This article is written by Nandini Jain of 3rd year of BBALLB, Delhi Metropolitan Education, GGSIPU, an intern under Legal Vidhya
Abstract
The Memorandum of Association and its constituent documents serve as a certificate of obligation to form the company and one’s commitment to it. Memorandum of Association is a shortened term for MOA, which is the ABC document of the company, containing all the important details of the company. Meanwhile, the statutes are a summary for the AOA. It refers to a document containing all the rules and ethics written by the company. The MOA defines the charter of the company and thus forms the foundation on which the company is built.
Alternately, AOA encloses by- laws that regulate the company’s internal affairs and its law of conduct. Both Memorandum of association and papers of association seek enrolment with the ROC, i.e., Registrar of Companies, when the company undergoes the objectification process.
Key Words
Incorporation of Companies, Memorandum of association, Composition of association, Registration of companies, Public company, Shareholders, Internal association, Commercial law, Shares, Subscription of Securities, Capital, protagonist, Artificial person, Liability.
Introduction
A company comes into actuality is generally by a process appertained to as objectification. Once a company[1] has been fairly incorporated, it becomes a distinct reality from those who invest their capital and labour to run the company. Generally, the first step in starting a business is a process called “incorporation,” in which one person convinces another to contribute capital to a proposed business before it is incorporated. Such a person is called the main character of the company. The Promoter may also enter into a contract on behalf of the company before or after it receives the objectification instrument and arrange the issuance of shares on its behalf.
Subject to section 3(1), a company may be incorporated for any statutory purpose by — • seven or more persons, where the company so incorporated must be a public company; • two or more people, when establishing a company, it must be a private company; or • a person who, when the company is incorporated, must be a one-member company, that is, a private company, by writing his name in a memorandum and respecting the conditions of this law in ‘register’ problem
Memorandum of Association (MOA)
Definition Memorandum of Association
Section 2 (56) of the Companies Act, 2013 states:
1. Memorandum of Association as originally drafted; The original drafted memorandum refers to the memorandum as when the company was incorporated.
2. Memorandum of Understanding as amended from time to time; This means that all amendments made to the Memorandum of Understanding from time to time will also form part of the Memorandum of Association. This section also provides that amendments must be made under any previous corporation of law or this Act.
Meaning of Memorandum of Association
Memorandum of Association is a legal document that describes the purpose for which the company is incorporated. It is a document that contains all the rules and regulations that govern a company’s relations with the outside world. If the company goes beyond the scope, then the action will be considered ultra vires and hence will be void. It is the foundation on which business is built. The entire corporate structure is detailed in the constituting documents. The Memorandum[2] is a public document.
So, if a person wants to enter into a contract with a company, all he or she needs to do is pay the required fee to the Registrar of Companies and obtain the Memorandum of Association. Through the memorandum of association, he will get all the details about the company. It is the duty of the person who indulges in any transactions with the company to know about its memorandum.
Objective of Registration Memorandum of Association
It is an essential document containing all the details of the company. It governs the relationships between the company and its stakeholders.
Section 3 of the Companies Act, 2013 describes the importance of memorandum by stating that for registration of a company,
1. In case of a public company, seven or more persons are required;
2. For private companies, two or more people are required;
3. In case a private enterprise only needs one person.
In all the above cases, the persons concerned must first register a memorandum of understanding before registering the company with the Registrar. Therefore, incorporation documents are necessary for the registration of a company.
Section 7(1)(a) of the Act provides that to incorporate a company, its memorandum and articles of association must be duly signed by the registrant and filed with the Registrar.
In addition, the memorandum has other purposes.
1. It allows shareholders to get to know the company before buying shares.
This helps shareholders determine how much capital they will invest in the company.
2. It provides information to all stakeholders who want to be associated with the company in any way.
Format of memorandum of association
Section 4(5) of the Companies Act requires that the memorandum of association be in the form set out in Tables A, B, C, D and E of Schedule 1.
Tables These belong to different categories due to different types of companies.
Schedule A – Applicable to LLCs.
Schedule B – Applies to companies limited by guarantee and without share capital.
Schedule C – Applicable to companies limited by guarantee and with share capital.
Schedule D – Applicable to limited liability companies without share capital.
