Indroduction
Understanding the Difference Between Memorandum and Articles of Association is crucial for anyone involved in company formation and corporate governance. These two documents are foundational to the establishment and functioning of a company. Here’s a comprehensive look at the key differences based on essential criteria:
1. Need for Registration
The Memorandum of Association (MOA) is a mandatory document for company registration. It acts as the charter of the company, defining its scope and operations. No company can be legally formed without it. In contrast, the Articles of Association (AOA) is also required but focuses on the internal management of the company. Both documents must be registered with the Registrar of Companies (ROC) during the company incorporation process.
Read More: Binding Force of Memorandum and Articles of Association: An Overview
2. Importance
The MOA outlines the basic conditions under which the company is allowed to operate. It is considered more significant because it defines the company’s purpose and its relationship with the external environment. The AOA, on the other hand, is equally important but more concerned with the internal regulations and governance of the company.
3. Subject Matter
The Memorandum primarily deals with the external affairs of the company, such as its objectives, capital, and liabilities. It is focused on the company’s interaction with third parties. The Articles, however, address internal matters like the roles and responsibilities of directors, the process for issuing shares, and the conduct of company meetings.
4. Relation
The MOA and AOA are closely related but serve different purposes. The MOA governs the company’s relationship with the outside world, while the AOA governs the internal workings of the company. Both documents complement each other in ensuring smooth operations and governance.
5. Regulation
The MOA is primarily governed by the Companies Act of the respective country and establishes the foundational framework. The AOA also falls under the jurisdiction of the same act but provides the specific rules for the company’s internal management and daily operations.
6. Alteration
Alterations to the MOA are highly restricted and can only be done with the approval of a special resolution and government authorities. These changes may require a court’s sanction. Alterations to the AOA are more flexible and can be made by passing a special resolution, without needing court approval, although some restrictions may still apply.
7. Legal Effect
The Memorandum has a binding effect on both the company and outsiders, especially creditors and shareholders, as it outlines the company’s legal capacity. The Articles bind the company and its members in matters relating to the company’s internal functioning, but they do not directly affect external stakeholders.
8. Doctrine of Ultra Vires
The Doctrine of Ultra Vires applies to the Memorandum. This legal doctrine states that any action taken outside the scope of the company’s objectives, as outlined in the MOA, is null and void. The AOA is not subject to this doctrine because it focuses on internal governance rather than external transactions.
9. Governed
Both documents are governed by the country’s Companies Act, with the MOA taking precedence in defining the company’s purpose and powers, while the AOA governs how those powers will be exercised internally.
10. Defiance
Non-compliance with the MOA can result in serious legal consequences, including the invalidation of transactions. Defiance of the AOA typically results in internal disputes among shareholders or directors, but it does not carry the same level of external legal consequences as the MOA.
Read More: What is a Memorandum of Association? Features, Purpose, and Importance of MOA
Conclusion
The Memorandum of Association (MOA) and Articles of Association (AOA) are both vital for company formation, but they serve different purposes. The MOA outlines the company’s overall objectives and external dealings, while the AOA governs its internal workings. Both documents must be carefully drafted and understood to ensure the smooth functioning and legal compliance of a company.
FAQ’s
What is a Memorandum of Association?
The Memorandum of Association (MOA) is a legal document that defines the purpose and scope of a company. It explains what the company can and cannot do, and it’s required to register a company.
What is the purpose of the Articles of Association?
The Articles of Association (AOA) contain rules for how the company will be run. It covers things like how meetings are held, how decisions are made, and the roles of directors.
Can a company change its Memorandum or Articles of Association?
Yes, but changing the MOA is harder and requires special approval, while changes to the AOA are easier and can be done with a vote by shareholders.