Difference Between Memorandum Of Association(MOA) And Article Of Association(AOA)

The key deference between memorandum of association and articles of association are stated here with the help of a comparison chart and both MOA and AOA are defined as well.

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Difference between MOA and AOA


Difference Between MOA and AOA

There are two major documents that every company is required to keep. You must have heard the names of these two documents- Memorandum of Association and Articles of Association abbreviated as MOA and AOA, respectively.

Memorandum Of Association acts as the charter of the company, whereas Articles of Association is the guidebook for the internal management of the company. The documents are defined in The Companies Act, 2013, and lay down the rules and regulations for the company.

Both of these documents, MOA and AOA, are required to be registered at the registrar of companies at the time of incorporation. While it is extremely mandatory for the companies to have MOA, on the other hand, companies have a choice to get an AOA or not.

In this article, we will discuss more on Memorandum of Association and Articles of Association and their key differences as well.

Memorandum of Association

As defined under section 2(56) of The Companies Act, 2013 Memorandum of Association is defined as originally drafted or altered during time as per Companies Act or any previous law.

Memorandum of Association, also widely known as the Charter of Company, is the most important document a company has for itself. It is a document required by the company at the time of its incorporation. The registrar of companies asks for an MOA at the time of Incorporation.

Memorandum of Association basically lays down the scope, powers, objective, duties, and authorities of the company and its shareholders. Beyond these powers, a company cannot do anything. Thus, any act did beyond the powers of the MOA is void-ab-initio and ultra vires. This makes the actions of the company restricted.

It protects the company from outsiders and vice-versa. It is assumed that the outsider has complete knowledge of the company and has read the MOA as it is a public document protecting the interests of the company and outsider.

There are six clauses in the Memorandum of Association. They are,

1.   Name Clause– it states the name of the company as originally framed or altered from time to time. It can be changed by altering the MOA. However, one should note that name of the company should not be too identical to an existing company or trademark. Also, it should not violate any rule laid down by the central government.

2.   Object Clause– it states the objective of the company. Any actions done beyond this are treated to be ultra-vires and void-ab-initio, as stated above. The object clause states the powers and primary and auxiliary objectives of the company as originally framed or altered from time to time.

3.   Situation Clause– it states the geographical location of the company and where it is situated. A company should, within 14 days, register its registered office with the registrar. The state where the company has its registered office needs to be disclosed in the MOA under the situation clause.

4.   Liability Clause– as originally framed or altered from time to time, the liability clause is the one that states the liability of its members. In the case of a company limited by shares, the liability of its members is limited up to the number of unpaid shares. In the case of a company limited by guarantee, the liability of the member is limited up to the guarantee given by the shareholder. A point to be noted here is that the liability clause cannot be altered, unlike any other clause.

5.   Capital Clause– it states the authorized, paid-up, and subscribed capital of the company. It can be altered from time to time with a special resolution.

6.  Subscription clause– it states the number of subscribers, shares help up by them, calls on unpaid shares, and further details.

Tables for Memorandum Of Association-

Tables to opt for AOA in case of different types of companies-

  1. Table A- for a company limited by shares
  2. Table B- for a company limited by guarantee
  3. Table C-for a company limited by shares and guarantee
  4. Table D- for an unlimited company
  5. Table E- for an unlimited company with share capital

Articles of Association

As defined under section 2(5) of The Companies Act, 2013, an Article of Association is the one as originally drafted or altered during time as per the Companies Act or any other previous company law.

It is not the primary document but instead a second one, but that does not make it any less important. It states the internal relationship of the company. Other than this, AOA contains the powers, duties, rules, regulations, and authorities of the subscribers and shareholders.

Each company should have an Articles of Association; however, a public company limited by shares can opt for table F instead of forming an AOA. It also has all the details regarding the internal management of the company and it defines the relationship between the company and its shareholders.

The Act has not set any particular format for AOA, and each company can customize it according to its size, needs, and requirements. Adding to this, the company can add an entrenchment provision.

Now you must be wondering what is an entrenchment provision?

An entrenchment basically means stringent rules. So an entrenchment clause means adding stringent rules for the alteration of AOA that protects the interest of small shareholders from getting exploited.

A private company can add an entrenchment clause when originally framed or by alteration, which is agreed by all the members. On the other hand, a public company can add an entrenchment clause as originally framed or later by passing a special resolution.

