MOA & AOA of Company

Overview

There is no better time to start-up more than ever. A lot of individuals including working professionals are choosing to start their entrepreneurial journey now. While most entrepreneurs focus primarily on developing unique products/services to sell, only a few of them can enable a disciplined and humble environment in their work to ensure the fulfillment of the aims & objectives of the organization. While it would not be impossible to finally launch your business, it takes a lot of discipline to take it off ground.

Therefore, to achieve success there is an immense requirement for a sense of regulation & control within the start-up business management. Accordingly, the first step towards laying ground rules & regulations to be followed by the company could be effectuated through the Memorandum & articles of association of a company that is drafted and registered during the process of incorporation of a company.

While a Memorandum of Association or MOA is the key document of a company that includes all basic details of the company, the Articles of Association are the bye-laws that define and regulate the company’s scope of work and its internal management, they have the same legal validity as that of an LLP Deed in case of an LLP or Partnership Deed in case of a partnership firm.

Collectively, Memorandum and Articles are supreme legal documents forming the company’s constitution and lay the foundation on which a company stands. Therefore, these documents must be prepared with utmost precision and clarity before starting the process of incorporation. Let us look into the meaning and importance of articles of association (AOA) and memorandum of association (MOA) one by one.

MOA- Definition & Importance

The Memorandum of Association is a document that defines the aims & objects of the business organization for which the company has been incorporated and governs the relationship between the shareholders and the company. It is a public document that could be accessed by any outsider the public through the portal of the Ministry of Corporate Affairs to help the beneficiaries or stakeholders (shareholders, creditors, etc.) know the basic rights and powers of the company and to make decisions concerning their dealings with the company. The MOA of a company also sets the powers of the company including the limits beyond which the actions of the directors on behalf of the company could not be authorized. The company can undertake only those activities that have been expressly allowed under the Memorandum of Association.

During the process of incorporation of a company, the initial members of a company must subscribe their names to the MoA of a company by putting their names with signatures and getting the document attested. Therefore, in the case of a private company, there must be at least two initial subscribers to the memorandum and at least seven initial subscribers to the MoA in the case of a public limited company.

Format of Memorandum of Association

The format of an MoA has been specified in Table A to Table E in the Schedule-I of the Companies Act 2013. Each type of company could choose the format of MoA as per the type requirements of the company. For instance, Table A is applicable for a company limited by shares, and Table B is applicable for a company limited by guarantee and having a share capital, etc.

Contents of the Memorandum of Association

Provided below are the six clauses of the MOA of the company-

i. Name Clause–

This is the first and most important clause of the MOA. It describes the name of the company and its type (public limited/private limited/one person, etc). It is necessary to choose a name carefully as it should not be identical to any existing one.  Further, in case it is a private company, then the name of the company should be followed by the word ‘Private Limited’ (such as ABC Pvt Ltd.) whereas in the case of a Public Limited Company, the name of the company should include “Limited “at the end of its name (such as BNG Ltd.).

ii. Situation Clause/Registered Office Clause–

The Situation/Registered Office Clause is the clause that states the state in which the registered office of the company is situated. It helps to determine the jurisdiction of the Registrar of Companies, as they vary from state to state. Every company must intimate the location of the registered address to the ROC within 30 days from the date of incorporation or commencement of the company.

iii. Object Clause–

Next, it is also important to mention the aims & objects for which a company has been incorporated, which could be further classified into the following categories-

1. Primary Objective- It describes the main business objects of the company.
2. Incidental Objective-It describes the objects other than the main objects of the company which is necessary to fulfill the main objects of a company.

iv. Liability Clause–

The Liability Clause of the company describes the liability of the members of the company. While, in the case of an unlimited company the liability of the members of the company is unlimited, in the case of a limited company, the liability of the members is restricted to any unpaid amount on the shares of the company.

For a company limited by guarantee, the liability of the members shall be up to the value of agreed contributions by each member.

v. Capital Clause–

This clause provides the details related to the capital structure of the respective company. It includes the details of the authorized share capital, which is the maximum capital a company is allowed to rise through the issue of its share capital along with the division of capital into the number of shares of a fixed amount each.

vi. Subscription Clause–

Finally, the last clause of the MOA is the Subscription Clause. This clause contains details such as names & addresses, number of shares and amount of contribution, etc of the initial subscribers and thereafter every shareholder in the company. The initial subscribers to the Memorandum of Association are the initial members of the company who put their names, sign, and get it attested by a professional with his/her digital signature. The details of the initial subscribers shall be permanently preserved on the Memorandum of Association of a company and once the MOA is registered, the subscription clause cannot be altered post the incorporation of a company.

AOA- Definition & Importance

Article of Association of the company is the bye-laws of the company which helps to regulate the relationship between the company and its internal management. It covers almost all matters of conducting the day-to-day business of a company.

