The memorandum and articles of association of a company are the most important documents for the formation of a company and for its functioning thereafter. The memorandum of association contains the name, situation of registered office, objects, capital, and liability clauses. The articles are its bye-laws or rules and regulations that govern the management and internal affairs and the conduct of its business. Both the documents are required to be registered with the Registrar of Companies at the stage of incorporation of the company.
Before dealing with a company, it is advisable to read the memorandum and articles of the company to understand aspects, such as powers of Board, the scope of company’s activities, etc., and its relationship with the outside world.
Difference Between AOA & MOA
|Fundamental Document (charter)||Subordinate Document (internal)|
|Memorandum prevails over Articles||Articles cannot override Memorandum|
|Memorandum cannot be amended retrospectively||Articles can be amended retrospectively|
|Every company must have its own memorandum||A public company limited by shares may adopt Table A and in such a case it need not have its own articles|
|Memorandum has 6 clauses||The Act has not prescribed any contents of articles.|
|Alteration is difficult and length procedures with lots of approvals||Alteration is relatively easy and do not require much approvals|
|Any act done beyond Memorandum is Ultra Vires i.e Void||Any act done beyond Articles can be ratified retrospectively by amending articles.|
Distinction Between the Memorandum and Articles
The main points of distinction between the memorandum and articles are given below:
- Memorandum of association is the charter of the company and defines the fundamental conditions and objects for which the company is granted incorporation. Articles of association are the rules and regulations framed to govern this internal management of the company.
- Clauses of the memorandum cannot be easily altered. They can only be altered in accordance with the mode prescribed by the Act. In some of the cases, alteration requires the permission of the Central Government or the Court. In the case of articles of association, members have a right to alter the articles by a special resolution. Generally there is no need to obtain the permission of the Court or the Central Government for alteration of the articles.
- Memorandum of association cannot include any clause contrary to the provisions of the Companies Act. The articles of association are subsidiary both to the Companies Act and the memorandum of association.
- The memorandum generally defines the relation between the company and the outsiders, while the articles regulate the relationship between the company and its members and between the members inter se.
- Acts done by a company beyond the scope of the memorandum are absolutely void and ultra vires and cannot be ratified even by unanimous vote of all the shareholders. But the acts of the directors beyond the articles can be ratified by the shareholders.
Memorandum of Association
The Memorandum of Association is a document which sets out the constitution of a company and is therefore the foundation on which the structure of the company is built. It defines the scope of the company’s activities and its relations with the outside world.
A memorandum is a public document under Section 399 of the Companies Act, 2013. Consequently, every person entering into a contract with the company is presumed to have the knowledge of the conditions contained therein.
Section 4 of the Companies Act, 2013 seeks to provide for the requirements with respect to memorandum of a company.
Articles of Association
The articles of association of a company are its rules and regulations, which are framed to manage its internal affairs. Just as the memorandum contains the fundamental conditions upon which along the company is allowed to be incorporated, so also the articles are the internal regulations of the company [Guiness vs. Land Corporation of Ireland 22 Ch. D. 349, 381].
The articles of association are in fact the bye-laws of the company according to which the director and other officers are required to perform their functions as regards the management of the company, its accounts, and audit. It is important therefore that the auditor should study them and, while doing so he should note the provisions therein in respect of relevant matters. Section 5 of the Companies Act, 2013 seeks to provide the contents and model of articles of association.