Distinction between Memorandum of Association and Articles of Association

Memorandum of Association

Memorandum of Association (MoA) is the charter document of a company that defines its constitution and scope of activities. It lays down the fundamental conditions upon which the company is formed. MoA includes essential clauses such as the Name Clause, Registered Office Clause, Object Clause, Liability Clause, Capital Clause, and Subscription Clause. It specifies the company’s relationship with the external world, guiding stakeholders on its permitted range of operations. As per Section 4 of the Companies Act, 2013, a company cannot undertake activities beyond what is specified in its MoA. Any act outside its scope is termed ultra vires and is invalid. Hence, the MoA serves as the foundation of a company’s legal identity and powers.

Articles of Association

The Articles of Association (AoA) are the internal rules and regulations that govern the day-to-day management and administration of a company. It operates as a contract between the company and its members, outlining provisions related to share capital, director appointments, board meetings, dividend declarations, and voting rights. Under Section 5 of the Companies Act, 2013, a company may adopt model articles or create its own. While MoA sets out the company’s external objectives, the AoA focuses on how those objectives will be achieved internally. The AoA must not contradict the MoA, and any provision conflicting with the MoA is void. It ensures smooth functioning by providing clear procedural guidelines for corporate operations.

Here is a detailed explanation of the Distinction between Memorandum of Association (MoA) and Articles of Association (AoA)

• Nature of Document

The Memorandum of Association (MoA) is the charter of the company. It defines the company’s fundamental conditions of existence such as its name, registered office, objectives, and scope of activities. It sets the external boundaries of what a company can or cannot do. In contrast, the Articles of Association (AoA) are the internal rules that govern how a company operates and manages its affairs. It outlines provisions for meetings, share transfers, director duties, and more. While the MoA is essential for incorporation, AoA are adopted to help regulate the internal functioning of the company.

• Legal Position

The MoA has a superior legal position as it overrides the AoA in case of any conflict between the two. It is a public document filed with the Registrar of Companies and binds both the company and the outsiders. The AoA is subordinate to the MoA and must not contain anything contrary to it. The Articles operate like a contract between the company and its members, and among the members themselves. Any clause in AoA that conflicts with the MoA will be considered invalid under the Companies Act.

• Scope and Content

The MoA defines the scope of a company’s operations and contains clauses like Name Clause, Registered Office Clause, Object Clause, Liability Clause, Capital Clause, and Association Clause. These are fixed parameters and are not easily alterable. The AoA governs the internal operations, such as share allotment, transfer, dividend policies, board meetings, and director appointments. The MoA answers “What a company can do”, whereas the AoA answers “How a company does it”. Together, they ensure legal identity and smooth administration of the company.

• Binding Nature

The MoA binds the company with the outside world, such as investors, creditors, and government authorities. It sets out what the company is permitted to do and acts as a declaration to the public. The AoA is binding only on the company and its members. It does not govern relationships with external parties unless specifically mentioned. While the MoA forms the foundation for legal existence, the AoA helps in enforcing contractual duties and internal governance between the members and management.

• Requirement and Filing

Filing the MoA is compulsory at the time of incorporation, without which a company cannot be registered. It must be drafted and submitted in a specific format prescribed under the Companies Act, 2013. AoA, though not mandatory for all types of companies, is essential for private companies and can be adopted or modified from Table F in Schedule I. Both documents must be filed with the Registrar of Companies (RoC), but MoA is foundational, whereas AoA is functional.

• Alteration Process

The MoA is difficult to alter and requires a special resolution and, in some cases, approval from the Central Government or Tribunal (especially for changes in registered office state or object clause). In contrast, the AoA can be easily altered by passing a special resolution at a general meeting. This flexibility allows companies to update their internal procedures as needed, while the MoA retains the company’s fundamental legal identity and objectives with more regulatory oversight.

• Hierarchical Position

In the hierarchy of company documents, the MoA holds a higher status than the AoA. It sets the outer framework within which the company must function. The AoA is subordinate to the MoA and is governed by it. If any provision in the AoA goes beyond or contradicts the MoA, it is considered ultra vires and void. This hierarchical relationship ensures that companies cannot extend their powers or breach their foundational terms by merely modifying internal regulations.

• Ultra Vires Doctrine

The Doctrine of Ultra Vires applies strictly to the MoA. If the company undertakes any activity beyond the powers conferred in the MoA, it is considered void and unenforceable. This doctrine protects shareholders and creditors. However, the AoA does not fall under this doctrine to the same extent. Actions inconsistent with AoA can be ratified by the shareholders unless they are also ultra vires to the MoA or the Companies Act. Thus, MoA protects external parties, whereas AoA ensures internal discipline.

• Regulatory Focus

Regulatory authorities like the Registrar of Companies (RoC), NCLT, and MCA focus heavily on the MoA since it defines the company’s purpose and limits of operation. Alteration to MoA may involve governmental approval. The AoA is more of a corporate governance document, drawing attention mostly during legal disputes, shareholding conflicts, or when internal procedures need enforcement. MoA acts as a tool for compliance and regulatory oversight, while AoA is a tool for company management and administration.

Use in Legal Proceedings

In legal matters, courts and tribunals give greater weight to the MoA in determining the company’s scope, liability, and acts. If an act is outside the MoA’s object clause, it is void ab initio, and no ratification is possible. The AoA is used to determine whether the company and its officers followed the correct procedure in conducting internal affairs, such as appointments, dividends, or share issues. Thus, MoA defines legal existence, while AoA governs legal operation.

• Applicability to Stakeholders

The MoA is primarily relevant to outsiders—investors, creditors, regulatory bodies—who need to understand the company’s scope and credibility before engaging with it. It provides assurance about the company’s limits. On the other hand, AoA is relevant to internal stakeholders, such as members, directors, and auditors, who use it to guide daily decision-making and responsibilities. MoA communicates the company’s purpose, while AoA communicates the procedures by which that purpose will be achieved internally.

• Control over Business Activities

The MoA controls the company’s business activities by specifying what kind of ventures the company can engage in. It is restrictive and can only be altered with shareholder approval and often regulatory permission. In contrast, the AoA controls how the business is conducted, such as how decisions are made, how profits are distributed, or how directors operate. This internal control is more flexible and subject to regular changes, ensuring adaptability in corporate functioning while MoA ensures consistency in purpose.

• Adoption and Use in Court

At the time of incorporation, the MoA must be signed by all subscribers and submitted to the RoC. It becomes a legal and public document. The AoA can be adopted as per Table F or customized and submitted accordingly. In legal proceedings, courts interpret both documents to understand whether an action was within legal authority. However, preference is always given to the MoA in case of contradictions. It represents the outer legal shell, while AoA forms the operational core.

key differences between Memorandum of Association (MoA) and Articles of Association (AoA)