Difference Between Memorandum of Association and Article of Association

The Memorandum of Association (MOA) and Articles of Association (AOA) are two essential documents that form the basis of the company’s foundation and its constitution. In this article, you shall get clarity on the meaning and differences between the two documents.

While the memorandum of association works as a charter that defines the scope and limitations of the company, an article of association functions as a legal document that lays down rules regarding the management of the company. The Memorandum helps to define the relationship that the company has with its members and the rights those members have. 

What Is the Meaning of a Memorandum of Association (MOA)?

As per Section 2 (56) of the Companies Act, 2013, a ‘memorandum’ refers to the original memorandum of association that a company registered or an altered one that follows the rules laid down in the Companies Act. Let us further look into the Memorandum of Association contents.

What Are the Clauses or Contents to Be Included in an MOA?

Section 4 of the Companies Act, 2013, states that an MOA should contain the following clauses and details.

Name Clause

This clause contains the company’s name ending with a “Limited” if it is a public company and with “Private Limited” in case it is a Private Limited Company.

Situation Clause

This dictates in which State and registered office the company is to be situated, and also defines the geographical constraints of the company.

Object Clause

This clause is about the objects that the company deals with. A company can alter this clause, as and when the company expands to include and incorporate more objects.

Liability Clause

This mentions the liability of the company’s members, whether it is a limited, unlimited, or state-owned company.

• When shares limit the company, its liability refers to the unpaid amount corresponding to the shares they hold
• If it is a company limited by guarantee, then the liability is the amount each member promises to contribute—
• This could include assets of the company if the company shuts down while he or she remains a member or within one year after they retire.
• They are liable to pay off debts and liabilities of the company which were undertaken when they were a member of the company.
• They are also responsible for the costs and charges incurred because of the winding-up and even for distributing the contributions as per the regulations.

Capital Clause

It defines the amount of Share Capital invested, the registered number of shares, and the manner of division of the shares. If it is a One Person Company, then the founder becomes a member of the company.

Company’s Name in an MOA (Memorandum of Association)

The name in the memorandum cannot be:

1. Identical or resembles an existing company’s brand name closely.
2. The one that is being used by another company.
3. One that is offensive under any law.
4. A name that is undesirable as per the Central Government’s decree.
5. A name with—
   1. Any word that might make it sound like it has any connection to the Central Government or patronage of any State Government.
   2. Any word as described in the Companies (Incorporation) Rules, 2014 unless they have sought approval from the Central Government before the registration.

What Is an Article of Association (AOA)?

As per Section 2(5) of the Companies Act, 2013, an “article” refers to the original Article of Association of a company or a version altered to comply with the laws stipulated in the Act. Section 5 of the Companies Act, 2013 defines the article of association as the document that contains the rules and regulations regarding the management of the company.

Provisions for Entrenchment

The article contains rules for entrenchment that allow only specific clauses to be altered. Only the following can make such rules: 

• Private Company: During its formation, or by an amendment which is agreed upon by all its members
• Public Company: With a special resolution.

While both serve as charter documents for a company, an MOA (Memorandum of Association) contains the essential details about the company, while an AOA (Article of Association) includes rules and regulations designed by the company. The MOA works as the Constitution of the company, and the AOA takes the shape of by-laws that help in the functioning of the company. Both require registration, with the office of the Registrar of Companies (ROC) before the incorporation of the company.

What Are the Primary Differences Between MOA and AOA?

When it comes to the difference between the Articles of Association & Memorandum Of Association, the following points matter the most.

• The first difference between an Article Of Association & Memorandum Of Association, while the MOA describes the powers and objects of the company, the AOA defines its rules.
• The MOA is subordinate to the Companies Act, and the AOA is subordinate to the memorandum.
• It is not possible to amend the MOA retrospectively, while the company can change an AOA retrospectively.
• The major difference between a memorandum of association and an article of association is that the memorandum includes six clauses while the company can draft an article as per the company’s need.
• The MOA is mandatory for all companies, while a public share company can use Table A in place of an AOA.
• To make an alteration in an MOA, a special resolution has to be passed in an Annual General Meeting after obtaining prior approval from the Central Government while changes in an AOA are possible just by passing Special Resolution (SR) at Annual General Meeting (AGM).

Conclusion

The MOA and AOA are very crucial documents for a company. Therefore, you must be very careful when drafting the same. These documents form the base of your company even before its incorporation. Hence, you must hire Vakilsearch to draft your MOA and AOA, and also help you incorporate your company in a hassle-free and speedy manner.

Helpful Links,

• Benefits of an MOU Agreement
• Format for Memorandum of Understanding