THE ROLE OF MEMORANDUM OF ASSOCIATION AND ARTICLE OF ASSOCIATION IN COMPANY

Author: Syed Tauheed 4th yr BA LLB, Vidyavardhaka law college 

ABSTRACT  : The foundational documents that control a company’s formation and operations are the Memorandum of Association (MOA) along with Articles of Association (AOA). The MOA describes the company’s constitution, including its goals, powers, and interactions with the external environment. It establishes the legal identity of the business by defining specifics like its name, capital structure, and registered office. In contrast, the AOA regulates the rights and obligations of participants, directors, and officers and controls the internal operations of the business. It contains clauses pertaining to director nomination and removal, share transfers, voting methods, and meetings. A company’s legal foundation is made up of its MOA and AOA, which together guarantee appropriate operation and adherence to legal requirements. Both are necessary for a company’s formation and efficient operation, with the AOA concentrating on internal management and the MOA handling external matters.

INTRODUCTION : The Articles of Association (AOA) and Memorandum of Association (MOA) are essential legal documents for a company’s creation and operation. The MOA establishes the external framework of the business, including its goals, range of operations, and interactions with external parties and shareholders. It serves as the company’s constitution in essence, defining its legally binding identity and serving as the framework for its activities. On the other hand, the AOA regulates the company’s internal management, outlining the policies and guidelines for its activities, including decision-making procedures, director duties, and shareholder rights. When combined, both the MOA and the AOA offer a thorough legal framework that regulates a business’s conduct both inside and outside the firm. They guarantee that the business runs effectively, within its specified parameters, and in compliance with the law. 

THE MEMORANDUM OF ASSOCIATION 

The role of Memorandum of Association in company play a crucial role : 

One of the most important legal papers in a company’s establishment and management is the Memorandum of Association (MOA). It acts as the company’s charter and establishes its goals, legal limits, and operational parameters. The MOA plays a variety of roles that cover both internal and external facets of the business’s operations. Outlining the company’s goals is one of the MOA’s main responsibilities. It precisely outlines the activities that the corporation can and cannot participate in, as well as the purposes for which it was established. This guarantees that the business stays within the parameters set forth in the MOA and does not overreach its authority. By keeping the business from participating in illegal activity, the MOA ensures legal compliance and safeguards creditors as well as shareholders. The company’s legal identity, particularly its name, capital structure, and registered office address, is also specified in the MOA. The registered office indicates the company’s location for legal plus communication purposes, and the name of the business must be unique. Furthermore, the total authorized capital—the highest sum that the business can obtain from shareholders from the issuance of shares—is included in the capital structure described in the MOA. This information limits the amount of money the firm can raise without additional clearance and gives investors knowledge about the company’s financial structure. The establishment of the company’s interaction with outside parties is one of the MOA’s other important functions. It outlines the company’s authority to sign agreements, buy assets, and conduct business with outside parties. The MOA serves as an open document that informs third parties of the company’s basic authority and constraints. By giving precise instructions on the company’s ability to act and avoiding misunderstandings or disagreements, this safeguards the interests of outside parties. Additionally, the MOA outlines members’ obligation. Generally speaking, it establishes whether the members’ responsibility is unlimited or restricted to the amount of their shares that remain due (in the case for a limited corporation). This helps creditors and shareholders understand the possible financial risks associated with doing business with the organization.  

To sum up, the Memorandum of Association plays a critical role in establishing the legal framework of the business, safeguarding the interests of stakeholders both inside and outside the company, and making sure the business runs within the bounds of the law. As the cornerstone, the MOA promotes corporate responsibility and regulatory compliance by allowing the business to preserve operational focus, financial transparency, and legal clarity.

Example for Memorandum clauses are as follows : 

  • The Name clause 
  • The Registered office clause 
  • The Object clause
  • The Liability clause 
  • Capital clause 
  • Associate clause

THE ARTICLE OF ASSOCIATION 

The Role of Article of Association in the Company (AOA) : 

A company’s internal governance and operating guidelines are outlined in its Articles of Association (AOA), which are crucial papers. The AOA describes the internal structure & day-to-day operation of the firm, whereas the Memorandum of Association (MOA) establishes the exterior foundation for its existence. In order to ensure efficient internal operations, it acts as a guide to control the interactions between the firm, its directors, and its shareholders. Establishing guidelines for the company’s management is one of the AOA’s main responsibilities. It offers comprehensive guidelines for decision-making processes, director nomination and removal, and shareholder meetings. The AOA, for example, outlines the notice period, quorum standards, and voting processes for board meetings as well as annual general meetings (AGMs). These clauses guarantee that choices are made in an organized and open way. The AOA’s regulation of shareholders’ rights and obligations is another important function. It describes the duties of shareholders, including how shares are transferred, new shares are issued, and dividends are paid out. Additionally, it regulates the voting and decision-making rights of shareholders, guaranteeing that each shareholder is treated equitably based on their ownership stake. Determining the directors’ authority and duties is another crucial function of the AOA. It outlines the procedures for appointing directors as well as their responsibilities, authority, and removal procedures. In order to provide appropriate governance and responsibility inside the firm, the AOA may additionally specify the number of directors needed for various decision-making processes.

