed initially as a way to help bank clerks sort through piles of checks and assign them to the correct drawer. Today, electronic services use them in much the same way for wire transfers, to draw a payment from a deposit at the correct institution.

The account number works together with the routing number to identify the right account holder at the right institution.

How to Locate Your Account Number

You can find your account number on your monthly bank statement, or by visiting a branch of your bank.

If you are using a checking account, the account number is also printed on your paper checks. You can find it printed between the bank’s routing number and the check number, as shown below.

The Bottom Line

An account number is a unique identifier for each account at a bank or other financial institution that you have. Along with the routing number, this number is used to make payments and deposits. Due to the increase in identity theft and fraud, it is important to protect your account number and other banking information.

What Is Annuitization?

Annuitization is the process of converting an annuity investment into a series of periodic income payments. Annuities may be annuitized for a specific period or for the life of the annuitant. Annuity payments may only be made to the annuitant or to the annuitant and a surviving spouse in a joint life arrangement. Annuitants can arrange for beneficiaries to receive a portion of the annuity balance upon their death.

Understanding Annuitization

The concept of annuitization dates back centuries, but life insurance companies formalized it into a contract offered to the public in the 1800s.

Individuals can enter into a contract with a life insurance company that involves the exchange of a lump sum of capital for a promise to make periodic payments for a specified period or for the lifetime of the individual who is the annuitant.

How Annuitization Works

Upon receiving the lump sum of capital, the life insurer makes calculations to determine the annuity payout amount. The key factors used in the calculation are the annuitant’s current age, life expectancy, and the projected interest rate the insurer will credit to the annuity balance. The resulting payout rate establishes the amount of income that the insurer will pay whereby the insurer will have returned the entire annuity balance plus interest to the annuitant by the end of the payment period.

The payment period may be a specified period or the life expectancy of the investor. If the insurer determines that the investor’s life expectancy is 25 years, then that becomes the payment period. The significant difference between using a specified period versus a lifetime period is that, if the annuitant lives beyond their life expectancy, the life insurer must continue the payments until the annuitant’s death. This is the insurance aspect of an annuity in which the life insurer assumes the risk of extended longevity.

Annuity Payments Based on a Single Life

Annuity payments based on a single life cease when the annuitant dies, and the insurer retains the remaining annuity balance. When payments are based on joint lives, the payments continue until the death of the second annuitant. When an insurer covers joint lives, the amount of the annuity payment is reduced to cover the longevity risk of the additional life.

Annuitants may designate a beneficiary to receive the annuity balance through a refund option. Annuitants can select refund options for varying periods of time during which, if death occurs, the beneficiary will receive the proceeds. For instance, if an annuitant selects a refund option for a period certain of 10 years, death must occur within that 10-year period for the insurer to pay the refund to the beneficiary. An annuitant may select a lifetime refund option, but the length of the refund period will affect the payout rate. The longer the refund period is, the lower the payout rate.

Changes to Annuities in Retirement Accounts

In 2019, the U.S. Congress passed the SECURE Act, which made changes to retirement plans, including those containing annuities. The good news is that the new ruling makes annuities more portable. For example, if you change jobs, your 401(k) annuity from your old job can be rolled over into the 401(k) plan at your new job.

However, the SECURE Act removed some of the legal risks for retirement plans. The ruling limits the ability for account holders to sue the retirement plan if it doesn’t pay the annuity payments—as in the case of bankruptcy. Note that a safe harbor provision of the SECURE Act prevents retirement plans (and not annuity providers) from being sued.

The SECURE Act also eliminated the stretch provision for those beneficiaries who inherit an IRA. In years past, a beneficiary of an IRA could stretch out the required minimum distributions from the IRA over their lifetime, which helped to stretch out the tax burden.

With the new ruling, non-spousal beneficiaries must distribute all of the funds from the inherited IRA within 10 years of the death of the owner. However, there are exceptions to the new law. By no means is this article a comprehensive review of the SECURE Act. As a result, it’s important for investors to consult a financial professional to review the new changes to retirement accounts, annuities, and their designated beneficiaries.

What Is the Accumulation/Distribution Indicator (A/D)?

The accumulation/distribution indicator (A/D) is a cumulative indicator that uses volume and price to assess whether a stock is being accumulated or distributed. The A/D measure seeks to identify divergences between the stock price and the volume flow. This provides insight into how strong a trend is. If the price is rising but the indicator is falling, then it suggests that buying or accumulation volume may not be enough to support the price rise and a price decline could be forthcoming.

