INTRODUCTION

Every entrepreneur looks forward to the first step in starting a business, which is giving it a legal identity by registering a company. Companies are governed by legal documents that spell out the dos and don’ts. The Memorandum of Association (MOA) and Articles of Association (AOA), also known as the company charter, define the scope of work and internal management of the company. One of the most important steps in the Private Limited Company registration process is the creation of these documents.

These preliminary documents must be submitted before applying for company registration. Along with the company incorporation form, the MOA and AOA should be filed with the Registrar of Companies (ROC).

 The Memorandum of Association (MOA) and Articles of Association (AOA) define the scope of work, objectives, rules, and internal management of a company. They are essential, and the company’s foundation is built on them. As a result, the company’s founders must draught them with extreme clarity and precision.

The Memorandum and Articles of Association are the supreme legal documents that comprise the company’s constitution. They are indispensable, and the foundation of a business is built on them. As a result, drafting them requires extreme precision and clarity. Examine the meaning and significance of articles of association and memorandums of association.

MEMORANDUM OF ASSOCIATION (MOA) OF A COMPANY

A Memorandum of Association (MOA) is a document that contains the details of the company’s constitution and serves as the company’s foundation. It is known as a company’s charter. It defines the scope of the company’s activities, the goals for which it was formed, the extent of its authority, and its relationship with the outside world.

The first step toward company registration is the creation of a MOA. The MOA must be signed by all company members when the company is formed. Subscribing to a MOA entails stamping or signing the document as attestation or approval of its contents.

CONTENTS OF MOA

Every company’s MOA should contain the following five clauses:

• Name clause: The company will have its own name to project its identity. The name of a public company will end with the word public limited, while the name of a private company will end with the word Private Limited.
• Registered office clause: According to Section 12 of the Indian Companies Act, the company must have a registered office within 15 days of incorporation to which all communications and notices may be sent.
• Object clause: The Memorandum of Association should specify the item for which the organisation is proposed to join as well as any other information deemed necessary for its promotion
• Liability clause: The liability of an organisation, whether limited or unlimited, should be specified in the Memorandum of Association.
• Capital clause: This clause specifies the amount of capital with which the company is registered.
• Subscription clause: Subscribers to the company’s Memorandum must purchase at least one share of the company.

ARTICLES OF ASSOCIATION (AOA) OF A COMPANY

The firm’s rules, bye-laws, and regulations that regulate how its business is conducted and how its internal affairs are managed are contained in the Articles of Association (AOA) of the company. The MOA of a firm governs the AOA, which is subservient to it. Every business needs an AOA since it is essential to establishing its internal rights, operations, management, and responsibilities. The AOA should be consistent with the MoA and the 2013 Companies Act.

Contents of AOA

• Adoption of preliminary contracts.
• Share capital, rights that may vary, the quantity and value of the shares it owns, and the issuance of preferred shares
• The allocation of shares.
• Calls on securities.
• Lien on the shares.
• Share transfers and transmissions.
• Share forfeiture is a term.
• Changing the capital.
• Buy back.
• Certificates of shares.
• The exchange of shares for stock.
• Proxy voting and voting rights.

THE DISTINCTION BETWEEN MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION

 BINDING EFFECTS OF ARTICLES ANFD MEMORANDUM OF ASSOCIATION

The Memorandum and Articles, when registered, “shall, subject to the provisions of this Act, bind the Company and the Members thereof to the same extent as if they had been signed by the Company and by each Member, respectively, and contained covenants on its and his part to observe all the provisions of the Memorandum and of the Articles.”Thus, the Articles establish a contractual relationship between the Company and its Members, as well as between Members and the Company. They serve as a binding agreement between a firm and its members regarding their obligations and rights as members. To enforce and prevent any violation of the articles, either a member or the company may file a lawsuit.

1. Binding the company to its members:

The corporation has a duty to uphold and abide by the articles in front of the members. Members may seek an injunction against the firm if it violates the articles of incorporation to prevent the company from continuing its violation. Members may also take the corporation to court to have their proclaimed personal rights under the Articles, such as the right to receive split, enforced. However, the provisions of the Articles may only be enforced by a shareholder or a member of the company, in that capacity alone and not in any other capacity. The Wood v. Odessa Waterworks Co. case serves as an example of how the articles of incorporation are binding on the company’s members. It said that “the directors may declare a dividend to be paid to the members” with the approval of the company at a general meeting. A resolution was voted to provide the shareholders debenture bonds rather than paying the dividend to them in cash.

2. Binding on members in their relations to the company:

Each member of the firm is bound to the other under a statutory covenant by the “compact of the most holy character” known as the article of Association. Any money that a member owes the company in accordance with the memorandum or the articles is considered a debt owed by him to the firm. Each member is deemed to have signed the articles and committed to abide by them. The articles bind the members just as if each member had agreed to abide by them. A firm has the right to bring legal action against its members in order to enforce its articles and prevent violations. Borland’s Trustees v. Steel Bros. & Co. Ltd. (1901) is a case in point. The company’s articles of association stated that in the event of a member’s bankruptcy, the shares would be sold at a price to be determined by the directors. Borland went out of business. His bankruptcy trustee argued that he was not constrained by the articles since he wished to sell these shares for their full worth. It was determined that he had to follow the terms of the company’s articles.

3. Binding between members:

The contractual force attributed to the articles is restricted to disputes arising out of the members’ membership in the firm and does not go beyond that. A contract between each member and the company is established by the articles. Their rights per se are not governed by the articles. Only by or against a member through the company may such rights be enforced. This is not always the case, though. The articles have been expanded by courts to include individual members as parties without adding the company as a third party. The Rayfield v. Hands case from 1960 serves as a reminder of the problem.

Rayfield owned stock in a business. If he intended to transfer the shares, he was required to let the directors know. The shares were to be acquired by the directors at fair market value. According to the articles, Rayfield alerted the directors. The directors argued that the articles could not impose such a responsibility on them and that they were not required to take and pay for Rayfield’s shares. By considering the directors as members and ordering them to accept Rayfield’s shares at fair market value, the court rejected this argument. The court ruled that Rayfield did not have to be a part of the corporation in order to sue the directors.

4. Not binding with respect  to the outsiders:

There is no contract between the corporation and the third party as a result of the memorandum and articles. The terms of the memorandum and the articles are not subject to external obligations on the part of the firm or its members. For instance:In Browne v. La Trinidad, a clause in the company’s articles said that Browne should be a director and should not be subject to removal. He was nevertheless fired and has filed a lawsuit to prevent further exclusion by the business.It was decided that Browne and the business did not have a contract. Articles cannot be enforced by a third party even if they appear to grant the third party particular rights.

CONCLUSION

The articles of association and the memorandum of association are crucial legal documents. They facilitate the owners’ management of the business and aid in its simplification. Functions and rules that are clearly defined improve effectiveness and transparency. As a result, they are crucial to any private or public limited corporation.

REFERENCES

https://www.sec.gov/Archives/edgar/data/1570124/000119312513074262/d483104dex99t3a19.html.

https://cleartax.in/s/company-moa-aoa-under-companies-act

COMPANY LAW BY AVTAR SINGH

THE COMPANIES ACT, 2013.

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