MOA is a document containing the charter of a company and fundamental objectives which the company seeks to achieve. The registration of a company depends fundamentally on how effectively the MOA is framed. Articles of Association on the other hand contain the guidelines and other rules and regulations to regulate the internal management of the company.
What is the need of having MOA and AOA?
An entrepreneur wishing to start a company would want a distinct legal identity for the company in the long run. So, all the documents that are written at the time of registering a company constitute MOA and AOA. An MOA is required at the time of registration of the Company and they are referred by the company in future also. They contain significant clauses pertaining to the Company such as name, object, registered office, capital, association and liability. It is very important for a company to function in context to the memorandum because it will ensure that the capital invested is utilized to meet the objects specified in the charter of the company.
The Articles of Association is a manual which regulates the operations of a Company. They provide a detailed structure on issue of shares, paying dividends or audit of financial records of the Company. Since Articles of Association is a contract between the Company and its members, the members are expected to follow certain rules and regulations to enable the Company carry out its business properly. Memorandum of Association comprises the supreme and most fundamental documents of the Company, the Articles of the Association cannot violate them in order to fulfill its objectives.
The Articles of Association are a rule book to be followed by all the employees of the company. It contains the employment terms and the financial and operational plans which the employees are required to follow diligently. Since it a document regularizing the internal management of the company it is a subsidiary to the MOA which deals both with the internal and external management of the company.
What are the most important clauses to be included in Articles of Association?
The company needs to mention in the Article of Association regarding the issue ESOPs to the employees which is now done as per the guidelines given by The Companies Act, 2013. The structure for the issuance of the ESOPs is decided by the Directors of the company in a board meeting. Second is listing down of powers of the Directors which could be provided to one Director and not to all Directors. This is done in order to prevent misuse of powers for personal gains by the management. Third is listing down the powers which vest in the minority shareholders of the Company. It is important to include the rights and powers of minority shareholders in the Articles of the Association because it will inculcate a spirit of participation to take decisions regarding the affairs of the Company.
Can a company alter MOA and AOA after getting registered?
In order to alter the memorandum of a company, the procedures laid down in the Companies Act 2013 have to be followed. For e.g. for change of name of the Company which is a part of the Memorandum of Association, written approval of the Central Government is required. A company may also change its objects as per section 13 of the Companies Act 2013. Any alteration in the objects of the Memorandum of Association can be permitted through a Special Resolution.
However, the alteration of Articles of Association is not very difficult as compared to the Memorandum of Association. Section 14 of the Companies Act 2013 regulates the alteration of the Articles of Association. Every alteration of articles of association is filed at the registrar along with a printed copy of articles which could be an adoption of new set of articles or deletion, addition or substitution of article. They can be altered by passing a special resolution in the annual general meeting of the company. However, the Articles of Association cannot be altered if the alteration is repugnant or inconsistent with the objectives of the Company or any general law. At the same time, they cannot be altered in order to enable a Company carry out illegal operations.
What happens if an act is done against the spirit of MOA and AOA?
There are times when the internal management takes a decision which is beyond the scope of the Memorandum of Association, in such cases the act is termed as void as it is ultra vires the charter of the company. However, an act which is beyond the scope of Articles of Association can be ratified by the majority shareholders in the annual general meeting and not termed as void. An act beyond the contours of memorandum can never be ratified by the shareholders and shall always be termed as void.
Both memorandum and Articles of Association are legal documents which are compulsory to frame at the time of registration as they define the business objectives and governance structure of a company. Since they formulate the base of the company it becomes important that they are written with highest efficiency and foresight.
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