The AOA also specifies the processes for capital management and share issuance. It can control the distribution of shares, the rights granted to various share classes, and the company’s ability to generate more money by issuing new shares. By guaranteeing that no new shares are distributed without proper procedure or approval, this safeguards the interests of current shareholders. Additionally, the AOA has the authority to set guidelines for the financial management of the business, including profit sharing, audits, and account preparation. It promotes confidence and compliance by guaranteeing that financial issues are managed transparently and in compliance with legal regulations.


In summary, a company’s internal management greatly depends on its articles of association. They maintain orderly governance, decision-making, and adherence to the law by regulating the interactions between directors, shareholders, and the business itself. The AOA contributes to the long-term stability and profitability of the business by offering a framework for its effective operation.

The Examples for Article of Association (AOA) are : 

  • The Shareholder Meeting and Voting 
  • Appointment and Removal of Directors 
  • Issuance of Transfer of Shares 
  • Dividends and profits 
  • Accounts and audit 
  • Borrowing Power
  • Indemnity and Liability 
  • Amendments of Articles 
  • Conflicts Resolutions Disputes 

CASE LAWS : 

  1. Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875) 

Case summary : According to the MOA’s aims clause, the Ashbury Railway Carriage and Iron Co. Ltd. was established with the purpose of producing railway carriages and other goods associated with railroads. Nevertheless, the business went beyond its stated goals when it signed a deal to finance the building of a railroad line.
A third party named Riche signed an agreement with the business, thinking it had the right to provide funding for the railway. Riche filed a lawsuit for damages when the business broke the agreement. Because the MOA’s objects section prohibited the firm from financing railway development, the company contended that the agreement was void because it was ultra vires, or outside the company’s authority.

Court Decision : The Ashbury Railway Carriage and Iron Co. Ltd. won the case. Because the company’s operations, as specified in the MOA, did not include funding railway construction, the judge ruled that the contract constituted extra vires and, as a result, void. The court stressed that a business can only do things that are expressly permitted under its objects clause.

Legal principle : The decision created the ultra vires theory, which states that a business can only engage in activities that are specifically allowed by its memorandum of association. Any contract or act that falls outside of these specified activities is null and invalid. The legal interpretation of a company’s authority and limitations as outlined in its founding documents has been permanently impacted by this ruling.

  1. Salomon v. Salomon & Co. Ltd. (1897) 

Case Summary : A leather trader named Mr. Aron Salomon established a business entitled Salomon & Co. Ltd., in which he is the largest stakeholder and owns nearly all of the shares, with his wife and kids holding the remaining handful. In order to take over his current business, the corporation was established. In return for both debentures and shares (a type of debt) in the business, Salomon gave the corporation his business. However, it was discovered that the business owed a sizable amount to creditors, included Salomon himself, when it encountered financial difficulties and entered liquidation.
The creditors contended that since Salomon owned the business and had established himself as a significant creditor, he ought to be held personally accountable for its debts. 

Court Decision : The highest court at the time, the House of Lords, decided in Salomon’s favour, concluding that Salomon & Co. Ltd. represented a distinct legal entity from Mr. Salomon, the company’s owner. The idea that a business, once established, has its own unique legal identity and is independent of its owners or operators was affirmed by the court. Salomon was therefore exempt from personal liability for the company’s obligations up to the extent of his outstanding shares.

Legal Principle : The idea of separate legal personality which states that a corporation becomes a different legal entity from its owners, directors, and shareholders when it is incorporated—was established by the case. The business can engage into contracts, possess property, file lawsuits, and face legal action in its own right without the involvement of its shareholders. This idea, which shields shareholders from personal culpability beyond what they have invested in the corporation, is still essential to contemporary company law.

CONCLUSION 

To sum up, the Articles of Association (AOA) and Memorandum of Association (MOA) are essential to a company’s management and functioning. The MOA guarantees that the business functions within the law by outlining its exterior limits, including its goals, authorities, and obligations. By restricting the company’s activities to those listed, it safeguards creditors and shareholders. The AOA, on the other hand, controls internal management and specifies guidelines for board nominations, shareholder meetings, and decision-making procedures. When taken as a whole, these agreements offer a clear framework for business operations that guarantees openness, adherence to the law, and efficient governance. The MOA and AOA are essential for guaranteeing a business’s seamless operation and legal authenticity since they define the scope and internal procedures.

FAQ 

  • What’s the Differences between MOA and AOA ? 

The company’s exterior scope, including its goals, authority, and interactions with the outside world, is defined by the MOA. It regulates what the business can do.
AOA describes the company’s internal governance, including management practices, shareholder rights, and director responsibilities.

  • Can MOA be Changed ? 

Indeed, it is possible to update the MOA, but doing so calls for special resolutions voted by the shareholders and could require regulatory authorities’ permission, particularly if it changes the company’s financial structure or goals.

  • Are MOA and AOA are Public Document ?

The AOA and the MOA are indeed public records. They are accessible to the public and shareholders and are submitted with the appropriate regulatory bodies (such as the Registrar of Companies) throughout the incorporation procedure.

REFRENCES 

BOOKS 

  • “Company Law” by Avtar Singh
  • “Principles of Company Law” by N.D. Kapoor
  • “Company Law: Text and Cases” by R. R. Pennington

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