INSTITUTE OF BUSINESS MANAGEMENT AND RESEARCH

BUSINESS LEGISLATION

ASSIGNMENT: MEMORANDUM & ARTICLE OF ASSOCIATION

MBA SECTION F

(2018-2020)

SUBMITTED TO, SUBMITTED BY,

MS. KSHEMA SHRIVASTAVA NANDANI SHARMA

MEMORANDUM OF ASSOCIATION

Memorandum of Association (MOA) is a legal document which specifies the scope of

business activities of the company and information about shareholding of the company.
The MoA is a document prepared for the Company registration procedure. Sometimes, it
is called the charter of the company other times, it is just called a memorandum. In most
countries, the MOA has to be filed as an ROC Compliance which also includes articles
such as MGT-7 and AOC-4 in India. In an attempt to ease the compliance of company
incorporation in India, the Ministry of Corporate Affairs (MCA) has introduced online
filing for company registration.

The MCA wishes to accomplish One Day Company Formation with the new SPICe
forms. After the SPICe form has been prepared, individuals wishing to register a
company must submit the e-MoA (INC-33) electronic form along with e-AoA (INC-34)
to complete the company incorporation procedure.

Memorandum of Association (MOA) defines the company’s relationship with its

shareholders. It is the most important document of a company as it states the objectives of
the company. It also contains the powers of the company within which it can act.

Use of memorandum of association

The Memorandum of Association (MoA) helps establish the extent and scope of the
business activities that a particular company can carry out. The company can perform
business activities which they have specified in the Memorandum of Association (MoA).
If you wish to expand your business activities into other areas of the market, you will
have to make changes to the memorandum accordingly.

A Memorandum of Association (MOA) is a legal document applicable for limited

liability companies. Limited Liability Companies include Private Limited Company (Pvt
Ltd) and Limited Liability Partnership (LLP). MOA is used to define the company’s
relationship with the shareholders. The MOA is a document of public record i.e. anyone
who wishes to see a company’s MoA can do so under the Right to Information (RTI) Act.
MoA also describes the company’s name, the physical address of the registered office,
names of shareholders and the distribution of shares. Somtimes, MoA also contains the
exemptions and tweaks for a particular company. For eg. Private Limited Companies
have a lot of exemptions as compare to other companies. Read: Exemptions Private
Limited Company.
The MOA and the Articles of Association (AOA) put together, serve as the constitution
of the company. The MOA is not applied in the U.S. but is a legal requirement for limited
liability companies in European countries including the United Kingdom, France, and the
Netherlands, as well as some Commonwealth nations.

Memorandum of Association Clauses

Memorandum of Association (MOA) includes five different clauses as mentioned below:

 Name Clause
 Domicile Clause
 Objects Clause
 Liability Clause
 Capital Clause
 Subscription Clause

Name Clause
The name of the company is its first unique identity. Thus the name clause of the
memorandum consists of the authentic, legal and approved name of the company.
Company names should not bear any similarities to a company registered with a similar
name because many times these companies protect the name of their companies via a
Trademark Registration procedure.

Domicile Clause
The domicile clause comprises of all possible details of the registered office of the
company. It has the name of the State or Union Territory of the registered office and may
and may not have the exact address of the office. It also has the names of the registrars
enrolled.

Objects Clause
Objects Clause constitutes the main body of the memorandum. It provides a list of all the
operations of the company. Every motive and operation the company indulges in must be
mentioned in the object clause. Also, any such operation which is not mentioned in the
object clause is considered to be beyond the reach of the company.
The objects of a company fall into two categories as prescribed below:

1. The proposed objects of the company for which it is being incorporated

2. Matters considered necessary in furtherance thereof
Apart from just stating out the objectives of the company the statement of objects in the
company’s MoA empowers the people associated with the company with the following
benefits

 Gives protection to the subscribers as they have complete knowledge of where

their valuable money is being invested.
 Protects the individuals and/ or companies which deal with the concerned
company as they have knowledge of the extent of the companies powers.
 The board of directors of the company is restricted to using the funds of the
company only to the objects specified in the Memorandum.

Liability Clause
Liability Clause mentions the liability of every member of the Company. It simply states
that every member of the company has a limited liability. The clause also specifies the
amount of contribution of agreed upon for each individual participant in case the
company is closing or winding up.
Read: Closing a Private Limited Company and Closing an LLP.
Irrespective of the financial state of the company, no member can be told to pay more
than the amount that remains unpaid on his/her shares.

