A study of Memorandum of Association

and Articles of Association

Prepared as a part of the course work of

POST GRADUATE PROGRAMME 2017-19

INDIAN INSTITUTE OF MANAGEMENT VISAKHAPATNAM

ANDHRA PRADESH, INDIA.

November, 2017

Prepared by

GROUP 10

Kunal Ahirwal (1710027)

Nishank Maheshwari(1710034)

Rakesh Kumar (1710039)

Rupa Rani Kudumula (1710042)

Sriharsha Palvadi (1710053)

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 MEMORANDUM OF ASSOCIATION

Memorandum of association (MOA) is a document which contains all the fundamental and
necessary data which is required for the company at the time of incorporation. The MOA is the
document which characterizes and limits the power and working field and pattern of any company.
MOA is considered to be the supreme document of any company.

Important Characteristics of MOA:

Fundamental document of a company and is mandatory to prepare its own memorandum

Contains name, signature, other details of persons and company information.
On Registration of memorandum, the company is entitled to be registered.
Memorandum is a public document and inspected by any person
It is a binding of company and its members.

Importance of MOA:

1. Basis for the company: MOA is a fundamental document of the company and it cannot be
resisted without memorandum.
2. Defines company scope: It decides the companys scope of activities and restricts company
not to beyond that.
3. Guidance to Directors: It guides the top management to achieve the objectives of the
company and restricts them from doing anything beyond the scope of memorandum.
4. Preserves the Interests of Investors and Shareholders: MOA protects the interests of the
investors by defining the risk involved in investing.

Section 4 of company act 2013 deal with the Memorandum of association (MOA). Under this section
Memorandum of association of a company limited by shares has six clause which is described below:

1) Name clause: A company is a legal identity, so it must have a name to establish its unique identity. Nam
clause in MOA gives the privilege of having a unique name of a company. Name clause in MOA prevent
another company to have similar or same name as another company.
A company can have any unique name, but it should have a name ending with the following names:

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2) Registered office clause: MOA must mentioned the name of the state or territory in which the
company is being incorporated. Every company must have a registered office from the day on its
operations or within 30 days of Incorporation whichever is earlier.
For example: The registered office of Flipkart is

No. 447/C, 1st Floor,1st A Cross, 12th Main,4th Block, Koramangala, BANGALORE KA 560034

3. Objects clause: Objects of the company for which it is formed will be written in this clause. It also
contains the company goals and methods to attain them. It defines and limits the scope of
operations of the company.

a) The objective to be pursued by the company on its incorporation

b) Matters which are necessary for furtherance of the objects specified in clause
4. Liability clause: This filed mentions the maximum amount of capital that can be raised by the
company. The distribution of the capital into shares is written here.

The liability of the member(s) is limited and this liability is limited to be amount unpaid, if any, on
the shares held by them.

The share capital of the company is rupees, divided into . shares of .

rupees each.

5) Capital clause: Memorandum of Association of a limited company having share capital (i.e.
company limited by shares or company limited by guarantee having share capital) must also state
the amount of share capital with which the company is to be registered which is usually called
authorized or nominal capital.

For example, the capital clause of Tech Mahindra is given below:

The Authorised Share Capital of the Company is Rs. 7,931,000,000/- (Rupees Seven Hundred
Ninety-Three Crores and Ten Lakhs Only) divided into 1,586,200,000 (One Hundred Fifty-Eight Crores
and Sixty-Two Lakhs Only) equity shares of Rs. 5/- (Rupees Five) each.

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6) Subscription clause: The details of the first subscribers will be written here. The subscribers to
the memorandum must take at least one share. The minimum number of members is two in case of
a private company and it is seven in case of public company.

We, the several persons, whose names and address are subscribed, are desirous of being formed
into a company in pursuance of this memorandum of association, and we respectively agree to
take the number of shares in the capital of the company set against our respective names: -

Names, addresses No. of shares by each Sign of subscriber Signatures, addresses,

subscriber of witnesses

Articles of Association
Articles of Association is a document that contains the rules, regulations and bye laws for the
general management of the company. They are framed with the objective of carrying out the aims
and objectives defined in the Memorandum of Association. It defines the companys purpose and
layout how tasks are going to be carried out within the organization for example process of
appointing the directors, financial accounting needs to be handled.

Meaning of Articles of Association:

The AOA is rule book within a company. It is in a document form and forms part of the companys
constitution alongside the memorandum. It contains internal detailed governing aspects of the
companys organisation. These include shares, (issue and rights attached to them) the conduct of the
company meetings and the role and powers of the directors. The Articles detail rules which govern
the conduct of directors, the rights of the shareholders and the relationship between the two.
The articles of association set out how the company is run, governed and owned.