The Accumulation/Distribution Indicator (A/D) Formula

$\begin{aligned}&\text{MFM} = \frac {(\text{Close} – \text{Low} ) – ( \text{High} – \text{Close} ) } {\text{High} – \text{Low} } \\&\textbf{where:}\\&\text{MFM} = \text{Money Flow Multiplier} \\&\text{Close} = \text{Closing price} \\&\text{Low} = \text{Low price for the period} \\&\text{High} = \text{High price for the period} \\ \end{aligned}$​MFM=High−Low(Close−Low)−(High−Close)​where:MFM=Money Flow MultiplierClose=Closing priceLow=Low price for the periodHigh=High price for the period​

$\begin{aligned}&\text{Money Flow Volume} = \text{MFM} \times \text{Period Volume} \\ \end{aligned}$​Money Flow Volume=MFM×Period Volume​

$\begin{aligned}&\text{A/D} = \text{Previous A/D} + \text{CMFV}\\&\textbf{where:}\\&\text{CMFV} = \text{Current period money flow volume} \\ \end{aligned}$​A/D=Previous A/D+CMFVwhere:CMFV=Current period money flow volume​

How to Calculate the A/D Line

1. Start by calculating the multiplier. Note the most recent period’s close, high, and low to calculate.
2. Use the multiplier and the current period’s volume to calculate the money flow volume.
3. Add the money flow volume to the last A/D value. For the first calculation, use money flow volume as the first value.
4. Repeat the process as each period ends, adding/subtracting the new money flow volume to/from the prior total. This is A/D.

What Does the Accumulation/Distribution Indicator (A/D) Tell You?

The A/D line helps to show how supply and demand factors are influencing price. A/D can move in the same direction as price changes or in the opposite direction.

The multiplier in the calculation provides a gauge for how strong the buying or selling was during a particular period. It does this by determining whether the price closed in the upper or lower portion of its range. This is then multiplied by the volume. Therefore, when a stock closes near the high of the period’s range and has high volume, it will result in a large A/D jump. Alternatively, if the price finishes near the high of the range but volume is low, or if the volume is high but the price finishes more toward the middle of the range, then the A/D will not move up as much.

The same concepts apply when the price closes in the lower portion of the period’s price range. Both volume and where the price closes within the period’s range determine how much the A/D will decline.

The A/D line is used to help assess price trends and potentially spot forthcoming reversals. If a security’s price is in a downtrend while the A/D line is in an uptrend, then the indicator shows there may be buying pressure and the security’s price may reverse to the upside. Conversely, if a security’s price is in an uptrend while the A/D line is in a downtrend, then the indicator shows there may be selling pressure, or higher distribution. This warns that the price may be due for a decline.

In both cases, the steepness of the A/D line provides insight into the trend. A strongly rising A/D line confirms a strongly rising price. Similarly, if the price is falling and the A/D is also falling, then there is still plenty of distribution and prices are likely to continue to decline.

The Accumulation/Distribution Indicator (A/D) vs. On-Balance Volume (OBV)

Both of these technical indicators use price and volume, albeit somewhat differently. On-balance volume (OBV) looks at whether the current closing price is higher or lower than the prior close. If the close is higher, then the period’s volume is added. If the close is lower, then the period’s volume is subtracted.

The A/D indicator doesn’t factor in the prior close and uses a multiplier based on where the price closed within the period’s range. Therefore, the indicators use different calculations and may provide different information.

Limitations of Using the Accumulation/Distribution Indicator (A/D)

The A/D indicator does not factor in price changes from one period to the next, and focuses only on where the price closes within the current period’s range. This creates some anomalies.

Assume a stock gaps down 20% on huge volume. The price oscillates throughout the day and finishes in the upper portion of its daily range, but is still down 18% from the prior close. Such a move would actually cause the A/D to rise. Even though the stock lost a significant amount of value, it finished in the upper portion of its daily range; therefore, the indicator will increase, likely dramatically, due to the large volume. Traders need to monitor the price chart and mark any potential anomalies like these, as they could affect how the indicator is interpreted.

Also, one of the main uses of the indicator is to monitor for divergences. Divergences can last a long time and are poor timing signals. When divergence appears between the indicator and price, it doesn’t mean a reversal is imminent. It may take a long time for the price to reverse, or it may not reverse at all.

The A/D is just one tool that can be used to assess strength or weakness within a trend, but it is not without its faults. Use the A/D indicator in conjunction with other forms of analysis, such as price action analysis, chart patterns, or fundamental analysis, to get a more complete picture of what is moving the price of a stock.