Capital Clause
This clause mentions the share capital with which the company is registered. In addition
to this, the capital clause should also mention the types of shares, the number of each type
of share, and the face value of each share.
Private companies and public companies not intended to be listed in the stock exchange
may assume any face value depending on a number of factors however, public companies
to be listed will have a prescribed face value of the shares.

Subscription Clause
The last and final clause of the Memorandum of Association is called the subscription
clause. The subscription clause basically lists down the motives of the shareholders
behind the incorporation of the company and also states that the subscribers are agreeing
to take up shares in the company. It also specifies the number of shares taken up by each
subscriber. It is all according to the details specified in the MoA Subscriber Sheet.
ARTICLE OF ASSOCIATION

Articles of Association is a document which prescribes the rules and bye-laws for the
general management of the company and for the attainment of its object as given in the
memorandum It is a document of paramount significance in the life of a company as it
contains the regulations for the internal administration of the company’s affairs.

The articles of association are a subsidiary to the memorandum of association of the

company. They define the rights, duties, powers of the management of a company as
between themselves and the company at large. Further, they also prescribe the mode and
form in which changes in the internal regulation of a company may be made from time to
time. The articles of association of a company must always be in consonance with the
memorandum of that company and being subordinate to the memorandum; they cannot
extend the objects of a company as specified in the memorandum of the company.

In the case of Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd, the
Supreme Court provided that the articles of association of a company also establish a
contract between the company and its members as well as between the members. This
contract governs the ordinary rights and obligations incidental to the membership in the
company.

Articles of association are like the partnership deed in a partnership. They particularly
provide for matters such as the making of calls, forfeiture of shares, directors
qualifications, the procedure for transfer and transmission of shares and debentures,
powers, duties and appointment of auditors.

Importance of article of association

Under sec 36, the memorandum and the articles when registered, shall bind the company
and its members to the same extent as if it had been signed by them and had contained a
covenant on their part that the memorandum and the articles shall be observed.

With respect to the above section, the importance of articles of association can be
summed up 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 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.

The articles of association must include provisions regarding the

following:
1) Company name
The company name of a private limited liability company must include the
words “limited liability company” or the abbreviation “limited / Ltd” (in
Finnish “osakeyhtiö” / “Oy”, in Swedish “aktiebolag” / “Ab”). If the
company intends to use its company name in two or more languages, the
names in other languages must be stated in the articles of association.

2) A Finnish municipality as the company’s place of business

A company may practice its activities in several places and also abroad, but
its registered place of business can only be in one Finnish municipality. The
company’s registered place of business is of significance, as the general
meetings of shareholders generally need to be held in the municipality of
the place of business and any legal actions against the company need to be
brought to the court of the municipality in question (forum domicilii).

3) The company's field of activity

The term "field of activity" refers to the fields in which the company carries
on its business activity. Any activity, which may be pursued legally in the
form of a limited liability company, can constitute the company’s field of
activity. A company can have several fields of activity, but they must all be
registered. Although legislation is silent about how precise the definition of
the field of activity needs to be, inexact and unnecessarily extensive
definitions should be avoided. The definition of the field of activity has
legal significance when assessing the competence of the company’s organs
to take care of company matters. Moreover, the field of activity is of
importance when evaluating the use of company assets. The field of activity
may also consist of a general field of activity. Definitions of the field of
activity, which are too narrow, can cause extra costs and inconvenience, as
the expansion of the company’s activity requires for the articles of
association to be amended correspondingly and for the changes to be
registered with the Trade Register.

In addition, the following provisions may be included in the articles of

association:

4) Share capital
The minimum amount of a private limited liability company's share capital
is 2,500 euros. The minimum amount of a public limited liability
company’s share capital must be at least 80,000 euros. The share capital
can be stated either as a fixed amount or as minimum and maximum
amounts. In case the share capital has been defined as minimum and
maximum capital, it can be increased and decreased within these limits
without a need to amend the articles of association.

5) Nominal value and number of shares

If the nominal value is defined in the articles of association, all shares must
have the same nominal value.

6) Number of members of the board of directors and auditors as well as the

possible deputy members, or the minimum and maximum number thereof.
The number of the members of the board of directors and auditors, as well
as the possible deputy members and their term of office may be stated in
the articles of association. The number of the members may also be stated
as a minimum or maximum amount. At least one of the members of the
board of directors must have his/her place of residence in the EEA, unless
the National Office of Patents and Registration of Finland grants the
company a permission to deviate from this requirement. Legally
incompetent or bankrupt natural persons or a legal person cannot be
members of the board of directors. In addition, the articles of association
may include special provisions concerning the eligibility of a board
member and a deputy member.

