What is the Difference Between Memorandum of Association and Articles of Association?

The memorandum of association and the articles of association traditionally make up a company’s constitutional documents under English common law. This goes back to the time before Joint Stock Businesses law, when companies were created by royal charter and their internal rules were managed by their byelaws while their exterior legal status was defined by the charter. 

The difference between memorandum of association and the articles of association is that the articles and memorandum essentially reflect and are designed for the external part of the business.

Oppositely, the association articles reflect and define the internal part of the business.

Let’s begin by reading the definitions of memorandum of association and the articles of association.

Definition of Memorandum of Association

Definition Of Memorandum Of Association

A Memorandum of association is the main document or the first significant document that every company must initially prepare and register with the registrar at its launch.

MoA is referred to as a memorandum of association.

It defines the company’s charter and serves as the pillar around which the organization is structured. 

It identifies the company’s objectives, powers, and the boundaries of its allowed operations.

It is prepared to provide investors, creditors, and other outside parties who work with the company with a sense of its authority and the range of its activities.

Memorandums give information about the company so that investors will learn how their investment will be used and the risk involved.

It comprises the basic aspects under which the company is founded and establishes and governs its interaction with other parties.

That is why it is also known as the company charter.

Every individual who conducts business with the company is believed to have a sufficient understanding of its contents.

The memorandum becomes a public document upon firm registration, making it accessible to anyone for inspection.

Clauses of Memorandum of Association

Clauses Of Memorandum Of Association

It contains the following significant terms essential for a company’s functioning.

Name Clause: It deals with the original and authorized name of the business, which shall be followed by the words “Private Limited” or “Public Limited.”

Situation Clause: This clause describes the company’s registered office’s precise location (location and state).

Objective Clause: This clause outlines the business’s primary and secondary goals and objectives.

Association and Subscription Clause: It includes information about the founder subscribers, the shares given to each of them, witnesses, etc. 

Capital Clause: It provides details on the company’s assets and total share capital, as well as the minimum, paid-up share capital and share categories.

Liability Clause: It conveys information regarding the duties of each company’s shareholders and members.

Definition of Article of Association

Definition Of Article Of Association

The association is the second crucial document that needs to be submitted to the registrar at the start of business.

The articles of association (also known as AOA). It contains the policies and practices for running the business.

The memorandum of association for the corporation is supreme and governs the articles of association.

Therefore, it is important to remember when drafting the articles of association that they shouldn’t exceed the authority granted to the business by its memorandum and shouldn’t conflict with the laws governing corporations.

Its contents consist of the firm name, the name of the state where the registered office is located, and interpretations of the terminology used in the articles.

The rules in the articles of association specify and govern the manner and format in which the company’s internal affairs are managed.

Additionally, it serves as the foundation for the contract between the company and its members.

It also describes the firm’s directors’ and officials’ rights and obligations.

Importance of MoA and AoA

The primary legal documents of a company are the MoA and AoA:

  1. These two are the firm’s constitution, which guides how a corporation should operate.
  2. The company may take legal action against a member who violates these two documents.
  3. The MoA and AoA should govern every action the organization does.
  4. The AoA outlines how the business and its members interact internally.
  5. The MoA also defines each company member’s duties and rights.

Differences Between Memorandum of Association and Articles of Association

Differences Between Memorandum Of Association And Articles Of Association
  1. The difference between memorandum of association and articles of association is that the memorandum of association is the basic document that contains the necessary information about the company at the time of its incorporation. On the other hand, the company’s articles of association are supporting documents that include the rules and guidelines it has established for its governance and day-to-day management. It also includes information about the company’s accounts and audits.
  2. Another difference between memorandum of association and articles of association is that the memorandum of association serves as the company’s constitution and is the foundation of its authority. While the articles of association outline how the company’s objectives will be fulfilled.
  3. The articles of association are subordinate to the memorandum of association of the firm, whereas the memorandum of association is subordinate to the company’s act.
  4. For the purpose of incorporation, all businesses, whether public or private, must prepare an original memorandum of association. However, only private limited companies are required to prepare their articles of association.
  5. The company’s annual general meeting must approve the memorandum of association; in many instances, prior approval from the central government is needed to make changes. Contrarily, only a special resolution passed by the Annual General Meeting (AGM) can change the articles of organization.
  6. Article associations focus on the internal operations of the business, including whatever is going on with the workers and how you’ll handle the senior-junior connection. The memorandum of association, on the other hand, is a document that will instruct you on how to interact with stakeholders and suppliers in the outside world.
  7. The six clauses must be included in the memorandum of association. Articles of Association, however, are drafted at the company’s choice.

What are the Differences Between Memorandum of Association and Articles of Association?

Highlighting the main differences between memorandum of association and articles of association in the following table:

Memorandum of AssociationArticles of Association
A Memorandum of Association is a charter document that contains important information required for the incorporation of a firm.Articles of Association are legal documents that outline all the standards and guidelines that apply to the corporation.
It defines goals and authority of the company.It outlines the company’s rules.
It is subordinate to the controlling act.The memorandum of association (MoA) is superior to it.
There are six essential clauses in a memorandum.The articles of association can be created in accordance with the needs of the business.
It explains how the corporation and third-party interact.It outlines how the company and its people interact and how they interact with one another.
It is required for all companies.Articles of associations are only necessary for private limited companies.

Conclusion

The MOA and AOA are essential legal documents for a business.

The difference between memorandum of association and articles of association is that memorandum of association, is a document that defines the foundational clauses of the corporation’s constitution. It regulates and defines the company’s authority. In contrast, a company’s articles of association are the rules and laws that control how its internal affairs are handled and how business is conducted.

Read more: What is the Difference Between Fraud and Misrepresentation?

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