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A COMPARATIVE STUDY B/W AOA & MOA UNDER COMPANY LAW
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A COMPARATIVE STUDY B/W AOA &
MOA UNDER COMPANY LAW
AUTHORED BY - VAISHALI
SAMADHIA
Amity University,
Gwalior
ABSTRACT
When a company gets registered they
are required to submit the two most important documents which are Memorandum Of
Association & Article Of Association, without submitting these documents
registration of a company cannot be done. So it is important to understand all
the aspects of these documents, In this paper we would be having a comparative
study of the MOA & AOA under the Company Law.
INTRODUCTION
A company is artificial person with
separate legal entity and having its perpectual succession and common seal. So
when group of people who wish to form a company come together to carry on some
business so when these people decide to get there company registered with the
registrar they are required to submit some documents which includes MOA &
AOA without which registration cannot be done, We would be understanding both
the documents in detail. A company must prepare certain preliminary documents
before they go to registrar for its incorporation and needs to be submitted
with incorporation form of the company, both MOA and AOA are indispensible and
it’s a basis of company’s foundation and therefore a company must draft it with
utmost clarity as well as precision.
RESEARCH
METHODOLOGY
This paper is descriptive and the
research is based on secondary sources for a proper and better understanding of
MOA & AOA under the company’s act. Secondary sources of information like
websites, journals, and company law books are used for the research.
REVIEW OF
LITERATURE
The memorandum of association and
articles of association are the most two essential and crucial documents
document for setting up of the company as MOA contains all basic details of the
company that are available for the outsiders and whereas the AOA is the
document with all rules and regulations designed by the company. While MOA is
the Constitution for the company and objects on which company is incorporated
while AOA is governing internal affairs, both these documents are submitted to
registrar of company when company goes for registering it as an artificial
person having separate legal entity. Both these documents are critical for a company’s governance as it helps to clarify roles and
responsibilities within the company and so that there is misuse and abuse of
power by any shareholder, director of the company, Judiciary have also played
an important role in establishing the harmony between both thses documents.
MEANING OF
MOA
Memorandum of Association is basic
document required at time of company’s registration, it is also known as the
charter of the company, It is a written document that defines the purpose for
which the company is established also
lays down the objectives beyond which company’s actions cannot go, so it
contains power& objective of the company, it is a public document which is
opened for public inspection as it
enables the shareholders, creditors and those people who are dealing with the
company so they would be aware of permitted range of company.
CONTENTS OF
MOA
As per companies act 2013 U/S 4
states about the important contents of the Memorandum, they are specified
below:
NAME CLAUSE
It is the first essential content of
memorandum is the name clause, in this the name of the company is mentioned and
name chosen should not be identical with the names of the existing companies
that is already registered. If it is public company, they have to use word
Limited and in case of private company, the word Private Limited.
REGISTERD OFFICE
Under this clause of the memorandum,
company have to mentioned that where the company is situated and it is the
place where statutory books of company are kept, where business is operated and
where all communication to the company would be done. Every company must have
its redistered office within 30 days of its incorporation.
OBJECT CLAUSE
It is the most critical point of the
memorandum as in this clause only we would mention the main reason or objective
of setting up of our company is specified
and it sets the limits of operation of the company, the object of the
company should be well defined while mentioning the aim od company for which it
is incorporated, it allows shareholders to know for which purpose there
investments are used, also f company’s action goes beyond the mentioned
objective then the activity of the company shall be Ultra Vires. It safeguards
shareholder’s money protection that they are only utilixed for business
purposes and are not in risked in other ventures.
LIABILITY CLAUSE
This clause of memorandum defines the
limitation on the liability of members also providing protection to the shareholders from being
held liable for any loss in the company.
There are two forms of limited liability:
A company limited by shares in this
liability is limited by memorandum to the amount remaining unpaid on shares
held by them, this liability can be enforce anytime during the existence of
company or winding up of company.
A company limited by guarantee in
this liability is limited by memorandum to the amount guaranteed by them and
this type of liability can only be enforced at time of winding up of company
and not before, and MoA states the amount guaranteed by each member.
CAPITAL CLAUSE
It is only for those companies who
have share capital, In MOA indicates the
amount of capital with which the company is registered it is known as
registered capital. The name and the number of shares that members have must
also be mentioned.
ASSOCIATION CLAUSE
MOA must be signed by atleast 7
members in case of public company and 2 in case of private company, by people who desires to form a company are
called subscribers and they must hold atleast 1 share and must be signed in
presence of at least 1 witness.
NOMINATION
In case of one person company this
clause is important as nominee should be registered in the event of death of
subscriber with written consent of nominee.