According to section 2(5) of the companies Act 2013, Articles means the articles of association of a
company as originally framed or as altered from time to time in pursuance of any companys law or
of this act. The AOA of a company must always be in consonance with the memorandum of that
company and being adjuvant to the memorandum, they cant extend the objects of the company as
specified in the memorandum.

Importance of articles of association is as follows:

1) Binding on members in their relation to the company- the members are bound to the company by
the provisions of the articles just as much as if they had all put their seals to them.

2) Binding on company in relation to its members- just as members are bound to the company, the
company is bound to the members to observe and follow the articles.

3) Neither company, nor members bound to outsiders- articles bind the members to the company

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and company too, the members but neither of them is bound to an outsider to give effect to the
articles.

4) Binding between members inter se- the articles define rights and liabilities of the members. As
between members inter se the articles constitute a contract between them and are also binding on
each member as against the other or others. Such contract can be enforced only through the
medium of the company.

Article of Association contains the following:

a) Share Capital: including sub-division, rights of various shareholders, the relationship of

these rights, payment of commission, share certificates
b) Lien of Shares: It means to retain possession of shares in case the member is unable to pay
his debt to the company.
c) Voting Rights and Proxy: The members right to vote on certain company matters and the
manner in which voting can be done is provided in the articles of association.
d) Call of Shares: Calls on shares include the whole or part remaining unpaid on each share
which has to be paid by the shareholders on the companys demand.
e) Transfer of Shares: The articles of association include the procedure for the transfer of
shares by the shareholder to the transferee.
f) Transmission of shares: Transmission includes devolution of title by death, succession,
marriage, insolvency, etc. It is not voluntary but is in fact brought about by operation of law.
g) Directors and their Appointment: remuneration, qualifications, powers and proceedings of
the boards of directors meetings.
h) Forfeiture of shares: The articles of association provide for the forfeiture of shares if the
purchase requirements such as paying any allotment or call money, are not met with
i) Alteration of Capital: Increase, decrease or rearrangement of capital must be done as the
articles of association provide.
j) Conversion of shares in stock: In consonance with the articles of association, the company
can convert the shares into stock by an ordinary resolution in a general meeting.
k) General Meetings and Proceedings at GM All the provisions relating to the general meetings
and the manner in which they are to be conducted are to be contained in the articles of
association.
l) Borrowing powers: Every company has powers to However, this must be done according to
the articles of association of the company.
m) Dividends and reserves: The AOA of a company also provide for the distribution of dividend
to the shareholders.
n) Accounts and Audits: The auditing of a company shall be done subject to the provisions of
the articles of association of the company.
o) Winding up Provisions relating to the winding up of the company finds mention in articles of
association of the company and must be done accordingly.

Alteration of Article:

Section 31 of the Companies Act allows every company to alter its articles at any time with the
authority of a special resolution of the company and filing copy with the Registrar. Under the section
31, the power of alteration of articles is almost absolute.

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It is subject only to two restrictions:

It must not be in contravention with the provisions of the Act.

It is subject to the conditions contained in the memorandum of association.

The provision to sub-section (1) says that an alteration which has the effect of converting a public
company into a private company would not have any effect unless it is approved by the Central
Government.

1) Alteration against memorandum- The power of alteration of art is subject only to what is clearly
prohibited by the memorandum, expressly or impliedly.

2) Alteration in breach of contract- a company may change its articles even if the alteration would
operate as a breach of contract. If the contract is wholly dependent on the articles, the company
would not be liable in damages if it commits breach by changing articles. But if the contract is
independent of the articles, the co will be liable in damages if it commits breach by changing articles.

3) Alteration as fraud on minority shareholders - an alteration must not constitute a fraud on the
minority. It should not be an attempt to deprive the company or its minority shareholders of
something that in equity belongs to them.

4) Alteration increasing liability of members - no alteration can require a person to purchase more
shares in the company or to increase his liability in any manner except with his consent in writing.

Thus, the power of alteration should be exercised in absolute good faith in the interest of the
company.

Conclusion:
It is a settled company law principle that the articles of association of a company cannot override the
provisions of the Companies Act, 2013. Further, the articles of association of a particular company
are also bound to observe the memorandum of association of the company as the articles are
subordinate to the charter which is the memorandum of the company as well as any other company
law in force at that time. Thus, it is of primary importance that when a company is being
incorporated, and the articles of association of the company are being prepared, the same must be
done in consonance with memorandum of association, the Companies Act, 2013 and any other
company law which is in force at that time.

References:

1) http://www.legalservicesindia.com/article/article/articles-of-association-2313-1.html
2) http://www.investopedia.com/terms/a/articles-of-association.asp
3) https://www.youtube.com
4) https://www.slideshare.net/makjust4u/format-of-moa-new-companies-act-2013
5) https://en.wikipedia.org/wiki/Memorandum_of_association
6) http://commercenotes.in/2017/03/24/memorandum-of-association-meaning-features-
importance-and-content-of-memorandum/
7) Companies Act, 2013

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