Difference Between Memorandum of Association and Articles of Association

Every company registered in India is required to have two fundamental documents — the Memorandum of Association (MoA) and the Articles of Association (AoA). These documents form the constitutional framework of the company and regulate its functioning. Though both are essential, they differ in their purpose, scope, content, and legal effect. 

This article explains the key differences between MoA and AoA in simple and clear terms, making it easy to understand their significance in the incorporation and management of companies.

What is Memorandum of Association?

The Memorandum of Association (MoA) is a foundational document that acts as the company’s charter. It sets out the essential particulars about the company required for its incorporation. The MoA defines the company’s identity and purpose. It specifies the scope within which the company is allowed to operate and conduct its business.

In simple words, the MoA tells the outside world what the company is, what it intends to do, and the extent of its powers. It governs the relationship of the company with shareholders, creditors, and the public.

What is Articles of Association?

The Articles of Association (AoA) is an internal document which lays down the rules and regulations for managing the company. It provides the guidelines for how the company will operate internally. The AoA deals with the rights, duties, and responsibilities of members, directors, and other officers of the company.

Simply put, the AoA acts as the company’s rulebook, describing how decisions are to be made, how meetings should be conducted, how shares may be transferred, and other administrative and procedural matters.

Key Differences Between Memorandum of Association and Articles of Association

Legal Status and Hierarchy on Memorandum of Association and Articles of Association

The MoA and AoA both must comply with the provisions of the Companies Act, 2013. However, their positions in the company’s constitutional hierarchy differ:

• The Memorandum of Association is the primary document. It has supremacy over the Articles of Association. If any provision in the AoA conflicts with the MoA, the MoA prevails.
• The Articles of Association are subsidiary to both the MoA and the Companies Act. They cannot contain provisions that are inconsistent with either the MoA or the Act.

This hierarchy ensures that the company’s fundamental objectives (defined in the MoA) are always upheld over internal procedural rules (in the AoA).

Contents of MoA and AoA

Contents of the Memorandum of Association

The MoA contains six essential clauses:

1. Name Clause: Specifies the legal name of the company. The name must be unique and in accordance with the Companies Act, including the suffix “Private Limited” or “Limited” where applicable.
2. Registered Office Clause: Indicates the state in India where the company’s registered office will be situated. This establishes jurisdiction for legal purposes.
3. Objects Clause: Defines the objectives for which the company is incorporated. It includes the main objects, incidental objects, and other objects the company may pursue.
4. Liability Clause: Specifies the liability of the company’s members, whether limited by shares, guarantee, or unlimited.
5. Capital Clause: States the authorised share capital and the division of capital into shares of fixed amounts.
6. Association Clause: Contains the names, addresses, and signatures of the initial subscribers who agree to form the company.

Contents of the Articles of Association

Unlike the MoA, the AoA can be drafted flexibly to suit the company’s needs. Typical contents include:

• Rules for the appointment, powers, and duties of directors.
• Procedures for convening and conducting board and general meetings.
• Rights and obligations of members, including voting rights and dividend policies.
• Regulations regarding share transfers and transmissions.
• Rules concerning company accounts, audits, and the use of the company seal.
• Provisions for dispute resolution and internal management.

Scope of Operation

• The MoA defines the company’s scope of operation. It limits the business activities to the objects specified in the MoA. Any act done beyond the objects clause is considered ultra vires (beyond powers) and is legally void.
• The AoA governs the company’s internal management. It regulates how the company functions within the limits of the MoA. It lays down the code of conduct for the company’s administration, management, and member interactions.

Relationship Defined

• The MoA establishes the company’s relationship with outsiders — shareholders, creditors, and the general public. It outlines the company’s external boundaries and legal capacity.
• The AoA governs the relationship between the company and its members, as well as relationships among members themselves.

Alteration and Amendment

Altering either document is possible but differs in procedure and complexity:

• Memorandum of Association:
  • Alterations require a special resolution passed in a general meeting.
  • Prior approval from the Central Government or the Regional Director is mandatory.
  • In some cases, approval of the National Company Law Tribunal (NCLT) may also be needed.
  • Amendments cannot be retrospective to validate previous ultra vires acts.
    
• Articles of Association:
  • Can be amended by passing a special resolution in a general meeting.
  • No prior government approval is necessary unless specified by law.
  • Amendments can be retrospective, subject to member consent.

The higher level of scrutiny in altering the MoA reflects its fundamental role in defining the company’s existence.

Ratification of Acts Beyond Their Scope

• Acts done beyond the MoA’s scope (ultra vires acts) are void and cannot be ratified by shareholders or the company.
• Acts done outside the AoA’s provisions can often be ratified by shareholders by passing an ordinary or special resolution, provided such acts are not inconsistent with the MoA or the Companies Act.

Necessity of the Documents

• The Memorandum of Association is mandatory for every company at the time of incorporation. It must be filed with the Registrar of Companies (RoC) and is a public document.
• The Articles of Association are also required for incorporation. However, public companies may adopt the standard Table F as per the Companies (Incorporation) Rules, 2014, instead of drafting bespoke AoA.

Both documents are vital for the company’s legal existence and smooth operation.

Registration Requirements

• The MoA must be registered with the RoC during incorporation and is accessible for public inspection.
• The AoA must also be filed with the RoC at incorporation. Companies may choose to register amendments to AoA later as required.

Summary Table of Differences Between Memorandum of Association and Articles of Association

Conclusion

Both the Memorandum of Association and Articles of Association are indispensable for forming and operating a company in India. The MoA is the company’s foundation, defining its identity, powers, and the extent of its operations. In contrast, the AoA provides the internal governance framework, detailing the rights and responsibilities of members and the conduct of company affairs.