The Memorandum of Association (MOA) and Articles of Association (AOA) define a company’s scope of work, objectives, rules and internal management. The MOA and AOA are two essential documents that are the basis of the company’s constitution. They are indispensable, and the company’s foundation stands upon them. Therefore, the founders of a company must draft them with utmost clarity and precision
What is a Memorandum of Association (MoA)?
MoA full form is Memorandum of Association. It is an important legal document that is used in the incorporation application. According to the Section 2(56) of Companies Act, 2013; ‘memorandum’ means the Memorandum of Association of a company as framed originally and altered regulatory in pursuance of any earlier company act or of this particular act. It is an important document for the registration of a company. This document defines the purpose for which the organisation was founded. Through this document, the company establishes its authority and the terms under which it works.
Uses of MoA
Every business specifies its extent of activities through its Memorandum of Association. Organizations cannot operate outside the limits of the document. In case the company goes beyond its authority, it is deemed supra vires and thus, null. It controls the interaction of a company with its stakeholders.
A memorandum helps shareholders in understanding about the business before they invest in the company’s stocks. Through MoA, shareholders can analyse the scope of investing in a business.
Components of Memorandum of Association
An MoA has the following components:
- Name clause: This is a clause through which the name of a company is specified. These names should not be not the same as any existing company. If the company is public, it should include the word ‘limited’ in its name. If it is a private company, then it should include ‘private limited’ in its name.
- Registered Office Clause: In this clause, the name of the state where your registered office is situated. Through this, the jurisdiction of the Registrar of Companies is determined. Company has to inform the Registrar of Companies about its registered office location within 30 days of incorporation or commencement.
- Object clause: This clause mentions the objective of formation of the company. Object clause defines the purpose and range of activities. It includes the main business of the company, objectives that facilitate the main objective and any other objective.
- Liability clause: This clause states the responsibility of members of a company. If the company is unrestricted, then the liability is unlimited for a member. When a company is limited by shares, liability is limited by balance outstanding on their shares. If the company is limited by guarantee, the responsibility of members is limited by the amount that each partner agrees to pay.
- Capital clause: It mentions the share capital that has been used for registering the company. This clause mentions shares types, number of shares of every type and face value of share. Those companies that need to be listed should have a prescribed face value of shares. Other companies that do not require to be listed can assume any face value based on multiple factors.
- Subscription clause: This clause mentions the objective of every shareholder for the incorporation of the company. This clause also states the number of shares that every subscriber is taking up.
What is an Article of Association (AoA)?
AoA full form is Article of Association (AoA) which is a document that provides details on the purpose and regulations of the company’s operations. It is considered a user manual as it outlines the methodology that the company adopts for acquiring day-to-day tasks. The document has a universally similar format. It mentions the purpose, organization, share capital and provisions regarding shareholder meetings.
Uses of AoA
Through the Articles of Association, one can understand a lot about a company. This includes the method of issuing shares, paying to divide, audit financial records, and providing voting rights. It serves as the primary source that authorities have to assess and grant a separate legal identity to the company from its stakeholders.
Components of Article of Association
The following are the different components of an AoA:
- Company Name: In an Article of Association, it is important the name of the company is present. This name should be distinguishable to establish the company as a legal entity. The name must include words to specify the type of company, such as ‘Ltd.’ or ‘Inc.’.
- Purpose: Another important component of this charter document is specifying the purpose. They need to elaborate on this purpose for stakeholders to understand what the company aims to achieve in the long term. It can be a general purpose statement or detailed information as per the rules of jurisdiction.
- Capital structure: It is also important to state the method used for organizing the capital structure. This represents the manner in which company confers stakes in exchange for the support of stakeholders.
- Corporate governance: An Article of Association also mentions the rights and responsibilities of shareholders. The liability of different members in the company varies as per the jurisdiction. Their indemnity is outlined within the AoA. The rules are legally binding once set in writing. The document may also include the frequency of meeting, dispute resolution, quorus, voting and participation.
Difference Between MOA and AOA
| Particulars | MOA | AOA |
| Description | Defines the company’s constitution, powers, objectives, and constraints of the organisation. | Defines rules and regulations of the company. It also defines the duties, powers, liabilities and rights of individuals associated with the organisation. |
| Contents | It contains the five mandatory clauses. | It contains the provisions as per the requirements of the organisation. |
| Area of operation | It defines the relationship between the company and third parties. | It defines the relationship between the company and its members and also amongst members. |
| Filing at the time of registration | It is a mandatory document that must be filed with the ROC at the time of company registration. | The drafting of AOA is mandatory. However, the filing of AOA with the ROC is optional at the time of company registration. |
| Importance and position | MOA is a supreme legal document and subordinate to the Companies Act. | AOA is subordinate to the MoA and the Companies Act. |
| The relationship between the two | MOA is a dominant document that helps in the drafting of the AoA. | Any provision in the AOA that contradicts the MoA is considered as null and void. |
| Acts done beyond its scope | The acts done beyond the scope of MOA are void and cannot be ratified. | The acts done beyond the scope of AOA can be ratified by shareholders. |
| Alteration | An alteration can be made in the MOA only after passing a special resolution in the Annual General Meeting (AGM) and after obtaining prior approval from the Central Government. | An alteration in the AOA can be made by passing a special resolution in the Annual General Meeting (AGM). |
| Retrospective amendment | The MOA cannot be amended with retrospective effect. | The AOA can be amended retrospectively. |
FAQs
What are Benefits of AoA?
- This document establishes rules for the company’s internal management.
- The roles and responsibilities of the directors and officers are defined via the Articles of Association.
- AoA establishes the procedure to be followed for meetings and decision-making processes.
- The document provides a proper mechanism to resolve internal disputes within the company.
- AoA ensures that the company operation is smooth and efficient.
What are Similarities Between MoA and AoA?
While there are some difference between AoA and MoA, there do have certain common grounds. Let us now discuss the similarities between the two. Both AoA and MoA are important company documents. These documents have certain similarities, as mentioned below:
- In terms of similarities between MoA and AoA, both require registration with the ROC (Registrar of Companies) during the time of incorporation.
- These two are the primary documents of the company that serve as the constitution of the company.
- Both are public documents that can be inspected by anyone internally and externally.