What are articles of association and memorandum of association?

The process of forming a company is complicated process that involves various formalities and processes. There are various stages to go through The process of promotion i.e. creating the business concept and taking the decision to establish a business, giving a practical form to the business opportunity that is available incorporations i.e. promoters submit applications to the registry of the state in which they want to set up the registered office for the company and also the Capital Subscription i.e. a public company is able to raise the necessary funds through an offering of shares.

At each stage of the creation of the business, there are a series of procedures and documents that it must follow the requirements to begin an enterprise. Article of Association and Memorandum of Association are two of the most essential documents that an organization must complete for the creation of a business.

Memorandum of Association (MoA)

It is believed to be the main document for the business. In this document, the identity of the business is mentioned. MoA defines the powers of the company, its mission, and the operations of the business. The company is allowed to perform the actions that are outlined in MOA. It defines the limits to which the activities of the company are not allowed to go. MOA assists creditors and shareholders communicate and work in a way with the business. Therefore, prior to registering with a private limited company registration, it is crucial to be aware of the nature of the business and its limitations. The limit beyond which the company can't operate and also provide an explanation of the company's rights and goals. If it is a private limited company an MoA is executed by at least two members. In the event that it is a public-limited corporation, the MoA can be signed only by seven of the company's members.

Purpose of Memorandum of Association

The Memorandum of Association is a charter upon which the structure of a company is established. The principal reason for the creation of the memo is to define the scope and powers that the company has within which it is able to operate. Anything outside of its ambit is deemed to be void under the law of the ultra vires. Thus, it maintains the powers of the business. The company's relations with external parties are specified by this law. In addition, as the Company Act, 2013 guides this law, its content must be in line with the requirements of this law.

Specifications included in Memorandum of Association

Due to its importance for corporations and its unclear definitions under section 2(56) in the Companies Act, several questions about the clauses as well as the possibility of amendments that are binding, the force of the memorandum, and the consequences of departing from the memorandum are raised. The crucial aspects and the complexities that comprise this Memorandum of Association are briefly explained in the following way:

Names that aren't desirable are not permitted.

Section 4 states that the title of the business must not be identical to the names of businesses already registered, and it should not even be the same as the names of other registered companies. For example the case of British Diabetic Association v. Diabetic Society Ltd. (1995) in which the British Diabetic Society Association had to change its name since it was sufficiently similar to another's name, "The British Diabetic Association'. In addition, in the case of Society of Motor Manufacturers and Traders Ltd v. Motor Manufacturers and Traders Mutual Insurance Co. Ltd. (1925) the court noted that, with the registration of a company, it gains the right to use its name in a way that prevents any other business from adopting a name that is identical to it.

Change of the name of a business

A company is able to change its name with consent from the Central Government and by following the guidelines provided in Section 4 as well as Section 13 of the Company Act 2013.

Registration change

The details regarding the location where the office is registered need to be provided at least 30 days prior to the date of incorporation or the beginning of the business, whichever occurs earlier. Because the change in the location of a registered office can be detrimental to several parties, such as employees, creditors, and shareholders as well as employees. Any change to the location of the registered office must be accompanied by an express resolution and approval from the Central Government.

Company objects

The memorandum outlines the objectives of a business that must not violate the law and also the requirements that are contained in the Companies Act. If the business performs duties that go beyond the boundaries of its powers and objects and the law of super vires is brought into the frame. For instance In London County Council v. Attorney General (1902) According to the clause concerning powers and objects that the Council was able to run tramways. So, its decision of running omnibuses when they were connected to tramways, was thought to be in violation of the law.

Members are liable for their actions

The responsibility of members can be determined by the name of the company. The members' liability may be restricted by shares or by guarantees. In the former case, the members are not required to pay higher than the value nominally of their shares however, in the latter case they themselves have to take the form of a guarantee they can contribute towards the company's assets in the case of its liquidation.

Article of Association (AoA) 

The article of the Association specifies the guidelines and rules of the internal affairs of a company that deals the management. Also, it defines the goals of a business and defines how the company must fulfill its duties. The tasks include the preparation of financial records, as well as managing financial records. In simple words it is AoA is a guide for users of an organization that outlines its mission and plans for the accomplishment of its long and short-term goals. The principal goal of the AoA is to provide readers with information on methods employed by the company to achieve its daily as well as quarterly, monthly, and yearly goals. The document typically comprises an official name for the business as well as the address of the company as well as the financial terms of the company, the purpose for the establishment of the company, and provisions regarding shareholders' meetings and equity capital of the business,

Purpose of Articles of Association

The goal of this article is to facilitate the internal operations of businesses. The regulations and rules outlined within the documents assist in controlling the company's internal operations.

Features of Articles of Association

The following sections provide a brief overview of some of the most striking aspects that are in the Articles of Association:

Provisions for entrenchment

As per Section 5, of the Companies Act, the articles can contain provisions regarding reductions in the company's size. They may be included while creating the article, or after the establishment of the company through an amendment.

Alteration

It is possible to amend the Articles of Association can be modified by an additional resolution. Section 14 in the Companies Act grants this discretion for companies to change their constitution, which gives them the ability to make changes regarding the transition of the private version of the company to a public one and the reverse. The power is nearly absolute subject to the condition that the change must not violate the terms of the Act or be in violation of the provisions contained in the Memorandum of Association.

 

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