Schedule E – Applicable to limited liability companies with share capital.
Minutes must be printed, numbered and divided into paragraphs.
It must also be signed by the company’s registrar.
Clauses of MOA
- Name Clause
A corporation is a legal entity that must have its own name to create its distinct identity. The company name is a symbol of its independent existence. The first clause in a company’s articles of incorporation states the name [3]by which the company should be known. The Company may use any appropriate name as long as it is not offensive.
2. Location clause
The name of the State in which the company’s registered office is located must be stated in the constituting document. However, it is not necessary to state the exact address of the headquarters. Within 15 days of its incorporation and at any time thereafter, the company must have a registered office to which all communications and notices can be sent.
3. Objects Clause
The third mandatory clause of the memorandum states the objects for which the company is established . Under section 4(1)(c) of the Companies Act, 2013.
4. Liability Clause
The fourth compulsory clause must state that liability of the members is limited, if it is intended that the company be limited by shares or by guarantee. The effect of this clause is that, in a company limited by shares, no member can be called upon to pay more than what remains unpaid on the shares held by him.
5. Capital Clause
This clause will indicate the capital for which the company is registered. Dividend shares must have a fixed value, often called the par value of the shares.
6. Subscription Clause
The subscribers to the deed of constitution declare: “We, the various persons whose names and addresses are entered below, desire to be incorporated to execute this deed of constitution and we agree to receive no. of shares in the capital of the company appear opposite our respective names”.
Landmark Cases in Memorandum of Association
K. Leela Kumar v. Government of India [4]
The Court held that the memorandum of association cannot contain anything contrary to the Companies Act, 1956. However, in many cases, the articles of association deal with matters personal matter and cannot be objected to.
NEPC India Ltd. Registrar of Companies
The Court held that a complaint alleging that a company has engaged in activities not mentioned in the subject clause of the memorandum of association must be filed within six months of from the day the company found out.
Sivashanmugam v. Butterfly Marketing Ltd.
The Court held that where the objects clause provides that the company may enter into a partnership for any purpose that may be beneficial to the company, the Court claims that this allows the company to enter into partnerships to produce clothing.
Articles of Association
Definition of AOA
According to section 2(5) of the Companies Act 2013, “the articles of association[5]” means the articles of association of a company as originally drafted or amended from time to time or as made under any law or any previous information about the company or this Law.
The articles state the rules and regulations drawn up by the company for its own operations. This is the company’s internal operating regulations. Like the Memorandum of Understanding, the articles also constitute public notice, as a subsidiary document to the memorandum.
If the act constitutes as a document the network that defines the nature and character of a company, its bylaws are the document that sets out the rules of its operation, essentially internal.
Meaning of Articles of Association
Articles of Association is a document containing the rules, regulations and general management regulations of the company.
Schedule 1 of the Companies Act 1956 contains various notes and model clauses. The schedule is divided into multiple tables.
Each table serves as a template for a type of business. A LLC can draft its own set of terms or adopt some or all of the provisions in Table A. Any provisions relating to the relationship between the company and its partners and between the partners themselves may be incorporated into the regulations. But everything stated there is subject to the Companies Act.
The document must not contravene the provisions of law. Any provision contrary to the provisions of law or any other law in force is simply binding and void.
Objects of Articles of Association
Section 5 of the Companies Act, 2103 provides that the Articles of Association: • Shall contain provisions [6]for the management of the company • Include matters subject has been regulated under rules .
They do so without preventing the company from including additional sections in the AOA or from making changes that may be considered necessary to the conduct of the company’s business.
Components of Article of Association
- Company Name: In an article of association, it is important to include the name of the company. This name must be distinctive to establish the business as a legal entity.
The name must include words to designate the type of company, such as ‘Ltd’. or ‘Inc.
2. Target: Another important element of this charter document is the specification of the target.
They must develop this objective so that stakeholders understand the company’s long-term goals. This may be a general statement or detailed information depending on the regulations of the jurisdiction.
3. Capital structure: It is also important to state the method used for organizing the capital structure. This represents how the company grants shares in exchange for stakeholder support.
4. Corporate governance: An Article of Association also mentions the rights and responsibilities of shareholders. The liability of different members of the company varies according to jurisdiction. Their compensation is described in the AOA. Rules are legally binding once established in writing.
