All you need to know about the Difference between MoA and AoA

A company in India is governed by two company charters known as Memorandum of Association and Articles of Association. Every entrepreneur wanting to start a business has to get a company registration and draft MOA and AOA. They are the backbone of any company and drafting these documents is a crucial beginning of the company. MOA is the company’s constitution whereas AOA is a rule book comprising of bye-laws. Here in this article, we will be discussing in-depth the Memorandum of Association, Article of Association, and comprehend the major difference between MOA and AOA in India.

Difference Between MOA and AOA

MOA is the abbreviated form of “Memorandum of Association”. In India, no company can get registration without an MOA as it is the supreme document of the company. Further, it set the boundaries of the company in the initial stages of formation itself. Any activity which is beyond the scope of MOA is void.

The main purpose of MOA is to enable the shareholders and creditors to know the idea behind the incorporation of the company. The MOA should always be printed and signed by the subscribers of the company. The company needs to register the MOA with the Registrar at the time of registration.

AOA is the Articles of Association of the company. Every company needs a rule book for the management of its internal affairs and AOA contains the key components which assist in the management. It also contains detail analysis of the share capital, voting rights, responsibilities, power, and duties of the members. The companies are at liberty to form AOA as per their needs.

Components of MOA and AOA

All the clauses of MOA are required to be inserted in the agreement and any omission of any of the clauses will lead to rejection of incorporation of the company by the Registrar.

• Name Clause: The name clause contains the company’s name. If the company is public, the name should end with a “limited” word. If the company is a private limited company it should end with “private limited”.

• Situation Clause or Registered Office Clause: Section 12 of the Companies Act talks about the situation clause or the registered office clause. As the name suggests, this clause states the location of the registered office. It is mandatory for a company to have a registered office within 30 days of its incorporation.  The company has to furnish all the verification of the registered office to the Registrar within 30 days of incorporation. If the company changes its registered office located in the future, then the new address has to be updated in the MOA.

• Object Clause: This clause defines the objective of the company. Companies cannot indulge in activities not mentioned in the object clause. The object clause contains main objects, ancillary objects, and other objects. If any company indulges in activities beyond the scope of MOA, it will be termed “ultra vires” and it cannot be further ratified by the members.

• Liability Clause: The liability clause determines the liability of each member. It is different for different companies and varies if the company is limited, unlimited, and state-owned. The liability clause mentions the extent of accountability of business partners if there is a loss. But if the liability is unlimited, it is not important to mention this clause in the MOA. This clause provides legal protection to shareholders of the company and protects them from personally being liable.

• Capital Clause: It stipulates the maximum amount of authorized capital that can be generated and the number of shares and the dividend.

• Subscription Clause: The subscription clause mentions the details of the subscribers, shares and, witnesses.

Type of Memorandum of Association

One should formulate the MOA in accordance with the respective forms mentioned under Tables A, B, C, D, and E of Schedule 1 of the Companies Act, 2013.

• Limited shares company MOA – Table A
• MOA of Company limited by guarantee not having a share capital – Table B
• MOA of Company limited by both guarantee and share capital – Table C
• Unlimited Company MOA – Table D
• MOA of Unlimited company with authorized share capital – Table E

Alteration in Memorandum

A company can alter the memorandum of association by special resolution and after complying with Section 13 of the Companies Act. Form MGT-14 is required to be filed pursuant to Section 61 of the Companies Act, for filing special resolution for alteration in MOA.  This resolution has to be filed after passing it in the meeting of the shareholder, board, or creditors.

Section 61 states that a limited company can alter the MOA in its general meeting to increase the authorized share capital and subdivide its shares, cancel shares when not taken, consolidate and divide share capital into shares of a larger amount than its existing shares. They can also convert fully paid-up shares into stocks and vice versa.

 Components of AOA

The AOA does not have specific mandatory clauses, they are drafted as per the requirement of the company. Some of the most important clauses of AOA are:

• Company Definition: This clause defines the company, whether it’s a private limited company or a public limited company.

• Share Capital and alteration of share capital: In this clause, the share capital details are mentioned like the class of shares and valuation, lien, call, transfer, transmission, and forfeiture of shares. Moreover, the company can alter the share capital depending on the needs of the company by passing a special or ordinary resolution.

• Profit: The company has the right to capitalize on the profits of the company. It can credit the profit of the available amount to shareholders in the form of dividends or any additional stock share.

• Buyback share: Companies can buy back their own shares at a pre-determined price under this provision of AOA.

• General Meetings and Board of Directors: It discusses proceeding, adjournment, voting rights of the meetings, and proxy. It also discusses conducting meetings and maintaining the minutes. Furthermore, it also states the appointment and remuneration of the auditors.

• Accounts and Dividends: This clause stipulates the manner of keeping the books of accounts. The AOA provides the distribution of dividends to the shareholders.

• Indemnity Clause: Every member of the company has the right to be indemnified out of the assets of the company against the liabilities incurred by him.

• Winding up of the company: A company can wound up voluntarily or through compulsory winding up under the Companies Act, 2013. This clause states the winding-up process.

Alteration of Articles

A company can alter the AOA by special resolution in case there is a conversion of a private company into a public company or vice versa. The company has to file a copy of the order of the government approving the alteration with the Registrar along with the altered articles within 15 days.

Types of Article of Association

Companies Act, 2013 under Schedule I gives structures to AOA in tables F, G, H, I, and J for different types of companies.

• Company limited by shares – Table F
• Companies limited by guarantee and having a share capital – Table G
• Company limited by guarantee and not having a share capital – Table H
• Unlimited company having a share capital – Table I
• Unlimited company not having a share capital – Table J

Effect of Memorandum and Articles

Section 10 of the Companies Act states that when the MOA and AOA are registered they become binding on the company as well as its members.

Difference Between MOA and AOA

 Following are the differences between MOA and AOA in India-

Conclusion

Since establishing a company is no cakewalk, the entrepreneurs wishing to start a new company have to keep all the intricate details in mind and form the MOA and AOA. Companies in India should have both AOA and MOA as they guide the company on various matters. They also aid the company in management therefore it should be drafted diligently in such a way that they provide flexibility to the company to expand further.