Difference Between Memorandum and Articles of Association

Posted on: 2017-10-26 03:43:12

When we are going to incorporate a company we found there always a company has two important documents that is Memorandum of Association (MOA) and Articles of Association (AOA) which plays a vital role during the company formation. Here you can get a comprehensive package of information on MOA and AOA and their distinction.

So let’s come to know what is MOA and AOA

Memorandum of Association (MOA) and Articles of Association (AOA) are basically charter documents that are needed in order to set up a company and govern its operations thereafter. MOA can be described as the very basis on which a company is formed since it contains all the basic information about the company in question. AOA basically contains all the rules and regulations that would be governing the company when it starts to operate as a legal entity.

MOA is normally used in order to set up the constitution of the company and as such it can be called the cornerstone on which a company is built. AOA has the bye-laws that come into play in order to govern the internal affairs of the company.

You need to register both with Registrar of Companies (ROC) at the time when you are incorporating the company.

Meaning and Definition of MOA

Memorandum of Association (MOA) is a special document that contains all the necessary fundamental information which is required for the company at the time of incorporation. It is the base of the company; it is also said in company law, no company can be incorporated without memorandum of association. 

Memorandum is used to constitute the constitution of the company and it provides the foundation on which its structure is built by you. It defines the objects, powers and scope of the company activities as well as its relation to the outside world. The main objective of memorandum is to explain the scope of the activities of the company.

Special features of MOA

The main features of memorandum of association (MOA) are discussed below:

1. As far as MOA is concerned one of its most important features is the name clause. No company is allowed to register a name that the central government (CG) may consider to be an unfit one. At the same time, the name should not also resemble closely the name of another company.

2. The second important feature in this case would be the situation clause. As per this clause the company would have to specify the name of the state where you would be setting up the registered office of your company.

3. The third important feature of MOA would be object clause, whereby you would have to specify the prime objectives as well as the secondary objectives of your company as a business enterprise.

4. The fourth important feature of MOA would be liability clause. Here you would need to specify various details pertaining to the liabilities that the members of your company have at present.

5. In the fifth important feature of MOA – capital clause – you would need to specify the total capital that your company has.

6. The last major important feature of MOA is the subscription clause whereby you would have to specify the details of your subscribers, the shares that they have taken, and witness related details.

Objectives of Memorandum of Association (MOA)

As you know that Memorandum of Association is the foundation structure of a company; it defines the area where the company can operates. According to the Section 4(1) of Companies Act, 2013 memorandum of a company states that -

  • The name of the company holds with last word "Limited or LTD" in the case of public limited company and "Private Limited or PVT LTD" for private limited company as well as one person company.
  • The State in which where the registered office of the company is to be situated.
  • The objects for which the company is proposed to be incorporated and any matter is considered necessary in furtherance thereof.
  • The liability of members of the company, whether it is limited or unlimited.

Meaning and Definition of AOA

Articles of Association is abbreviated to AOA, is a primary/secondary document which states all the rules and regulations that designed by the company for conducting its policy of day-to-day administration to run their organization smoothly. Articles of Association define the rights, responsibilities, duties and the purpose of the members and directors of the company.

The articles of association is generally contains the provisions for the company name, Board of Directors, Equity and preference shares, Bonus shares, remuneration, ESOPS, the organization of the company, provisions regarding to shareholders meetings , Board meeting and committee Meeting, etc..

Special features of AOA

The major features of articles of association (AOA) generally deals with the following

1. AOA is basically a secondary document in a way. It spells out the rules and regulations of your company with regards to administration as well as daily management. Along with this, the article would also have the rights, powers, responsibilities, and duties of members as well as directors of the company.

2. It is optional for Public Ltd Companies on Limited by Shares; but compulsory for all other companies.

3. AOA also has information on audit and accounts of the company. It is very necessary for a company to have articles.

4. AOA also tells the classes of shares, their values and the rights attached to each of them.

5. It can be altered from time to time according to the company's activity.

Objectives of Articles of Association (AOA)

While the memorandum deals with external affairs of a company, the articles essentially deal with internal working of a company.

As stated in Section 5(1) Companies Act that the Articles of Association shall contain its bye-laws or rules and regulations for governing the management of its internal affairs to conduct the business of a company.

It deals with the rights of the members of the company among themselves.

In Section 5 (2), the articles shall contain such matters that may be prescribed and it can't be overruled. If it required necessary of additional matters in its articles then could be considered by its management.

The Table F, G, H, I and J of Schedule 1 of the Companies Act, 2013 contains the model articles, can refer to it as per Section 5(6) and companies may adopt wholly or partly these tables for company management purpose. [As it is mentioned in Section 5(7)]

The articles includes with some activities in a company are

  • Share Capital
  • Rights of Shareholders
  • General Meetings
  • Board of Directors and their responsibilities
  • Accounts and Auditing
  • Borrowing Powers and etc.

A Simple Comparison chart of MOA and AOA

Here's take a look at the following are the list of differences between MOA and AOA on company formation.

MOA

AOA

MOA is defined in Section 2 (56).

AOA is defined in Section 2 (5).

It is subordinate to Companies Act.

It is subordinate to the memorandum.

It can be amended later on.

It can be amended in some cases.

It should have at least six clauses.

You can draft it as per Rules and Regulations.

It is mandatory for all companies.

If you are a public company that is limited by shares you can use Table A rather than AOA.

You have to file it for sure at the time of registration.

You have to file it for sure at the time of registration.

You need the approval of central government or Company Law Board (CLB) in order to alter it.

Such approval is not needed in order to alter it.

It defines the relation that a company has with outsiders.

It deals with the relationship that a company has with its members as well as between the members.

      

Memorandum of Association and Articles of Association are the necessary, most useful and important documents of the company which are to be managed to build the company’s aim, objects, power, scope, rules and regulations to run, grow and guide on various matters related to the company.

It also helps in proper functioning of management during the company life cycle. So, it is absolutely necessary and adds a great value for every company or business entity that’s why a company must have to need its own memorandum and articles for their business goals.

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