Difference Between Memorandum of Association and Article of Association

While the memorandum of association works as a charter that defines the scope and limitations of the company, an article of association functions as a legal document that lays down rules regarding the management of the company. The Memorandum helps to define the relationship that the company has with its members and the rights those members have. In this blog, let us see the difference between article of association and memorandum of association.

What is the meaning of Memorandum?

As per Section 2(56) of the Companies Act, 2013 a ‘memorandum‘ refers to the original memorandum of association that a company registered or an altered one that follows the rules laid down in the Companies Act. Let us further look into the memorandum of association contents.

Clauses in MOA / Contents of the MOA (Memorandum of Association)

Section 4 of the Companies Act, 2013 states that an MOA should contain the following clauses and details.

• Name Clause

This clause contains the company’s name ending with a “Limited” if it is a public company and with “Private Limited” in the case that it is a private limited company.

• Situation Clause

This dictates in which State and registered office the company is to be situated and defines the geographical constraints of the company.

• Object Clause

This clause gives an idea about the objects that the company deals in and may be altered as the company expands to include and incorporate more objects.

• Liability Clause

This mentions the liability of the company’s members whether it be limited, unlimited, or state-owned.

1. When shares limit the company, its liability refers to the unpaid amount corresponding to the shares they hold
2. If a company limited by guarantee, then the liability is the amount each member promises to contribute—

• • This could include assets of the company if the company shuts down while he or she remains a member or within one year after they retire.
  • They are liable to pay off debts and liabilities of the company which was undertaken when they were a member of the company.
  • They are also responsible for the costs and charges incurred due to the winding-up and even for distributing the contributions as per the regulations.

• Capital Clause

It defines the amount of capital invested, the number of shares registered and how the shares have been divided. If it is a One Person Company, then the founder becomes a member of the company.

Name in MOA (Memorandum of Association)

The name in the memorandum needs to follow the below-mentioned rules.

It cannot be –

1. Identical or resemble an existing company’s brand name closely.
2. The one that is being used by another company.
3. One that is offensive under any law.
4. A name that is undesirable as per the Central Government’s decree.
5. Or may not be registered with a name which contains—

• Any word that might make it sound like it has any connection to the Central Government or patronage of any State Government.
• Any word as described in the Companies (Incorporation) Rules, 2014 unless they have sought approval from the Central Government prior to the registration.

Type of MOA (Memorandum of Association)

The memorandums are of the following type depending on their form.

1. Table A    If shares limit a company
2. Table B    If a company limited by guarantee
3. Table C    If a company limited by guarantee and share capital
4. Table D    If it is an unlimited company
5. Table E    If it is an unlimited company having a share capital

What is an Article?

As per Section 2(5) of the Companies Act,2013  an “article” refers to the original article of association of a company or a version that has been altered so as to comply to the laws stipulated in the Act. Section 5 of the Companies Act, 2013 defines the article of association as the document that contains the rules and regulations regarding the management of the company.

Provisions for Retrenchment

The article contains rules for entrenchment that allow only specific clauses to be altered and these rules can only be made by:

• Private Company – When it is formed or by an amendment which is agreed on by all its members
• Public company – By special resolution

Types of Articles

1. Table F    If shares limit a company
2. Table G   If a company is limited by guarantee
3. Table H   If guarantee and shares limit a company
4. Table I    If it is an unlimited company having a share capital
5. Table J    If it is an unlimited company not having a share capital

While both serve as charter documents for a company, an MOA (Memorandum of Association) contains the essential details about the company while an AOA (Article of Association) includes rules and regulations designed by the company. The MOA works as the Constitution on which the company is built, and the AOA takes the shape of by-laws that help in the functioning of the company. Both require registration, with the office of Registrar of companies (ROC) before the company is registered.

Primary Differences between MOA (Memorandum of Association) and AOA (Article of association)

While coming to the difference between article of association and memorandum of association, the following points matter the most.

• The first difference between MOA and AOA while the MOA (Memorandum of Association) describes the powers and objects of the company, the AOA (Article of Association) defines its rules.
• The MOA is subordinate to the Companies Act, and the AOA (Articles of Association) is subordinate to the memorandum.
• The memorandum cannot be amended retrospectively while an AOA (Article of Association) may be changed.
• The main difference between memorandum of association and article of association is that the memorandum includes six clauses while an article may be drafted as per the company’s need.
• The MOA is mandatory for all companies while a public share company can use Table A in place of an AOA (Article of Association).
• An alteration may be made in an MOA only after passing Special Resolution in Annual General Meeting after obtaining prior approval from the Central Government while changes in an AOA may be made by passing Special Resolution (SR) at Annual General Meeting (AGM).

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