Contents of the Articles of Association
Articles generally must contain the following elements:
1. Excluded in whole or in part from Schedule F.
2. Approve the preliminary contract.
3. Number and value of shares.
4. Issuing preferred shares.
5. Share allocation.
6. Call to action.
7. Mortgage of shares.
8. Transfer and transfer of shares.
9. Appointment.
10. Confiscation of shares.
Model Articles of Association (AOA)
Model Articles of Association (AOA) in Schedules F, G, H, I and J for the various types of companies mentioned in Schedule I of the Companies Act 2013.
AOA must be in corresponding form.
• Table F-AOA of limited company
• Table G-AOA of company limited by guarantee and with share capital
• Table H-AOA of limited liability company by guarantee and without share capital
• Table I – AOA of a limited liability company unlimited company with share capital
• Table J-AOA of unlimited company without share capital Typical cases of regulation
Landmark cases on Article of Association
Shyam Chand v. Calcutta Stock Exchange [7]
The Supreme Court of India has ruled that the AOA of a company cannot contain any provision beyond the scope of the MOA. In this case, the Calcutta Stock Exchange had included a clause in its AOA allowing the expulsion of a member for conduct prejudicial to the interests of the stock exchange, although this clause are not included in the MOA.
Howard v Patent Ivory Co.
Directors of a company cannot borrow more than £1,000 without the approval of the company’s general meeting, but a director borrowed £3,500 from another director with the consent of the company’s general meeting. The court therefore ruled that bonds of up to £1,000 were good because they were aware of the facts.
Alteration of Articles (Section 14)
The Company is free to amend the terms as necessary. The articles can be amended by passing a special resolution, i.e., a majority of 3/4 of the members. The right to modify the Terms is a statutory right and cannot be waived under any circumstances. Articles may be amended with retroactive effect.
A copy of the special resolution and a copy of the amending articles must be submitted to the Registrar for registration within 15 days of passing the resolution.
Some provisions of the statute may be strengthened, that is, they may be amended not only by a special resolution but also by following an even stricter or more restrictive procedure (e.g., 90% approval or unanimity or with minority shareholder approval, etc.)
Limitations Regarding Alteration of Articles
1.The amendment must not be contrary to the provisions of the Corporations Act or any other law. For example – an amendment cannot be made to allow a company to hold shares in a parent company.
2.The amendment must not contravene the conditions in the memorandum of understanding.
The articles are subject to the Memorandum of Understanding and do not take priority over the MOA. Therefore, they cannot be amended in a manner that confers rights that the MOA does not grant.
3.The amendment must not conflict with the amendment ordered by the Court.
In case the Court, in order to remedy oppression and mismanagement under Sections 241 and 242, has modified the MOA or AOA in any manner, the Company cannot make any amendment contrary to Court order.
4.Approval of Central Government must also be obtained in certain cases. For example, if a public company wants to convert into a private company, it also needs approval from the central government.
Procedure for amending charters
1. Call a Board Meeting
Convene a meeting of the Board of Directors [8]According to Article 14 (1) and 173 and secretarial standards- I, organize a meeting of the Board of Directors including relevant elements such as- Consider, through the company’s AOA amendments. Then check the date, time and agenda of the congress intended to adopt the special resolution giving effect to the change.
Thereafter, the draft notice of the general meeting will be drafted and the manager will be authorized to issue the notice of the general meeting. Authorize the CS (Company Secretary) or any other officer to notify each member about the next general meeting by issuing notices. Authorize the CS/CFO (Chief Financial Officer)/any director to submit a copy of the special resolution to the ROC (Registrar of Companies).
2. Call the general meeting
In accordance with the section 14(1), 100 and 110 and Secretarial Standards-2, a general meeting shall be convened to pass a special resolution to amend the AOA. Resolutions can be passed by postal ballot.
3.Time-limited information disclosure
Listed companies must submit general meeting documents to the stock exchange where the company is listed within 24 hours after the end of the general meeting, according to regulations 30 and 46 ( 3 ) from SEBI (LODR) Regulations, 2015.In addition, the meeting results should be published on the company’s website within 2 days.
