Articles of Association and Memorandum of Association

Articles of Association

For a successful organization, it is essential to have carefully drafted rules and regulations which set out its objectives and deal with its internal functioning to achieve those objectives. In the case of a company, 2 of its most important documents are “Articles of Association” (AOA) and “Memorandum of Association” (MOA). MOA is like a constitution of a company that sets out the objectives and boundaries of a company and is used at the time of the formation of a company, whereas AOA deals with the internal matters of the company.

In this article, we will explore the meaning, definition and contents of the Articles of Association (AOA) of a company.

Meaning of Articles of Association (AoA)

It is a document that sets out rules, regulations, and bye-laws relating to the internal management of the company. It can be understood as a “rulebook” according to which the business would be conducted and managerial affairs would be regulated. This document provides several minute details relating to internal functioning such as the manner of making calls, director’s/employees qualifications,  powers and duties of auditors, forfeiture of shares etc.

Definition of Articles of Association

The Definition of AOA is provided under Section 5 of the Companies Act, 2013. It states that AOA is a document that has been originally framed or altered from time to time in accordance with this Act or with the provisions of previous Company Law.

What is the Article of Association?

As discussed earlier, it is a special document that governs the internal relations of a company. It establishes a contract between the members as well as between the members and the company. This contract has a deep influence over the working of the company as all the rights and liabilities are governed by this document.

As per Section 399 of the Companies Act, when the AOA is registered with the Registrar of Companies,(ROC), it becomes a “public document”. It means that anyone from the general public can view and inspect this document by paying a prescribed minimal fee. The interested person made a request to a specific company and in return, the company had to send this document within 7 days. Nowadays, the AOA can be easily accessed from the Ministry of Corporate Affairs (MCA) website.

Signatories of Articles of Association

As per Companies (Incorporation) Rules, 2014, the following persons will be the signatories of the Articles of Association-

  • It must be signed by all the subscribers along with their full name and address
  • In case the subscriber is illiterate, he must affix a thumb impression and authorise a person to sign the documents on his behalf.
  • If the subscriber is a body corporate, then it must be signed by the director of the company, who is duly authorised to sign it.
  • In case the subscriber is a limited Liability Partnership (LLP), the partner of the LLP, who is duly authorised to sign, by a resolution of all the partners shall sign it.

Objectives of Articles of Association

Section 5 of the Companies Act 2013 enumerates the objectives of this document, which are as follows-

  • To prescribe rules and regulations relating to the managerial affairs of the company.
  • To prescribe rules and regulations to establish a contract between the members and the company.
  • The AOA of a company is a flexible document; it can be amended and additional items can be incorporated into it.Alteration of Articles of Association

Forms of Articles of Association (AOA)

There are various forms of Articles of Association depending upon the different types of companies as provided under Schedule 1 of Companies Act, 2013

  • Table F- Article of Association of a company which is limited by shares.
  • Table G- Article of Association of a company which limited by guarantee and having a share capital
  • Table H – Article of Association of a company which is limited by guarantee and not having a share capital.
  • Table I – AOA of an unlimited company and having a share capital.
  • Table J- Article of Association of an unlimited company and not having a share capital.

Format of Articles of Association

The Article of Association of a company contains the following clause –

  • Adoption of preliminary contracts:, It refers to a statement adopting all the preliminary contracts.
  • Number and value of the shares: It talks about the total number of shares as well as their values..
  • Issues of preference share: It provides the manner and procedure by which the preference shares shall be issued.
  • Allotment of shares: It talks about how many shares have been allotted to whom and what are its values.
  • Calls on shares: How much call money should be called on shares is mentioned under this clause.
  • Lien on shares i.e., deals with a situation in which if the member is unable to fulfil the debt to the company, who will retain the possession of shares.
  • Transfer and transmission of shares: This provision is related to the transfer of shares which needs to be mentioned in the articles.
  • Nominations: All nominations need to be mentioned under this clause.
  • Forfeiture of shares: How can a company forfeit its shareholders is mentioned therein.
  • Alteration of capital: The provisions related to the alteration of shares is also mentioned.
  • Buyback: How can a company buy back its shares from existing shareholders.
  • Share certificate: The provisions regarding the share certificate are required to be mentioned in the articles.
  • Dematerialization: It refers to a process by which securities are converted into electronic format.
  • Conversion of shares into stock: The procedure to be adopted for the conversion of shares into stock should be mentioned.
  • Voting rights and proxies: All the voting rights and proxies need to be mentioned.
  • Meeting and rules regarding committees.
  • Directors: their appointment and delegation of power.
  • Nominee directors: Who can be appointed as a director to the board of a company in order to represent the interests of his appointor on that board.
  • Issue of debentures and stocks: How can the debentures and stocks be issued.
  • Audit Committee: All the provisions regarding the audit committee along with its functions and powers must be prescribed in the articles.
  • Managing director, Whole-time director, Manager and Secretary.
  • Additional directors: Who can be the additional directors.
  • Seal: what will be the official seal of the company.
  • Remuneration of directors: The amount of remuneration to be provided to the directors.
  • General meetings: When will the general meeting be held?
  • Director’s meetings: When will the director’s meetings be held?
  • Borrowing powers: Every company should have borrowing power and the provision regarding the borrowing power must be mentioned in the articles.
  • Dividends and reserves: The number of dividends to be distributed and reserves to be kept.
  • Accounts and audit: When an audit of the accounts will be done.
  • Winding up: The provisions related to the winding up of the company are required to be mentioned in the articles. This procedure is required to be followed during the winding up.
  • Provisions regarding common seal: The AOA should contain all the provisions regarding the common seal of the company.

