Professional Documents
Culture Documents
Articles of Association and MOA
Articles of Association and MOA
Articles of Association and MOA
Articles of association
Introduction
Articles of Association is the second document which has to be registered along with the memorandum.
Articles as defined in Sec.2(5) means the articles of association of a company as originally framed or as
altered from time to time or applied in pursuance of any previous company law or of this Act.
Articles are internal regulations and bye-laws. Articles are to contain regulations for management of the
company. Deals with rights of the members of Company inter se.
Articles have always been held to be subordinate to the memorandum. If, therefore, the memorandum
and articles are inconsistent, the articles must give way. In other words, Articles must not contain anything
the effect of which is to alter a condition contained in the memorandum .
This is because the object of the memorandum is to state the purposes for which the company has been
established, while the articles provide the manner in which the company is to be carried on and its
proceedings disposed of.
The memorandum is, as it were, the area beyond which the action of the company cannot go; inside
that area the shareholders may make such regulations for their own government as they thinks fit.
Any clause in the Articles beyond Memorandum is ultra-vires, they are inoperative /void / no
ratification. In case of ambiguity between Memorandum and Articles memorandum prevails.
The document must not conflict with the provisions of the Act. Any clause which is contrary to the
provisions of the Act or of any other law for the time being in force, is simply inoperative and void.
Sec.272, Companies Act 2013, for example, confers the right on a shareholder to petition for winding up
of the company in certain circumstances. This right cannot be excluded or limited by the articles.
Similarly the articles cannot sanction something which is forbidden by the Act. Sec.123, for
example, declares that no dividend shall be paid by a company except out of profits. The force of
this section cannot be undone by any provision in the articles of association.
Registration of Articles
A public company limited by shares may register its articles of association signed by the same subscribers
as those of the memorandum in the presence of at least one attesting witness.
If articles are proposed to be registered they must be printed. They should be divided into paragraphs,
each consisting generally of one regulation and numbered consequently .
iii) Prohibit invitation to public to subscribe for any securities of the company.
Contents
a) Share capital, rights of share holders, variation of these rights, payment of commissions, share
certificates
b) Lien on shares
c) Calls on shares
d) Transfer of shares
e) Transmission of shares
f) Forfeiture of shares
h) Share warrants
i) Alteration of capital
o) Winding up.
Alteration of Articles
2. Special resolution should be passed in the general meeting held on the appointed date.
3. Within thirty days of the passing of the resolution the company has to file form no.23 duly filled
with the registrar of companies.
1. The alteration must not exceed the powers conferred by the memorandum
2. It must be bonafide
Difference
Memorandum
a) It is the charter of the company indicating the nature of its capital. It also defines the company’s
relationship with outside world.
b) It defines the scope of the activities of the company, or the area beyond which the actions of the
company cannot go.
Articles
a) They are the regulations for the internal management of the company & are subsidiary to the
memorandum
b) They are the rules for carrying out the objects of the company as set out in the memorandum
Difference –cont.
Memorandum
e) Any act of the company which is ultra vires the memorandum is wholly void & cannot be ratified even
by the whole body of shareholders
Articles
c) They are subordinate to the memorandum. If there is a conflict between the articles & the
memorandum, the latter prevails.
e) Any act of the company which is ultra vires the articles (but in intra vires the memorandum) can be
confirmed by the shareholders
The Memorandum and Articles are registered with the Registrar hence they become public documents.
They are open and accessible to all.
It is therefore, the duty of every person dealing with a company to inspect these documents.
Law presumes that every one dealing with a company knows the contents of those documents( whether
he actually reads them or not) .
Another effect of this rule is that a person dealing with the company is “taken not only to have read
those documents but to have understood them according to their proper meaning.”
The outsiders dealing with the company are entitled to assume that as far as the internal proceedings
of the company are concerned, everything has been regularly done.
They are presumed to have read MOA/AOA documents & to see that the proposed dealing is not
inconsistent therewith, but they are not bound to do more;
They need not inquire into the regularity of the internal proceedings as required by the memorandum
& the Articles.
This limitation of the doctrine of constructive notice is known as the “doctrine of indoor management”.
The directors of a company borrowed a sum of money from the plaintiff. The company’s articles provided
that the directors might borrow on bonds such as sums as may from time to time be authorized by a
resolution passed at a general meeting of the company.
The shareholders claimed that there had been no such resolution authorizing the loan and therefore it
was taken without their authority. The company was, however, held bound by the loan. Once it was found
that the directors could borrow subject to a resolution, the plaintiff had the right to infer that the
necessary resolution must have been passed.