There may be more than one auditor. The competence of an auditor is

regulated in the Auditing Act [5.1.7 Audit]. In case only one auditor has
been elected and the auditor is not an auditing KHT or HTM-firm approved
in accordance with the Auditing Act, then at least one deputy auditor must
be elected in addition.

7) Notice of a general meeting of shareholders

The articles of association may stipulate the manner in which and when the
notice to the annual general meeting of shareholders must be given. The
notice may be given e.g. by announcement in a newspaper or by a written
notice delivered to the persons who have been entered in the share and
shareholders’ registers. If not mentioned in the articles of association,
according to the Limited Liability Companies Act, the notice must be
issued in private limited liability companies no later than one week prior to
the date of the general meeting, or the special date of registration stated in
the articles of association, and no earlier than two months prior to the date
of the general meeting or the registration date.

8) The agenda of the annual general meeting

The articles of association may state the agenda of the annual general
meeting. Matters, which according to mandatory law provisions must be
considered at the annual general meeting, shall also be included on the
agenda.

9) Accounting period of the company

According to the Auditing Act, the accounting period of the company may
be a calendar year or any other period of twelve (12) months. The
accounting period may be shorter or longer than this period when the
company's activity is being set up or closed down or when the time for the
financial statements is being changed. The maximum length of the
accounting period is eighteen (18) months.

10) Supplementary provisions

The Limited Liability Companies Act provides several legal alternatives,
the use of which requires supplementary provisions to be inserted into the
articles of association. Regulating the matter in the articles of association is
usually a prerequisite, if the company wishes to derive a legal benefit from
the alternative. For instance, a redemption right does not relate to a share, if
the matter has not been stated in the articles of association (a so-called
redemption clause). Nevertheless, the inclusion of such regulations in the
articles of association is entirely voluntary. The use thereof depends on
whether the company wants to utilize the alternative provided by
legislation.
Alteration of articles
Section 31 empowers 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. Since it is a
statutory power a company will not be deprived of the power of alteration by a contract
with anyone.

1) Alteration against memorandum- in Hutton v. Scarborough Cliff Hotel Co, a

resolution was passed in a general meeting of a company altered the articles by
inserting the power to issue preference shares which did not exist in the
memorandum. It was held inoperative. However, after Andrews v. Gas Meter Co
Ltd this view has been changed where a company was allowed by changing
articles to issue preference shares when its memorandum was silent on the point.
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
dependant 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.
Thus in Southern Foundries Ltd v. Shirlaw, where a Managing Director was
appointed for a term of ten years, but was removed earlier under the new articles
on amalgamation with another company, the company was held liable for breach
of contract.

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.
 DIFFERENCE BETWEEN MEMORANDUM & ARTICLE OF
ASSOCIATION

MEMORANDUM OF ARTICLES OF
BASIS
ASSOCIATION ASSOCIATION

Memorandum of Association is a
Articles of Association is a
document that contains all the
document containing all the
Meaning fundamental information which are
rules and regulations that
required for the incorporation of the
governs the company.
company.

Defined in Section 2 (56) Section 2 (5)

Type of Information Powers and objects of the company. Rules of the company.

It is subordinate to the Companies It is subordinate to the

Status
Act. memorandum.

The memorandum of association of The articles of association

Retrospective Effect the company cannot be amended can be amended
retrospectively. retrospectively.

The articles can be drafted as

A memorandum must contain six
Major contents per the choice of the
clauses.
company.

A public company limited by

Obligatory Yes, for all companies. shares can adopt Table A in
place of articles.

Compulsory filing at
Required Not required at all.
the time of Registration

Alteration can be done, after passing Alteration can be done in the

Alteration Special Resolution (SR) in Annual Articles by passing Special
General Meeting (AGM) and Resolution (SR) at Annual
 MEMORANDUM OF ARTICLES OF
BASIS
ASSOCIATION ASSOCIATION

previous approval of Central General Meeting (AGM)

Government (CG) or Company Law
Board (CLB) is required.

Regulates the relationship

Defines the relation between company between company and its
Relation
and outsider. members and also between
the members inter se.

Acts done beyond the Can be ratified by

Absolutely void
scope shareholders.