Alteration of Articles of Association

The alteration of the Articles of Association is provided under Section 31 of the Companies Act, 2013. This section states that subject to the condition provided in the Memorandum of Association, a company can alter its Article of Association by passing a special resolution for the following conditions-

  1. Converting a Public company into a private Company
  2. Converting a Private Company into a Public Company

It is important to note that the copy of the altered AoA must be sent to the Registrar of Companies within 15 days of passing the resolution.

FaQ related to Articles of Association

What are the Conditions for the Provisions of Entrenchment in the AOA?

The concept of entrenchment is provided under Section 5(3) of the Companies Act, which implies that some provisions of the Article of Association can’t be altered by a special resolution, but it requires a much lengthier and elaborate process. It is a sort of an additional restriction with an objective to preserve some important decisions from the purview of the ordinary amendment.

Can an AoA be altered?

As per Article 31 of the Companies Act, 2013, the Article of Association can be altered any time by passing a special resolution. However, the power of alternation is subject to the fulfilment of some conditions- (1)The alternation must be in accordance with the provisions of the Companies Act, 2013. (2)The alteration must be consistent with the provisions of the Memorandum of Association (MOA).

Memorandum of Association

memorandum of association is also known as the MoA of the company. It represents the charter of the company. The MoA of the company is a legal document of a company that is prepared at the time of registration of the company. The MoA of the company describes the main objectives of the company for which the company is being created and the company’s relationship with its shareholders. An MoA of the company creates the boundary for the actions of the company which means, the company work and actions cannot go beyond this boundary created by the Moa of a company.

An MoA of the company helps its creditors and shareholders to deal with the company. They can know the vision of the company, basic rights and powers of the company. Everyone wants to know about the company whenever we want to invest in the company, so the MoA of a company helps such types of people so that they can check all the details of the company and invest their money after getting full knowledge about the company. so let’s talk about the memorandum of association and its contents.

Memorandum of association definition

Section 2(56) of the companies act 2013 give the definition of a memorandum of association. The section defines the Memorandum in two types:

  • Memorandum of association of a company as originally framed

An MoA of a company as originally framed means the Memorandum that was created at the time of formation and registration of the company.

  • Memorandum of association of the company altered from time to time

Alteration in memorandum of association in company law from time to time means the alteration made in the MoA is also be the part of MoA. The alteration made in the MoA of the company must be made with the guidance of previous company law of the present companies act.

Both the types of Memorandum of association of a company are legal in the eye of law. The MoA of the company must be side by 7 members in the case of the public limited company and 2 subscribers in the case of the private limited company.

Key points of memorandum of association

  • It defines the power and scope of the company
  • It gives the boundary for the company work and the company cannot go beyond the limits set by this.
  • MoA regulates the relationship of the company with the outside of the company.
  • It is used for the registration process of the company.
  • It contains all the necessary details about the company.
  • MoA talks about the liabilities of the members of the company.

The format of memorandum of association under companies act

The format of the memorandum of association under the companies act depends upon the type of company. There are 5 tables given under the companies act. the person can choose the table according to the types of company. for example, Table A is for the company which is limited by share, Table C is for the company which is limited by guarantee and having a share capital.

Forms of Memorandum of Association

TableForm
Table AMoA of a company limited by shares
Table Bcompany limited by guarantee and not having a share capital
Table CLimited by guarantee and having a share capital
Table DMoA of an unlimited company, not having a share capital
Table EMoA of an unlimited company, having a share capital

Clauses in the memorandum of association

Memorandum of association clauses are divided into 7 parts:

Clauses in memorandum of association

Name clause

The name clause of the MoA of a company specifies the name of the company. The company name should not be the same as the company which is already in existence. It means, the name should not be copyrighted by another person or company.

In the case of the private company, the name of the company should end its name with private limited. For example, Rising Mutant Private Limited.

In the case of a public company, the name should end with limited. For example, Rising Mutant Limited.