Differences
Memorandum of Association
Meaning
Memorandum means memorandum of association of a company as
originally formed or as altered from time to time in pursuance of any previous
company law or of the present Act.
Purpose of Memorandum
It serves two main purposes.
Firstly, the prospective shareholders can know the field in which their
funds are going to be used by the company.
Secondly, the outsiders dealing with the company can know exactly the
objects of the company, and whether the contractual which they intend to enter
into with the company is within the objects of the company.
Contents of Memorandum
Its importance lies in the fact that it contains the following fundamental clauses
which have often been described as the conditions of the company’s incorporation.
a) Name clause
b) Registered office clause
c) Object clause
d) Liability clause
e) Capital clause
a) Name Clause
Although a company is free to adopt a name of its choice but it cannot be
registered with a name which, in the opinion of the Central Government, is
undesirable.
It should not contravene the provisions of the Emblems and Names (Prevention
of improper use) Act, 1950, nor should it be suggestive of any Government’s
patronage or protection to the company.
A company may not adopt a name which is identical, with or too nearly resembles
the name of any existing company.
Use of the word ‘Limited’
A public company with limited liability must use the word ‘Limited 'as the last
word of its name while private limited company should use the words “Private
Limited” in the end of its name. In case of One Person Company the words One
Person Company shall be mentioned in brackets below the name of the company.
Name Clause—cont.
Sec.8 provides that the Central Government may by licence permit the
registration of a company with limited liability without the word ‘limited’ if it is for
the promotion of commerce, art, science, religion, charity, protection of
environment or any other useful object and prohibit distribution of its income by
way of dividend to its members.
The purpose is to enable persons dealing with the company including Registrar to
serve notices, documents, communications etc. on the company.
Change of Registered Office
A company can change its registered office---
a) Within the same city or town or village.
b) From one city to another city within the same State– Special resolution
required and notice to registrar within thirty days.
c) From one place to another within the State from the jurisdiction of one registrar
to another registrar– confirmation by the Regional Director shall be mandatory
d)From one State to another State ---- passing a special resolution and
Confirmation of Central Government is mandatory.
c) Objects Clause
The most important clause of the memorandum is the objects clause because it
sets out the purpose for which the company is formed and the kind of activities or
business it intends to carry on.
Purpose—
This clause serves three distinct purposes:
i) It enables the subscribers to know the use to which their investment money put
and thus extends protection to shareholders.
ii) It also extends certain degree of protection to creditors also inasmuch as the
company cannot spend its capital on any activities which are not within the purview
of the objects clause.
iii) It also serves the public interest as the company cannot diversify its activities
beyond those specified in the objects clause.
The subscribers to the memorandum enjoy almost unrestricted freedom to
choose the objects. The only restriction is that the objects should not be illegal or
against the provisions of the Companies Act.
Giving loan by a company for purchase of its own share is also restricted under
Sec.67 of the Companies Act 2013.
Alteration of Objects Clause
Sec.13 of the Act allowed alteration of objects clause within certain defined limits.
These limits are of two kinds.
i) Substantive limits
ii) Procedural limits
Substantive Limits
a) To carry on its business more economically and efficiently.
But it cannot make substantive alterations in its original activities.
b) In order to enable the company to carry on its main purpose with new and
improved means.
c) The company may alter its object clause to enlarge the local area of its operation.
d) The company may carry on some business which under the existing
circumstances may be conveniently or advantageously be combined with the
existing business of the company.
e) Capital Clause
This clause in the memorandum states the amount of the nominal or authorised
capital with which the company proposes to be registered, and the value of the
shares into which it is divided.
There is no limit to the amount of capital which the company may have or to the
fixed value of each individual share.
The capital may be divided into two different categories namely a) Equity
share capital b) Preference share capital.
Alteration of Share Capital
Sec.61 of the Companies Act 2013 provides that a Limited Company can make the
following types of alterations by an ordinary resolution, if authorized by its articles
to do so:--
a) Alteration of Capital clause
i) Increase its share capital by issue of new shares
ii) Consolidate existing shares into shares of larger denomination etc.
These alterations do not require the confirmation by the Company Law
Board . However it should to notified to registrar.
b) Increase in share capital
A limited company having a share capital can increase its share capital if the
articles of the company should contain powers authorizing the company, by passing
a resolution in a general meeting and notice to registrar .
c) Reduction of capital
Subject to the confirmation by the Tribunal .