SUBSCRIPTION
& SIGNING OF MOA
In company there are subscribers and
they are the first shareholder of the company, they come together with an
intent to form a company. For a public company minimum 7 or more subscibers are
required whereas for a private company minimum 2 or more subscribers are
needed. The memorandum of the company should be signed by all the subscribers,
and also mention all important particulars like name, address, occupation and
shares he is subscribing to.
ALTERATION OF MOA
Alteration in company’s memorandum
means any addition, substitution to it, the company has a right to alter is
memorandum but only to the limit given under the companies act, like for change
in name clause can be done after passing of special resolution and for making
changes in address of registered office the company needs the approval of the
central government and whereas an alteration in capital clause can be done
after passing an ordinary resolution.
MEANING OF AOA
Articles of association is another
most important document which is required at time of registration of the
company, it contains all the rules and regulations framed by the directors of
the company and it governs the management of internal affairs of the company
and conduct of its business. This document is subordinate to Memorandum of Association.
It is a rulebook that regulates the internal afairs of the company.
NATURE OF AOA
As said it is a rulebook for
governance of internal affairs of the company and company is managed and
governed as per the articles of company it includes like directors, general
meetings, Accounting and administration, shareholders, and shares, and tranfer
of shares.
CONTENTS OF AOA
As per section 5 of companies
act provides the contents that has to be
included in the Articles of association of the company for governing the internal affairs of the
company so the mentioned content of AOA must be as per the provisions of the
companies act are as follows:
·
Management decisions
·
The different classes of shareholders
·
Appointment of Directors
·
The powers and rights of Directors
·
Borrowing powers of Directors
·
Share certificates issuing procedure
·
The voting of the Directors and Chairman
·
The Dividend policy of the company
·
The creation of reserves
·
The alteration of share capital
·
Issue and transfer of shares
·
Valuation of Intellectual Property that company owns.
·
Transmission clause relating to the transfer of title
of share by insolvency, succession, death, etc.
·
Forfeiture and surrender of shares
·
The board meetings procedure and hoe special
resolution will be passed
·
Arbitration clause in case of disputes
·
Accounts and audits of a company
·
Common seal of company clause
·
Procedure for winding up of company with terms and
conditions to be foolowed at that time.
SIGNING OF AOA
The articles of association of a
company to be signed by each signatory or member of the memorandum, in the
presence of one or more witnesses with there own personal details and also all
the subscribers must mention there personal details like name, address,
occupation etc.
SCOPE OF AOA
It plays a vital role in
administration of the company and because of which articles of association
cannot exceed or be in contravention of memorandum of association, it is a
legal document describing rules and regulations of company which are binding on
the members of the company. The company can also add rules as per their wish
but only after the signature of all members and after it is approved by every
shareholder prior to its enactment.
IMPORTANCE OF AOA
It is an important statutory
documents of a company as it is beneficial for the internal governance of a
company, also it can be used as good first step in regulating internal affairs
of the company, it is also a vital document for shareholders. In many
countries, the articles of association are also needed funds for the company, which is an artificial
personality.
REGISTRATION OF AOA
This document of company is
registered alongside the memorandum of association, it need to be submitted to
registrar of companies for the
incorporation of the company as per the
Section 7 of the companies act and in case alteration as per a section 14 a
printed version of the altered articles along with the approval of the tribunal
shall be filed ti registrar within fifteen days of the alteration and its
approval.
ALTERATION OF AOA
The Board of Directors should be informed and
a meeting is organised and date and time to be informed The articles of company
can also be altered and such alteration is within the bounds of the memorandum
of association, a company can turn from private company into a public company
such alteration is done in the form of omitting or removing the clauses and
shall be filed with the registrar within 15 days of passing such resolution for
alteration. The AOA can be altered as per steps provided in the articles of association.
Can also includes after passing of a resolution of at least 75% of the votes in
favour of the alterations in the general meeting of shareholders, it can also
be altered by the National Company Law tribunal. Any alteration should not be
unlawful and needs to be passed with special resolution to be presented before
the registrar and it should not violate the provisions of the companies act and
provisions of memorandum of association and that alteration should not increase
the liability of the company,
OBJECTIVE OF AOA
As memorandum of association is the
document that contains fundamental elements on which the company is
incorporated whereas the articles of association act as a complementary
document to the memorandum with below mentioned objectives:
·
By
regulating the relationship between the company and amongst there members as
well.
·
It
is a governing document that helps in regulating internal affairs of the
company with certain specified rules and regulations.
·
It
clarifies the legal rights and obligations of the different classes of
shareholders and the director of the company
·
It
gives clarity in procedures and rules
that company has to follow and which should be accessible by the shareholders
of the company.
BREACH OF AOA & MOA
It is an document for governing
internal affairs of a company so any breach of articles by the company will
have to provide with granting injunctions and for Breach of MOA any act done
beyond the scope of it is said to be void The doctrine of ultra vires in
the case of the objects clause is the perfect example. The directors or
shareholders actions beyond the provisions os it are known as ultra vires act
and affecting party can seeks for injunction for such act.
