MOA and AOA of a Company Under Companies Act

Meaning

The Memorandum of Association (MOA) and Articles of Association (AOA) under companies act are the foundation documents upon which a company in India is built. These documents serve distinct yet complementary purposes, defining the company’s core aspects and the internal rules that govern its operations. Understanding MOA and AOA is crucial for anyone involved in company formation or governance.

Often referred to as the company’s constitution, the MOA acts as a public document outlining the company’s fundamental characteristics. As Lord Cairns famously stated, the MOA is the “charter which sets out the limitations of the company established under the Act”^[1]

It’s a mandatory requirement for companies registering under the Companies Act, 2013 (the Act) as either a Public Limited Company or a Private Limited Company to prepare the MOA and AOA before incorporation of the entities^[2].

Both MOA and AOA are one of the charter documents of the company and prepared during the incorporation process of the company. It is a constitutional document of the company which provides an outline to the nature and scope of the company and the activities that the company will carry out.

Additionally, it is mandatory for a company willing to incorporate in India to have a MOA and AOA before its registration with the Registrar of the Company (ROC). Without the MOA, a company cannot be formed legally.

The MOA serves several key purposes:

1. Defines the Company’s Existence: It specifies the company’s name, acting as its official identity.
2. Establishes the Scope of Business: The object clause within the MOA outlines the company’s intended business activities.
3. Limits Liability: It clarifies the extent of liability borne by the company’s members, whether limited by shares or by guarantee.
4. Provides Public Transparency: The MOA is a public document accessible to anyone, fostering transparency about the company’s core aspects.

Articles of Association (AOA):

Complementing the MOA, the AOA functions as the company’s internal rulebook. It details the regulations governing the company’s day-to-day operations and internal management. The AOA elaborates on aspects like:

1. Share Capital Structure: This section defines the company’s share capital, including the types and classes of shares issued.
2. Management Structure: The AOA outlines the roles and responsibilities of directors, procedures for appointment and removal, and board meeting conduct.
3. Voting Rights: It specifies how shareholders exercise their voting rights at meetings.
4. Dividend Distribution: The AOA lays down the process for declaring and distributing dividends to shareholders.
5. Meetings and Procedures: This section outlines the procedures for conducting general meetings, board meetings, and other relevant gatherings.

In simpler terms, the MOA defines the “who” and “what” of the company, while the AOA details the “how.”

Content

Section 2 (56) defines “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 of this Act;^[3]

Section 4 of the Companies Act, 2013 categorically provides with the contents to be added in the MOA.^[4]

The Act prescribes specific content requirements for both the MOA and AOA.

Content of the MOA (Section 4 of the Act):

1. Name Clause: The company’s chosen name, adhering to specific regulations regarding suffixes for different company types (e.g., “Limited” for public limited companies).
2. Registered Office Clause: The state in which the company’s registered office is situated.
3. Object Clause: A comprehensive list of the company’s intended business activities, forming the foundation for its operations.
4. Liability Clause: The type of liability for the company’s members, either limited by shares or by guarantee.
5. Capital Clause: The authorized share capital of the company, specifying the maximum amount of capital it can raise through shares.
6. Association Clause: A declaration by the subscribers to the MOA of their intention to form the company and their agreement to be bound by the MOA and AOA.

Articles of Association (AOA):

Complementing the MOA, the AOA functions as the company’s internal rulebook. It details the regulations governing the company’s day-to-day operations and internal management.

Section 2 (5) of the Act defines means the articles 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 of this Act.^[5]

Section 5 of the Companies Act, 2013 states that the Articles shall contain the regulations for management of the company^[6]. Content of the AOA (Table F, G, H, I & J in Schedule I of the Act):

The Act provides a model set of regulations in Table F, G, H, I & J in Schedule I as maybe applicable to such company, which companies can adopt or modify to suit their specific needs. Some of the key provisions covered in the AOA include:

1. Issue of Shares: Procedures for share issuance, transfer, and forfeiture.
2. Calls on Shares: Processes for requesting payment from shareholders for subscribed shares.
3. Forfeiture of Shares: Circumstances and procedures for forfeiture of shares if a shareholder fails to meet payment obligations.
4. General Meetings: Regulations for convening and conducting general meetings, including voting rights and procedures.
5. Board Meetings: Procedures for convening and conducting board meetings, including quorum requirements and voting rights of directors.
6. Dividends: Declaration and distribution of dividends to shareholders.
7. Accounts and Audit: Procedures for maintaining company accounts and conducting audits.
8. Appointment and Removal of Directors: Processes for appointing and removing directors.
9. Winding Up: Procedures for dissolving the company.

Permissible Alterations

While the MOA and AOA establish the company’s foundation, there’s a certain degree of flexibility to adapt them to changing circumstances. However, alterations must comply with the Companies Act, 2013 (the Act) and relevant legal procedures.