Regulation 44 of the SEBI Regulations (LODR), 2015 requires a listed company to submit to the stock exchange within 48 hours from the conclusion of the general meeting details of voting rights under format specified by SEBI.
4. Filing of forms and documents
Section 117, read with rule 24 of the Companies (Management and Administration) Rules, 2014, requires a copy of the special resolution with a statement The explanation must be submitted to the ROC within 30 days of its acceptance.
according to Form MGT-14 with related documents and fees.
5. After Compliance
To comply with section 15(1), it is necessary to ensure that changes to sections are noted in each copy of the AOA.
Required Documents
1. File a special resolution with form ROC-MGT-14.
2.Certified copy of the special resolution accompanied by a copy of the explanatory statement under article S.102 of CA, 2013.
3. Amended copy of AOA.
Difference between MOA and AOA
| BASIS FOR COMPARISON | MEMORANDUM OF ASSOCIATION (MOA) | ARTICLES OF ASSOCIATION (AOA) |
| Meaning | Memorandum of association refers to a charter document containing the main details necessary for its formation company. | Articles of Association refer to statutes refer to documents which contain all the standards and rules that govern the company. |
| Nature of information | Purpose and authority of the company. | Regulations of the company. |
| Status | It complies with current law. | It depends on MOA. |
| Retrospective Effect | The memorandum of association (MOA) cannot be amended retrospectively. | The articles of association (AOA) can be amended retrospectively. |
| Fundamental contents | A memorandum of understanding has six basic provisions. | Items can be prepared according to company requirements. |
| Obligatory | Yes, for all companies. | Only limited liability companies are required to draw up their charters while joint stock companies can choose Schedule F instead of charters. |
| Compulsory filing at the registry | Mandatory | Not mandatory |
| Alteration | Can be amended after passing a special resolution at the AGM and prior consent of the Central Government or the Board is required. | The amendment is authorized by the passage of Special Resolution in the AGM |
| Relationship | Specifies the interaction between the company and third parties. | Manage interactions between the company and its 4,444 members as well as between members. |
| Acts performed outside the scope | Absolutely void | Can be ratified by shareholders. |
Conclusion
Memorandum of Association and Articles of Association are very important documents for a company and there are some differences between MOA and AOA. So, you have to be very careful when writing it. These documents form the basis of the company even before its incorporation. The memorandum of association and articles of association guide the company on various issues during the process of establishing a company. These documents also contribute to good management and operation of the company. Therefore, each company must draft its own memorandum and articles of association.
References
https://khatabook.com/blog/moa-and-aoa/
https://www.shiksha.com/online-courses/articles/difference-between-moa-and-aoa/
[1] Moa and AOA of a company under companies act (no date) cleartax. Available at: https://cleartax.in/s/company-moa-aoa-under-companies-act (Accessed: 09 November 2023).
[2] Rai, D. (2022) Memorandum of association : Know everything about it, iPleaders. Available at: https://blog.ipleaders.in/memorandum-of-association-2/ (Accessed: 09 November 2023).
[3] Memorandum of association: Objectives, clauses & advantages (no date) 5paisa. Available at: https://www.5paisa.com/stock-market-guide/tax/memorandum-of-association (Accessed: 09 November 2023).
[4] Law Bhoomi (2022) Memorandum of association under companies act, LawBhoomi. Available at: https://lawbhoomi.com/memorandum-of-association-under-companies-act/ (Accessed: 09 November 2023).
[5] India Filings (2023) Articles of association, IndiaFilings. Available at: https://www.indiafilings.com/learn/articles-association/ (Accessed: 09 November 2023).
[6] Vedantu (2022) Articles of association – definition, objectives, contents and forms, VEDANTU. Available at: https://www.vedantu.com/commerce/articles-of-association (Accessed: 09 November 2023).
[7] Law Bhoomi (2023) Articles of association under Company Law, LawBhoomi. Available at: https://lawbhoomi.com/articles-of-association-under-company-law/ (Accessed: 09 November 2023).
[8]548. process of alteration in Article of Association – ICSI, https://www.icsi.edu/media/filer_public/b3/69/b369729f-f0bb-4057-abec-8ef9cc1ba6ec/548_process_of_alteration_in_article_of_association.pdf (last visited Nov 17, 2023).
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