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This article titled ‘Memorandum of Association and Articles of Association: Meaning and Explanation.’ is written by Mayank Shekhar and discusses the meaning of Memorandum of Association and Articles of Association and explains them in detail.
I. Introduction: Memorandum of Association and Articles of Association
The Memorandum of Association (MOA) is a document that includes all of the necessary information for the registration of a business. The Articles of Association (AOA) is a document that contains all of the company’s rules and regulations.
The Memorandum of Association and the Articles of Association are the two most critical papers that must be prepared when establishing a business.
MOA (Memorandum of Association) describes the WHAT, WHERE, WHY, and WHO of the business, while AOA (Articles of Association) defines the HOW of the business.
II. MOA (Memorandum of Association)
MOA is an acronym for Memorandum of Association. This is regarded as the ultimate document of any business. As defined in Section 2(56) of the Companies Act,2013, “memorandum” refers to a company’s memorandum of association as initially drafted or as amended from time to time in accordance with any prior company legislation or this Act.
A Memorandum of Association is one of the papers that must be submitted with the Registrar of Companies (ROC) during a company’s establishment. It is required for the registration of a business. The MOA must be printed and distributed to shareholders, creditors, and anybody else associated with the business. It is a fundamental document that will serve as the foundation for the company’s limits/boundaries and superstructure.
Except as provided in the Companies Act, a corporation cannot amend a MOA.
1. Contents of MOA
A memorandum of association includes a name clause, a clause defining the registered office, a clause defining the goal (or objective), a clause defining the objectives, a clause defining the liability, a clause defining the capital, and a clause defining the association.
1.1 Name Clause
- This section specifies the suggested name for the business. It must finish in the term “limited” if the business is public, or “private limited” if the company is private.
- It cannot be identical to the name of an existing business.
- It cannot refer to a new firm carrying on the business of an old one.
- It must not be deceptive in any manner.
1.2 Clause Concerning the Registered Office
The registered office clause specifies the state in which the registered office of the business is physically situated. The physical location of the registered office establishes the jurisdiction of the Registrar of Companies and the court in which the company will be filed. Additionally, it verifies the company’s nationality. To facilitate future contacts, the registered office’s complete address must be given to the Registrar of Companies.
1.3 Objects or Clauses with Objectives
The objectives clause sometimes referred to as the objective clause, is regarded as the most critical section of the MOA.
- It establishes and restricts the scope of a business’s activities.
- It specifies the scope of the company’s activities for the benefit of the members and describes how the members’ money will be utilized.
- It safeguards shareholders’ money and guarantees they are utilized for the business objectives for which they were raised and are not risked in other ventures.
1.4 Clause Concerning the Object
The object clause specified why the corporation is being formed. Companies are not permitted to engage in any other kind of business than those explicitly mentioned in this paragraph. An object clause should include the following:
- A summary of the primary objectives that the business will pursue, following incorporation
- Incidental objectives that are required to accomplish the primary objective
- Any additional items not included in the primary or incidental objects
- Nothing is unlawful.
- Nothing that is contrary to the public good
- Nothing that would constitute a violation of the country’s basic rule of law
1.5 Clause of Liability
The liability clause specifies the extent to which each of the company’s members is liable. If the business is limited by shares, each member’s liability is restricted to the face value of the shares he or she owns. If the company is limited by guarantee, this provision must specify the extent to which each individual member of the business is liable. If the business is limitless, this provision would not be included in the MOA.
1.6 Capitalization Clause
The capital clause contains information on the prospective company’s entire capital. This sum is referred to as the authorized capital of the business. Companies are not allowed to gather more money than the authorized capital level. The capital clause must also specify how the capital is split into equity share capital and preference share capital. The number of shares issued in equity and preference capital, as well as their value, must be stated in the MOA.
1.7 Clause of Association
The association clause states that anybody signing the bottom of the MOA expresses a desire to be a member of the organization established by the memorandum. The MOA must be signed by at least seven individuals, or more if the business is public.
If it is a private business, it must be signed by at least two or more individuals. Witnesses must also attest to the signatures. A single witness can attest to all signatures, but none of the subscribers can attest to the signatures of their fellow subscribers. All subscribers and witnesses must give written notice of their residences and professions.