Tables for Article of Association-

Tables to opt for AOA in case of different types of companies are-

  1. Table F-  for a company limited by shares
  2. Table G- for a company limited by guarantee
  3. Table H- for a company limited by shares and guarantee
  4. Table I- for an unlimited company with share capital

Table J- for an unlimited company without share capital

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    Comparison chart between MOA and AOA

    BASIS MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION
    Definition MOA is a document that contains the details required to incorporate a company. AOA is a document that contains details about the internal management of a company.
    Content therein It contains information about the objectives of the company and its powers. It contains information about the rules and regulations of the company.
    Status It is considered subordinate to the Companies Act, 2013 It is considered subordinate to the Memorandum of Association.
    Effect The MOA of the company does not have a retrospective effect on the amendments. The AOA of the company does have a retrospective effect on the amendments.
    Clauses The MOA has 6 major clauses as discussed above. The AOA can be created as per each companies needs and thus does not have a particular set of clauses.
    Obligation It is mandatory for each company to have a duly signed MOA at the time of incorporation. Only a private company is required to create an AOA whereas a public company can easily opt for table F.
    Alteration MOA can be altered by passing an SR and with the prior approval of the central government. AOA is an internal matter and thus can be easily altered by just passing an SR.

    What are the treatment and consequences of acts done beyond MOA and AOA?

    MOA– In case the act goes beyond the powers of MOA, then it is treated as ultra-vires and void-ab-initio. Nobody can alter that and make changes in their favor then. For example- if it is written in the MOA that a company can take a loan only up to 100 lakhs, then the company is restricted to borrow more, and if the company borrows more, then it is void-ab-initio, and the third party has the right to sue the company. Not even the shareholders can ratify it now.

    AOA– In case the act goes beyond the powers of AOA, then it is not treated as ultra-vires and thus not at all void-ab-initio. Shareholders can alter the clauses unless and until it is not affecting the rights of the minority shareholders. To continue the above example, let’s suppose the shareholders can take a loan only up to 10 lakhs from the company as per AOA. But if the shareholders take a loan more than that, then it can be easily ratified by the shareholders by passing an SR.

    Thus, acts beyond MOA cannot be ratified, while the acts done beyond AOA can be easily ratified.

    MOA vs AOA

    1. MOA is the charter of the company, while AOA lays down the rules regarding internal management. MOA is a supreme document than AOA.
    2. MOA’s clauses cannot be altered easily, whereas it is comparatively easy to alter the clauses mentioned in AOA. Prior approval of CG is required to alter the MOA, while no court or government is required to alter AOA.
    3. Acts done beyond the powers cannot be ratified, while acts done beyond the power of AOA can easily be ratified.
    4. MOA is required at the time of incorporation, while AOA is not essential.
    5. MOA overrides AOA, while AOA cannot override MOA.
    6. MOA defines the relationship between a company and outsiders, while AOA defines the relationship between the company and its members.

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      Conclusion

      A memorandum of association (MOA) is a document that contains all the basic details about the company. Its primary function is to provide information about the business to help prospective investors decide whether or not to invest in it. The MOA also sets out how the business will be run and what rights its officers have.

      Articled of association (AOA), on the other hand, is a document containing all the rules and regulations designed by the company. It explains in detail how the company will be run and how it should be managed.

      The MOA is a document that establishes the basic framework of the company. It is similar to the constitution in many ways, in that both describe the company’s structure and purpose. The MOA discusses how the company will be organized, its purpose and goals, how it will be managed, and who will make all these decisions.

      The AOA serves as the bylaws of the MOA. It describes in greater detail how the business will be conducted, including things like voting rights, classes of stock, and when meetings are held. Some states call this document Articles of Organization or Organizational Documents instead of Articles of Association.

      Thus it can be concluded that while MOA is a supreme document, AOA is a document supporting MOA. MOA defines the relationship between the company and its outsiders, while AOA defines the relationship between the company and its members.

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      FAQ’s

      Yes, it is mandatory that the company submits a duly signed MOA to the registrar at the time of incorporation, and if there is AOA, then a duly signed AOA as well.

      As far as AOA is concerned, there is no particular set of clauses, and companies can customize it according to their needs. In the case of MOA, there should be 6 clauses in the MOA that are- NAME CLAUSE, OBJECT CLAUSE, LIABILITY CLAUSE, SUBSCRIBERS CLAUSE, CAPITAL CLAUSE, SITUATION CLAUSE.

      Entrenchment means something more secure and strict. Therefore entrenchment clause means adding a clause that makes it difficult to alter or amend the other clause and add certain restrictions to the alterations.

      In case MOA is going to be altered, then yes. Prior approval of central government is required as well as an SR. In case AOA is going to be altered, then No, the passing of an SR would be enough to alter AOA.

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