MOA (limited modifications):

The MOA, outlining the company’s core aspects, allows for some modifications with specific approvals:

1. Change of Name: A company can change its name through a special resolution passed at a general meeting of shareholders, followed by approval from the Registrar of Companies (ROC).
2. Increase in Authorized Share Capital: If the company requires more capital for growth, it can increase its authorized share capital through a special resolution and ROC filing.
3. Change of Objects: The company’s business objectives might evolve. Amending the object clause to reflect new activities requires a special resolution and central government approval^[7].
4. Conversion of Clause: A company limited by guarantee can convert to a company limited by shares, and vice versa, following the prescribed procedure.^[8]
5. Modify Share Capital Structure (types & classes of shares) (special resolution)
6. Adjust Management Structure (board, directors, meetings) (special resolution)
7. Alter Voting Rights (considering class rights) (special resolution)
8. Establish New Dividend Distribution Policy (special resolution)

Alterations to AOA:

The AOA, governing internal operations, offers more flexibility for modifications:

1. Change in Share Capital Structure: The company can modify its share capital structure, including the types and classes of shares issued, through a special resolution.^[9]
2. Alteration of Management Structure: The AOA can be amended to reflect changes in the board structure, director roles, or meeting procedures through a special resolution.
3. Variation of Voting Rights: Companies can adjust shareholder voting rights through special resolutions, adhering to class rights considerations.
4. Dividend Distribution Policy: The AOA can be modified to establish a new dividend distribution policy through a special resolution.

Doctrines

Doctrine of Ultra-Vires

The Memorandum of Association (MOA) and Articles of Association (AOA) form the foundation of a company, outlining its purpose and internal governance rules. While companies need flexibility to adapt, the legal framework ensures they operate within authorized boundaries. This is where doctrines like Ultra Vires come into play.

The Latin term “ultra vires” translates to “beyond the powers.” This doctrine is enshrined in the common law principle established in Ashbury Railway Carriage & Iron Co Ltd v Riche (1875) LR 7 HL 653. It dictates that a company and its members must act within the authority granted by the MOA, particularly the object clause. This clause defines the company’s intended business activities. Any action exceeding this scope is considered ultra vires and could be declared invalid.

There are some exceptions to the ultra vires doctrine. Actions considered reasonably necessary for conducting the company’s business, even if not explicitly mentioned in the object clause, are generally permissible. Additionally, the doctrine of “indoor management” protects third parties dealing with the company in good faith. These third parties can presume the company follows its internal procedures correctly. Even if an act is technically ultra vires, it might be enforceable against the company if the third party was unaware of the transgression.

Section 6 of the Companies Act, 2013 plays a crucial role in ensuring the MOA adheres to legal principles. This section establishes the Act’s provisions as overriding any conflicting clauses within the MOA. In simpler terms, if a provision in the MOA contradicts the Act, the Act’s provision takes precedence.^[10]

Section 245 of the Companies Act empowers stakeholders to file class action suits, potentially restraining the company from ultra vires activities. This allows collective action against unauthorized company actions.^[11]

Doctrine of Constructive Notice:

Another related doctrine is constructive notice. This principle states that anyone dealing with a company is presumed to have knowledge of its MOA and AOA, which are publicly available documents. This doctrine discourages third parties from relying on unauthorized acts of the company.^[12] For instance, if a company enters into a contract for an ultra vires activity, the other party cannot claim they were unaware and enforce the contract.

Doctrine of Indoor Management:

As mentioned earlier, the doctrine of indoor management protects external parties dealing with a company in good faith. These third parties can presume the company’s internal procedures are being followed correctly, even if an act is technically ultra vires. This doctrine promotes certainty in business transactions.^[13]

By understanding these doctrines, companies can maintain a balance between adaptability and adherence to legal frameworks. The MOA and AOA act as a compass, guiding the company’s direction while allowing for controlled adjustments as needed. Stakeholders also benefit from these doctrines, as they ensure companies operate within authorized boundaries, protecting their interests.

1. Ashbury Railway Carriage & Iron Co Ltd v Riche (1875) LR 7 HL 653 at 672 ↑
2. The Companies Act, 2013, Section 2(63) ↑
3. The Companies Act, 2013, Section 2 (56) ↑
4. The Companies Act, 2013, Section 4 ↑
5. The Companies Act, 2013, Section 2(5) ↑
6. The Companies Act, 2013, Section 5 ↑
7. The Companies Act, 2013, Section 13 ↑
8. The Companies Act, 2013, Section 14 ↑
9. The Companies Act, 2013, Section 40 ↑
10. The Companies Act, Section 6 ↑
11. The Companies Act, Section 245 ↑
12. Tomkins v Saffery [1877] 3 App Cas 213 ↑
13. Kreditanstalt für Wiederaufbau v HKS (Trading) Ltd [1987] 1 WLR 1089] ↑