A Memorandum of Association (MoA) represents the charter of an organization. it’s a legal instrument prepared during the formation and registration process of an organization to define its relationship with shareholders and it specifies the objectives that an organization has formed. an organization can undertake only those activities that are mentioned within the Memorandum of Association. As such, the MoA lays down the boundary beyond which the actions of an organization cannot go. A Memorandum of Association helps the shareholders, creditors, and therefore the other person handling an organization to know the essential rights and powers of an organization. Also, the contents of the MoA help the potential shareholders in taking the proper decision while thinking of investing within the company. MoA must be signed by a minimum of 2 subscribers just in case of a personal Ltd., and seven members just in case of a public Ltd.
Format of Memorandum of Association
The format of MoA is laid out in Table A to Table E depending upon the sort of company. a corporation can adopt the table applicable to it; as an example, Table A is for a corporation limited by shares, and Table B is for a corporation limited by guarantee and having a share capital, etc.
Clauses in an MOA
The MOA comprises 6 clauses
1. Name Clause – the corporate may be a legal entity that must have a long-time identity. the primary clause within the MOA is the Name clause which states the Registered name of an organization.
2. Situation Clause – This clause gives the complete address of the registered office of an organization.
3. Object Clause – The MOA has got to specify the objectives that the corporate has incorporated. It covers the most ancillary objectives of an organization.
4. Capital Clause – It states the quantity of capital with which the corporate has been registered. This clause provides the shareholding pattern with details of the shareholders and therefore the number of shares held by them.
5. Liability Clause – It mentions the limited or unlimited liability of each of its members. This clause will state the quantity each member will need to ante up within the event of liquidation of an organization.
6. Association and Subscription Clause – The memorandum must be subscribed by a minimum of 7 members within the case of a Public Ltd. and a minimum of 2 within the case of a personal company
Features of the Memorandum of Association
The memorandum of association contains the objectives and areas of operation to be covered at the end of the day. It also works as a constitution and this is often why the memorandum of association has the subsequent features:
1. The memorandum of association is the basic charter on which an organization is predicated and is mandatory for an organization.
2. The memorandum of association is the constitution of the corporate because it defines its limitations and therefore the sphere of its activities.
3. The memorandum can’t be altered by an organization, except by fulfilling the conditions laid down within the Companies Act for specific activities and situations.
4. It defines the scope of the company’s activity, and everyone who acts beyond the scope is deemed to be ultra-vire (beyond powers).
5. It’s a public document and is a hospitable inspection by those that affect the corporate.
6. It Defines an organization’s relations with outside individuals and its activities about them.
Purpose of Memorandum of Association
The main purpose of the memorandum is to elucidate the scope of activities of an organization. the potential shareholders know the areas where the corporate will invest their money and therefore the risk, they’re taking in investing the cash.
The outsiders will understand the bounds of the working of an organization, and their dealings with it should remain within the prescribed scope.
Importance of Memorandum
Memorandum is the fundamental document of an organization that contains conditions upon which an organization is incorporated.
This document is vital for subsequent reasons.
1. The memorandum defines the restrictions on the powers of an organization established under the Act.
2. the entire structure of an organization is made upon a memorandum.
3. It explains the scope of activities of an organization. The investment knows where their money is going to be spent, and outsiders also know the character of activities the corporate is permitted to require.
4. it’s a basic document of the corporate about its constitution.
5. it’s a charter of the corporate which sets out its written goals.
Is the MoA and Articles of Association (AoA) of a company the same?
No. The Articles of Association (AoA) and Memorandum of Association (MoA) are not
the same. The MoA lays down the essential details about an organization, while the AoA includes the inner rules and regulations of an organization. The AoA is subordinate to the MoA
What are the Articles of Association (AoA)?
The Articles of Association (AoA) may be a document that defines the aim of an organization and specifies the regulations for its operation. The document outlines how tasks should be accomplished within a corporation, including the preparation and management of monetary records, and thus the method of director appointments.
•The articles of association (AoA) is considered the “constitution of an organization.” It outlines the principles and regulations that stipulate an organization’s internal affairs.
• Regulations are also considered a manual for an organization that sets out the organization’s purpose and its strategies for achieving its short-term and long-term goals
•Generally, the AoA includes an organization’s legal name, address, purpose, equity capital, financial provisions, and provisions regarding the shareholder meetings.
Components of the Articles of Association
The articles of association will usually specify the way of an organization issues stocks, distributes dividends, and performs financial records. The document is concentrated on giving the reader information about the methods an organization uses to attain its daily, monthly, and yearly goals.
The articles of association are relatively similar in any part of the globe, although the precise terms and items vary across jurisdictions. In general, it includes the following:
• Provisions on an organization name
• Purpose of an organization
• Share capital
• Provisions on shareholder meetings
Companies Required to File an Articles of Association
The following entities must file their own articles of association:
1. Unlimited companies
The document must mention the number of employees and the amount of share capital if applicable.
2. Companies limited by guarantee
The document must clearly state the number of members to which the company will register.
3. Private companies limited by shares
The document must include a provision restricting the transfer of shares, a limit of 50 members, and a prohibition on the purchase of shares by the public in the form of shares or debentures.
Difference Between Memorandum of Association and Articles of Association
The memorandum of association and articles of association are the 2 charter documents, for the fixing of an organization and its operations thereon. ‘Memorandum of Association ‘abbreviated as MOA, is the root document of an organization, which contains all the essential details about an organization. On the opposite hand, ‘Articles of Association ‘shortly referred to as AOA, may be a document containing all the principles and regulations designed by an organization.
While the MOA sets out the company’s constitution, then it’s the cornerstone on which an organization is made. Conversely, AOA comprises bye-laws that govern the company’s internal affairs, management, and conduct. Both MOA and AOA, require registration, with the registrar of companies (ROC), when an organization goes for incorporation.
Key Differences Between Memorandum of Association and Articles of Association
The major differences between memorandum of association and articles of association are given as under:
1. A Memorandum of Association may be a document that contains all the conditions which are required for the registration of an organization. Articles of Association may be a document that contains the principles and regulations for the administration of an organization.
2. Memorandum of Association is subsidiary to the businesses Act, whereas Articles of Association is subsidiary to both Memorandum of Association also because of the Act.
3. In any contradiction between the Memorandum and Articles regarding any clause, the Memorandum of Association will prevail over the Articles of Association.
4. Memorandum of Association contains information about the powers and objects of an organization. Conversely, Articles of Association contain information about the principles and regulations of an organization.
5. Memorandum of Association must contain the six clauses. On the opposite hand, Articles of Association are framed as per the discretion of an organization.
6. Memorandum of Association is obligatory to be registered with the ROC at the time of registration of an organization. As against Articles of Association, isn’t required to be filed with the registrar, although an organization may file it voluntarily.
7. A Memorandum of association defines the connection between an organization and external parties. On the contrary, articles of association govern the connection between an organization and its members and also between the members themselves.
8. When it involves scope, the acts performed beyond the scope of the memorandum are absolutely null and void. In contrast, acts done beyond the scope of articles are often ratified by unanimous voting of all shareholders