Section 5 of the Companies Act 2013, defines the Articles of Association (AoA) as a legal document containing the prescribed regulations of the company and insists that each company should have its Article of Association. As in the case of MOA, the Companies Act prescribes a standard format for the AOA, but the company has the right to include additional matters in the AoA for its management. Further, the company has the right to adopt any or all of the model articles applicable to it at the time of its incorporation of the company.

The Article of Association of the company is subordinate to the Memorandum of Association of the company and in many ways governed by the Memorandum of Association. However, it is necessary to ensure that there is harmony between the MOA & AOA of the company.

The AOA may also include an entrenchment provision in the AOA of the company, making it difficult or impossible to alter any provision in the AOA. Such restriction may include a form of a supermajority, a referendum submitted to the people, or the consent of another party.

Format of AOA

The Companies Act 2013 also prescribes the standard format of the AOA in Table F to Table I, which could be adopted by the company as per their requirement.

Contents of Article of Association-

It is important to pay extra attention to the Contents of the Articles of Association (AOA) at the initial phase since they are important for the ability of the Company to make profits and keep its shareholders satisfied by balancing the interests of the company’s interests. The articles of association (AOA) are the detailed rules & regulations related to every important aspect of a company such as rights & duties of the board of directors, share capital, voting rights, accounts, etc. Some of the key contents of an AOA include-

i. Directors of the Company

The AOA defines the provisions for the appointment of the directors including the terms & conditions for their appointment such as-

• Types of Directors in the Company
• Qualification & Experience required
• Applicable Remuneration
• Powers of the Board of Directors in the Company;
• Board Meetings
• Other terms & conditions.

ii. General Meetings of the Company

The AOA provides the basic framework for conducting all the general meetings including the rules & regulations to be followed during the happening of the event.

iii. Accounts, Auditing, and Records

The provisions in AOA also define the procedures to be followed during the Accounting & Auditing processes including the appointment and remuneration of the auditor and maintenance of required returns and records in the registered office of the company.

iv. Rights & Obligations of the Shareholders

The AOA outlines the right & obligations of the members in relation to the company. For instance, the AOA could provide for the right of the shareholders to appoint a small shareholder director, call a shareholder’s meeting, demand a copy of the annual return of the company, etc.

v. Share Capital

The AOA contains details the following details related to sharing capital in the company

• Classes of shares issued and their total valuation
• Transfer or Transmission of Shares
• Call on Shares for any unpaid amount
• Lien on shares, in the event of failure to pay the remaining unpaid amount on each share.
• Forfeiture and Cancellation of Shares

vi. Transfer And Transmission Of Shares

The AOA provides for the provisions related to the transfer & transmission of shares held by a member of the company in the event of death, insolvency, marriage, succession, etc to his legal heirs.

vii. Indemnity

The AOA may also include the provisions related to indemnification to any director or officer of the company to be indemnified out of the assets of the company in any civil or criminal, concerning any liability incurred by him in defending any proceedings against the company.

viii. Issue of Share Warrant

A share warrant is a bearer document that entitles the receiver to convert the warrant into a certain number of shares after a certain period. An AOA of a public limited company can also include provisions related to the issue of share warrant on such condition and in such manner as provided under the rules & regulations in the AOA.

ix. Capitalization of Profits

The company may wish to capitalize its profits either through capitalization of the general reserves or through the credit of the profit and loss account and may issue bonus shares to its member’s on the recommendation of its board of directors, in a manner specified in the AOA.

x. Voting Rights

The AOA outlines the matters which specifically need the approval of shareholders by passing a resolution through voting which could either be through a poll or proxies.

xi. Dividends and Reserves

The AOA also includes provisions related to the process and manner of distribution of dividends and the reserves required to be maintained by the company.

xii. Winding Up

Winding up the Company means permanently shutting down the business by liquidating all the assets of a company and making payments on the debts of the company and distributing the remaining amount among the shareholders the Company. It is the AOA of the company which includes the provisions and procedures related to the Winding Up.

The winding-up process can either be undertaken by –

• Either the company itself or
• Under any order passed by the National Company Law Tribunal (NCLT) or any other court of law.

Difference between MOA and AOA of a Company

 Conclusion

Thus, the MOA & AOA of a company are the two of the most crucial legal documents that provide necessary guidance to the company regarding its scope and powers of the company on various matters. Though a company is a legal entity having a separate existence, it is the MOA & AOA who help it to survive for a longer time by ensuring its proper functioning and proper management. They help the entrepreneurs and founders to manage all their business functions smoothly.

Since these documents are necessary to be submitted to the MCA registry to complete the process of registration, they must be drafted and prepared diligently with the help of a legal professional, no matter whether it is a big or a small organization.