HOW TO PREPARE MOA & AOA?

INTRODUCTION

It is very important for every entrepreneur and a start-up company to draft the company charter, which includes Memorandum and Article of Association. It defines the company’s scope of work and its internal management. These two documents are considered as the supreme legal documents forming the company’s constitution. Therefore, it is important to draft them with clarity and precision.

WHAT is MOA AND AOA?

Memorandum of Association

According to Section 2(56) of the Companies Act, 2013, “memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or this Act.”

Memorandum of association is the most important document of a company as it sets out the constitution of the company. This, along with defining the powers of the company. This includes the basic conditions on which the company alone is allowed to be involved. Moreover, it is said to be a public document, and everyone dealing with the company is presumed to know its contents.

A Memorandum is made at the time of the incorporation and has to be filed electronically in FORM INC 33.

Section 4 of the Companies Act, 2013 deals with MoA and the memorandum must contain the following:

1. Name clause: a company must have a name to establish identity. Such name neither is identical with the name of any other company nor be undesirable win the opinion of the central Government.
2. Registered office: the clause must specify the state in which the registered office of the company is situated to fix the domicile of the company
3. Objects clause: the object of the formation of the company and any matter considered necessary in furtherance thereof must be stated.
4. Liability Clause: the next clause must state the liability of its members as to whether it is limited or unlimited.

1. In case of a company limited by shares: Liability of its members is limited to the amount unpaid, if any, on the shares held by them;
2. In the case of a company limited by guarantee: the amount up to which each member undertakes to contribute-

1. To the assets of the company in case of its being wound up while he is a member or within one year after he ceases to be a member, for payment of debts and liabilities of the company;
2. For winding-up costs, charges, and expenses and adjustment of rights of mutual contributions.

5. Capital clause

1. The amount of share capital with which the company is to be registered and the division thereof into shares and number of shares which the subscribers to the memorandum agree to subscribe and which shall not be less than one share;
2. The number of shares each subscriber to the memorandum intends to take, indicated opposite his name.

6. Nomination clause: as to who will become the member of the company in the event of the death of the person in case of a one-person company
7. Subscription clause: Finally, the signature of the subscriber is required and must be done in the presence of at least one person who will attest to him with his signature.

Article of association

According to Section 2(5) of the Companies Act, 2013, “article means the article of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or this Act”.

AoA is a document which contains the rules, regulations for internal administration and management of the company. It is similar to the ‘partnership deed’ in a partnership. The article defines the duties, the rights and the powers of the governing body as between themselves and the company at large and the form in which business of the company is to be carried on. In a matter of internal conflict, AoA is referred.

It contains several rules and rights, such as:

1. General meetings, proceedings at general meetings and adjournment of the meeting
2. Voting rights and proxy of its shareholders
3. Call on shares and forfeiture of shares
4. Transfer and transmission of shares
5. The provision regarding the appointment of the board of director along with its power of delegation and other provisions regarding the proceedings of the board.
6. Chief executive officer, manager, company secretary or chief financial officer
7. Dividend amount to be distributed and the reserve amount to be kept
8. Provisions relating to the audit committee along with its power and duties
9. Winding up of the company
10. Provisions regarding borrowing power
11. The provision regarding seal, if any
12. Indemnity

Both the memorandum and the article must be printed, divided into paragraphs continuously, and signed by each client in the presence of at least one witness who will confirm his signature. Furthermore, the subscribers and witnesses must add their address along with the details of their occupation.

BINDING FORCE OF MEMORANDUM AND ARTICLES

Section 10 of the Companies Act, 2013 provides that once memorandum and article are registered it bind the company and the member thereof to the same extent as if they respectively had been signed by the company and by each member, and his part of observing all the provisions of the memorandum and the article of association. Thus, the company is bound to the members, and the members are bound to the company, but they are not bound to the outsiders.

CONCLUSION

Where MoA is the charter of the company which contains the fundamental conditions upon which the company is allowed to be incorporated, the article, on the other hand, is the internal regulations of the company. Furthermore, the memorandum is a supreme document, and the latter one is a subordinate document. They must be read together, but the terms of the memorandum cannot be modified or controlled by the articles. Moreover, both article and memorandum can be altered according to the provisions of the Companies Act, 2013.