III. AOA (Articles of Association)
According to Section 2(5) of the Companies Act, 2013, “articles” refers to a company’s articles of organization as originally drafted or as amended or applied in accordance with any prior company legislation or this Act. AOA is used to write the rules and regulations that the business must follow, as well as the organization of the firm’s internal management. AOA should be written in such a manner that it does not contradict anything in the MOA.
Articles function similarly to the partnership agreement in a partnership. It should be produced and distributed to current and prospective shareholders and investors.
Additionally, the articles of association create a legally enforceable contract between the business and its members, as well as between the members and the firm. This contract regulates the normal rights and responsibilities of business membership. However, articles do not include a legally enforceable contract between the business and the third party.
AOA is governed under Section 5 of the Companies Act, 2013. The articles of incorporation should include the company’s management rules.
1. Contents of AOA
The AOA establishes rules for the appointment of Directors, their qualifications for appointment, their compensation once appointed, and the Board of Directors’ powers during Company meetings.
1.2 General Meetings
The AOA establishes the fundamental framework for all General Meetings to be held, as well as all rules pertaining to the operation of General Meetings in whatever capacity.
1.3 Accounting and Administration
The requirements of AOA will establish the standards for the Company’s accounting that will be audited.
The AOA simplifies the split of the Company’s share capital, including the Shareholders’ rights and their connection to other aspects of the Company. The shareholders are required to pay the whole or a portion of the balance due on each share bought on the Company’s demand, i.e. Call on Shares.
The Company has the right to keep the Shares of any member if they default on their obligation to the Company. The member will be unable to transfer their shares until their debt is satisfied.
1.6 Shares Transfer and Transmission
The AOA establishes the method to be followed when shares are transferred between the transferee and the shareholders. Transfer of shares occurs upon death, bankruptcy, marriage, or succession, among other events. Despite its unintentional nature, it is also included in AOA.
1.7 Surrendering and Forfeiting Shares
The AOA establishes procedures for share forfeiture if a member is unable to make required purchase payments, such as call money or any allocation on the Shares. Shareholders may surrender or voluntarily return their shares to the Company in accordance with the AOA’s rules.
1.8 Conversion of Stock Shares
The Company may convert its shares into stock by passing an ordinary resolution at a General Meeting. The decision and resolution should be managed in line with the AOA.
1.9 Issuance of Share Warranties
Public Limited Companies may issue share warrants in accordance with the AOA’s requirements. A share warrant is a bearer instrument that corresponds to the title of the Company’s shares.
1.10 Capital Changes
Similar to the conversion of Shares to Stock, AOA establishes the criteria for altering capital in the Company’s best interests. The Company has the option of increasing, decreasing or reallocating its capital.
1.11 Right to Vote
The AOA details the particular Company issues that need member vote, as well as the voting method, whether by poll or via proxies.
1.12 Distribution and Reserves
Additionally, the AOA governs the payment of dividends to the Company’s shareholders.
The term “winding up the company” refers to the process of liquidating all of the company’s assets in order to satisfy its debts. After all debts and costs are paid, the leftover funds are dispersed to the Company’s shareholders. Additionally, the AOA contains rules and procedures governing the Company’s winding up, which must be carried out in line with the AOA.
IV. Difference between MOA & AOA
The Memorandum of Association is a document that contains all of the information necessary for the Company’s establishment. On the contrary, the Articles of Association are a collection of laws and rules that control and regulate the Company. The Company is required to register the MOA at the time of its formation. At the time of formation, the Company is not required to register the AOA.
The Memorandum of Association limits the organization’s abilities, while the Articles of Association simply outline the rights and responsibilities that the organization’s members are accountable for adhering to.
The Articles of Association are subordinate to the Memorandum, which is the supreme document in the Company’s document hierarchy, whereas the Memorandum of Association must include six provisions in total, however, the Articles of Association may contain additional clauses if they do not conflict with the Companies Act, 2013.
The Memorandum of Association establishes the Company’s goals, while the Articles of Association provide the procedures by which those objectives are to be accomplished. Any provision of the AOA that conflicts with the Memorandum of Association is null and void, and the Memorandum of Association supersedes the Articles.