Registered office clause

The registered office clause specifies the address of the registered office of the company. During the process of the registration of the company, it is sufficient to give the name of the state where the company is located. But after the formation, the company has to give the exact location of the registered office of the company within 30 days from the formation of the company. The company’s name can be removed by the registrar if the company fails to maintain the permanent address of the registered office.

The company address is used to check the jurisdiction of the company. It becomes easy for the service of summons in any legal case against the company. It has also the names of registrars involved.

Objects Clause of MoA of a company

The clause talks about all the objectives of the company for which the company is formed. It is the main body of the MoA of the company. Every motive and operation of the company must be included in the clause because, any other objective of the company, which is not mentioned in this clause shall consider being beyond the reach of the company. The objectives of the company are divided into three parts:

Main objects- The main business purpose of the company.

Incidental objects- The objects which are ancillary to the attainment of main objects of the company.

Other objects of the company- Any other objectives of the company which are not coved in about two objects or the object which the company may peruse.

Liability Clause

The liability clause talks about the liabilities of the members and boards directors of the company. This clause is used during the process of winding up of a company or any other conditions. The liability clause works in different conditions. In case of,

Unlimited company- The liability of the members will unlimited.

Company limited by shares- in this type, the liability of members will be restricted by the amount unpaid on the shares of the members.

Company limited by guarantee- In this situation, the member will be liable to pay the amount which was agreed by them.

Capital Clause

The capital clause is also known as the nominal capital of the company. It states the total amount of the share capital of a company. It also describes that how it is divided into shares. For example, a company has a share capital of 80, 00,000$ which is divided into 3000 shares of 4000$ each.

Subscription Clause of memorandum of association

The Subscription Clause of the memorandum of association of a company states about the subscribers who are signing the memorandum. It considers the details of each subscriber with the number of shares he is subscribing to. The subscribers sign the memorandum in front of at least two witnesses. The subscribers to the memorandum of association must take at least one share of the company.

Association clause

In this clause, the subscribers of the company make their declaration that they want to associate with this company and build an association.

Difference between memorandum of association and articles of association

Both the documents ie, memorandum of association and articles of association are the necessary documents for a well-established company. These documents are distinguished from each other. Let’s have look at the main difference between memorandum of association and articles of association:

  1. The memorandum of association contains all the details which are required for the formation of the company, whereas. Articles of association of a company contain necessary rules and regulations which is used to governs the company.
  2. MoA of a company talks about the objects and powers of the company, whereas, the AoA of the company contains the rules of the company.
  3. MoA of the company is subordinate to the companies act, whereas, the AoA is subordinate to the memorandum as well as the companies act.
  4. If there is any conflict between MoA and AoA of the company, always the MoA of the company shall prevail.
  5. MoA of the company has specified given clause whereas, it the description power of the company to frame the AoA.
  6. The person or group of persons has to submit the MoA to the registrar of the company at the time of formation of the company whereas the AoA is not required to file to the registrar of the company.
  7. The MoA of the company deals with the powers and external affairs of the company with the outside world of the company whereas the AoA deals with the relationship between members and company and it deals with internal affairs of the company.
  8. The alteration in the MoA is possible by passing a special resolution in the annual general meeting of the company and the alteration must be compatible with the companies act. Also, it should be resubmitted to the registrar for checking. whereas the alteration in the AoA of a company is possible by passing the special resolution in the annual general meeting and it has to be sent to the registrar within 15 days of the alteration.
  9. The MoA of the companies set the limit of boundary for the company and, any act done outside this boundary shall be null and void, but, in the case of AoA of the company, it is different. The act done by the company which is beyond the limit of AoA can be rectified through the voting of all shareholders of the company.

FAQ related to MoA of the company

What is the memorandum of association?

it is a legal document that is created at the time of the formation of the company. It is the main document for the formation of a company which has to be submitted to the registrar of the company.

Can the Memorandum of Association be altered?

According to section 13 of the companies act 2013, the alteration of the memorandum of association can be done but the alteration must comply with some conditions given into the act.

Who signs memorandum of association?

The subscribers of the company sign the memorandum of association. For a public limited company, there must be the signature of 2 subscribers and in the case of a public limited company, there must be 7 subscribers.

What is the purpose of memorandum of association?

The MoA of a company represents the charter of the company. The main purpose of the memorandum of association is to make the limits for the working of the company so that the company should not go beyond the limits.

Conclusion

Articles of Association is an important document which deals with the internal functioning of the company. It is governed by the provision of the Companies Act, 2013 and all the subscribers need to sign it. There are various forms of AOA depending upon the types of companies. The AOA can be altered by passing a special resolution.

The Moa of a company contains the required information about the company likes its registered office and different powers or the company. All the objectives for which the company is created are also written in the document. It sets the boundary for the working of the company and the company has to work within its limits. Any act done by the company beyond its limits shall be void. It is one of the best documents if a person really wants to know about the company before investing in that company.

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