Did you ever wonder how the two charter documents play a crucial role in the formation or establishment of the company?
Fasten your seatbelts and get ready to learn all about the Memorandum of Association and Article of Association. A Memorandum of Association and Article of Association are the documents that dictate the formation and operations of a firm. A Memorandum of Association or MoA, contains fundamental information about the company. Whereas, Article of Association, also called AoA, are the guidelines the business has created.
To better understand the difference between MoA and AoA, read the following article to know more.
Table of Contents
- What is the Purpose of MoA?
- What is the Importance of MoA and AoA in Company Formation?
- What are the Contents of the Memorandum of Association?
- Key components of the Article of Association
- Format of Memorandum of Association
- Difference between a Memorandum of Association and Articles of Association
- Final thoughts- MoA & AoA
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What is a Memorandum Of Association (MoA)?
A Memorandum of association (MoA) is a legal document that builds the foundation for the existence of a company. MoA calls for the documents required for forming a company that outlines its objectives and fundamental details. By providing shareholders, directors, and external parties with insight into the firm's purpose and limitations, MoA outlines the scope of its activities.
What is the Purpose of MoA?
The purpose of MoA is to establish a legal document of a company. It mentions the activities and goals for which the company is founded and serves as a reference for the company’s, actions, and legal capacity. As this, it also maps out the relationship the company has with its stakeholders, directors, and creditors.
What is the Articles Of Association (AoA)?
The Articles of Association meaning (AoA) constitutes a legal deed that incorporates the internal norms, rules, and processes for the management and operation of a company. It complements the Memorandum of Association (MoA), and these documents combined form the constitution of a firm.
What is the Purpose of MoA?
Articles of Association put forth a document that mentions the comprehensive plan with a set of rules conforming to the internal governance and management of the company, which is an elaborated strategy as mentioned with keeping in mind the rights and interests of shareholders.
What is the Importance of MoA and AoA in Company Formation?
The following are quite a few points that hint at the importance of MoA and AoA in company formation-
- It acquires a legal presence within the framework of the company.
- If one fails to disobey the memorandum, the company is fit to sue its members.
- All the company-related activities are recorded- within MoA and AoA.
- Due to its legitimate nature, the liability and rights of its members stay defined.
What are the Contents of the Memorandum of Association?
The principal clauses and contents of the Memorandum of Association are as follows-
- Name Clause - As the name suggests, one ought to have a unique name for the company. The Name clause should justify the company's presence and its distinctiveness. For example, if you are a Private Limited Company- then it should end with Private Limited, or- if it is a Public Limited Company it should end with the word Limited.
- Registered Office Clause - The Registered Office Clause documents the name of the state in which the company is located. As a result, such a thing makes it easy to gauge the jurisdiction of the registrar of the companies. Most importantly, it is strictly mentioned that a company ought to inform the Registrar of Companies within 30 days of the commencement of the location of its registered office.
- Objective Clause - It discusses the outline of the functioning of a company. In short, it is a mind map that clearly defines the involvement of shareholders as well as how the investment plan will be laid out.
- Liability Clause - It mentions the liability of the company's employees. With that being said, if a company is limitless, then the liability of its members will be incalculable too. However, if the firm is restricted by certain shares, the liability of the same will be limited owing to the unpaid share.
- Capital clause - This particular clause highlights the maximum share capital and total share capital a company can raise. It even shows how the capital amount is divided into shares each worth a certain amount.
Key components of the Article of Association
The articles of association in company law take into account the rules and regulations which govern the internal affairs of the management. AoA distinguishes the duties, authority, and powers equipped with the shareholders and the form in which the business is carried out.
While the articles of association are somewhat the same everywhere, the terms may vary depending on the area of jurisdiction. Nonetheless, let us have a look at the key components of articles of association are carefully listed below-
- Company name and form of business - To justify its legitimacy, the name of the company should be unique. The entry to the same needs to be added to the Articles of Association along with the legal address.
- Purpose of the company - As the name suggests, the purpose of the company needs to be specified, as it justifies the intent and pursuit of an organization with the objective.
- Capital structure - The capital structure mentions the relationship one has with the stakeholder. Additionally, it is even the method by which a company organizes its overview of the capital.
- Corporate governance - To streamline the process, the director's, and stakeholders’ responsibilities, are elaborated and defined. Within AoA, the rules related to decision-making are laid out in the legal write-up. Moreover, it mentions the solutions to the most questionable issues and ways to address them.
- Administration of corporate records - It demands an overview of the records; involving shareholders' meetings and financial inquiries. These documents are constantly demanded and made to present regularly to claim the credible nature of the company’s existence.
Format of Memorandum of Association
Every firm needs to choose the MoA format as specified in Table A to Table E of Schedule 1 of Section 4(6) of the Companies Act, 2013 (Act). The different types are mentioned below-
- Table A - It is eligible for a company with a share capital.
- Table B - It is eligible for a company limited by the guarantee and does not have a share capital.
- Table C - It is eligible for a company limited by its guarantee with a shared capital. l
- Table D - It is eligible for a company that is unrestricted but does not have the capital.
- Table E - It is eligible for an unrestricted company with shared capital.
Difference between a Memorandum of Association and Articles of Association
A Memorandum of Association directs discussions on the objects over which a company is established, whereas an Articles of Association means management of norms and rules that exist within the internal management of the firm. Not just this, let us have a look at the difference between MoA and AoA.
|Key components for comparison||Memorandum of Association||Articles of Association|
|Meaning||Memorandum of Association refers to a charter document that encloses key detail which is necessary for company’s incorporation.||Articles of Association refer to documents that contain all the norms and rules that regulate the company.|
|Type of information asked for||Objects of the company as listed||Rules of the company|
|Important content||It should have a total of six clauses||It can be documented as per the company’s verdict|
|Status||It serves the Companies Act||It serves as per the memorandum|
|Place of importance during registration||It is of vital importance to fill up the ROC during the time of company registration.||The drafting process of AoA is said to be obligatory. However, filing an AoA with the ROC is nonobligatory during company registration.|
|Relevance||MoA is one of the supreme documents and assists in the process of drafting AoA||Any contradiction to the provision of AoA With MoA will be invalidated|
|Retrospective element||The MoA of the company cannot be viewed retrospectively||The AoA of the company can be seen retrospectively|
Final thoughts- MoA & AoA
To conclude, a Memorandum of Association and Articles of Association are the necessary legal documents of the company, more like a rulebook that dictates a company’s rules and regulations on quite a few matters. It establishes good decorum and maintains order; within the four walls of an organization to ensure smooth functioning. Thus, such a thing calls for companies to have their (own) memorandum and articles.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.
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