COMPARISION BETWEEN MOA & AOA
1. Memorandum contains conditions upon
which the company is granted registration whereas article of company deals with
internal regulations of the company
2. MOA contains objects and powers of
the company whereas AOA provides
regulations by which those powers are to be carried into effect.
3. MOA can not be easily altered in this the company needs to follow a strict
procedure for its alteration whereas AOA can be easily altered compared to
memorandum of company.
4. MOA regulates the relationship of the
company with the outsiders, as objects and powers of the company are made
available for the outsiders whereas the AOA regulates the internal affairs of
the company as the rules and regulation in it describe procedure for internal
affairs followed by the company.
5. MOA establishes the scope beyond
which company’s action are void and ultra vires and in AOA establishes rules
and by laws for company’s working.
6. MOA cannot be in contravention to the
companies act and it act as subsidiary of the companies act and AOA is both
subsidiary to the companies act and the memorandum of the company.
7. Any conduct beyond the object
mentioned in MOA are ultra vires and cannot be ratified even by the
shareholders and in AOA any action beyond the provisions of articles of company
can be ratified by the shareholder as long as it is not in contravention to
Memorandum of company.
8. MOA lays down the scope within which the AOA
is to function and AOA sets rules and by-laws based on how company’s conduct
its workings.
9. MOA is an informative document for
the benefit of the public, creditors and shareholders and AOA acts as a
rulebook that governs the relationship of company and its members, and also
amongst members.
10. MOA has primary importance and is a
primary document for the incorporation of the company and AOA has secondary
importance in the formation of the company but it is also a primary document.
11. MOA is drafted in terms with
provisions of companies act and it is the leading document of the firm and
after this no other document or filing is required to contain any other
information.
12. Registration of MOA with the
registrar of company is the mandatory requirement at time of registration of
company but AOA registration to the registrar is voluntary.
13. MOA as it is a primary document
outlines the companies relation with the third party whereas AOA defines the
relationship within the menbers of the company.
14. MOA has 5 clauses are required to be
add in the memorandum of the company whereas the AOA can be made according to
the needs of different companies.
15. MOA has a high level of inflexibility
in term s of alterations in it as it is subject to strict regulatory control
and need to be passed by an special resolution and in AOA there is more flexibility as alterations can
be done nwith the approval of shareholders and with ordinary resolution.
CASE LAWS
Economic Hotels India Services Pvt
Ltd v. Registrar of Companies (2020)
In this case, the company of the
appellant filed a petition before NCLAT stating that special resolution passed
was having some typographical error as the result NCLAT rejected its
application court also stated that the resolution passed was unanimous in
voting but also had typographical error and special resolution in meeting
turned into an unanimous ordinary resolution but as it was duly registered with
the registrar and it sound fine and hence the appeal was allowed.
Ashbury Railway Carriage and Iron Co.
Ltd. V. Riche (1875)
In this case only the doctrine of
ultra vires came into effect in house of lords as stated that object clause of
memorandum is an important and fundamental document that determines the powers
and object of the company for which it is incorporated, and if company’s action
goes beyond the provisions of memorandum of the company it is considered as
Ultra Vires.
Messer Holdings Ltd. V. Shyam
Madanmohan Ruia (2019)
In this Supreme Court of India held that
memorandum of the company cannot be used to cross statutory obligations and it
have to avoid compliance with statutory requirements or to engage in activities
that are prohibited by law.
CONCLUSION
Both MOA & AOA are the two most
important documents in a company and which needs to be submitted to the
registrar of the company and it is like a constitution which is fundamental for
governing any company and they need to registered with these two documents to
run their business smoothly and as per the provisions of the companies act. MOA serves as a
document that is for informing the outside world about the company’s purpose
and object and AOA complements MOA by stating rules and by laws for governing
the internal affairs of the company. So both AOA & MOA forms the
constitution of the company providing a better framework understanding how the
company functions in its internal affairs and external activities, these
documents are submitted at time of registering a company when it goes for
incorporation and plays a crucial role in governance and conduct, They also
help in the proper management and functioning of the company throughout its lif (Memorandum of
Association and Articles of Association: Meaning and Explanation)
References
Memorandum
of Association and Articles of Association: Meaning and Explanation. (n.d.). Lega;l
Bites .
https://enterslice.com/learning/an-analysis-on-memorandum-of-association-under-the-companies-act/
https://blog.ipleaders.in/articles-of-association-under-indian-company-law/
https://blog.ipleaders.in/articles-of-association-under-indian-company-law/
Article Information
A COMPARATIVE STUDY B/W AOA & MOA UNDER COMPANY LAW
Authors: VAISHALI SAMADHIA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/03/27
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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