AMITY LAW SCHOOL (AMITY UNIVERSITY U.P.) LUCKNOW

COMPANY LAW ASSIGNMET

On

Memorandum of Association & Articles of Association:

The Differences

Submitted to: Submitted by:

Ms. Annpurna Sinha Animesh Kumar

Lecturer B.A.LL.B. (H); VII Sem.

Enroll. No. A8108309035

COMPANY LAW ASSIGNMENT

Animesh Kumar, Amity Law School Lucknow | DIFFERENCE BETWEEN MOA & AOA i

DISCLAIMER

This project / assignment have been prepared by the author in capacity of a student of

B.A.LL.B. (H) for academic purposes only. The views expressed in the assignment are

personal to the author and do not necessarily reflect the view of any other person(s) or

authority. This assignment is the intellectual property of the Amity Law School Lucknow and

the same or any part thereof may not be used in any manner whatsoever, without express

permission of the Amity Law School Lucknow in writing.

Every effort has been made to avoid errors and mistakes; however their presence cannot be

ruled out.

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ACKNOWLEDGEMENT

The assignment work bears the imprint of many people, and I express my gratitude to all

those who have helped me and rendered their help in all the possible ways in a completion of

my assignment.

It is a matter of immense pleasure to express my gratitude to my Hon’ble faculty Ms.

Annpurna Sinha (Lecturer) for her guidance and excellent insights which gave direction and

focus to this paper. I thank her for lending her precious time in making this assignment an

authentic piece of work. She regularly guided me.

I also owe sincere gratitude to the staff at library for always helping in the process of finding

material and other sources for research. I am very grateful to all the individuals involved in

the subgroup for their contributions and assistance in compiling this assignment and the

recommendations that go with it: they are the outcome of an open, interactive and creative

cooperation.

I also thank social networking site for searching the required information in precise and as

per needed. How I can forget to give credit and my satisfaction to my friends. My institution

and family really supported me throughout in my endeavours to which I am honoured to

thank. My sense of gratitude is due to AMITY LAW SCHOOL, LUCKNOW.

At last, I express my heartfelt gratitude to the God Almighty, without whose blessing and

motivation, the completion of this assignment would have been impossible.

Thanks to all.......

Animesh Kumar

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INDEX

INTRODUCTION......................................................................................................................1

RELATIONSHIP.......................................................................................................................3

THE LEGAL EFFECTS OF THE MEMORANDUM..............................................................5

LEGAL EFFECT OF THE ARTICLES....................................................................................5

DIFFERENCES.........................................................................................................................7

BIBLIOGRAPHY......................................................................................................................8

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INTRODUCTION

MOA and AOA stand for Memorandum of Association and Articles of Association

respectively and are important source of information for shareholders and other stakeholders

in a company that has been duly incorporated. These are documents that are necessary at the

time of formation of a company and must be deposited with the registrar of companies who

approves the incorporation of the company. Though there are similarities, there are

differences between Memorandum of Association and Articles of Association that need to be

highlighted for the benefit of all those who are stakeholders in a company or are potential

investors as these documents reveal a lot about a company. Every company incorporated by

registration with the Registrar of Companies must have these memorandums.

Memorandum and Articles are public documents. They are inter-linked and require to be

registered for the formation of a company. Where there is any ambiguity or where the

memorandum is silent on any point, the articles may serve to explain or supplement the

memorandum.

The memorandum of association of a company, often simply called the memorandum (and

then often capitalised as an abbreviation for the official name, which is a proper noun and

usually includes other words), is the document that governs the relationship between the

company and the outside. It is one of the documents required to incorporate a company in the

United Kingdom, Ireland, India, Bangladesh, Pakistan and Sri Lanka, and is also used in

many of the common law jurisdictions of the Commonwealth. The memorandum of

association of a company contains fundamental conditions upon which alone company has

been incorporated. „Memorandum‟ means “memorandum of association of a company as

originally framed or altered from time to time in pursuance of any provision of company laws

or of this Act”1. Egyptian Salt and Soda Co. Ltd. v. Port Said Salt Association Lid

2 court

held that the Memorandum shows the range of the enterprise. The memorandum is the

foundation on which the superstructure of the company has been built up. It enables the

shareholders, creditors and outsiders to show the permitted activities of the company. The

memorandum constitutes the company‟s charter with the outside world and contains a

number of statutory clauses. The memorandum of association records the agreement of the

first subscribers to form a company under the 2006 Act, to become members and, in the case

1 § 2(28) Company Act 1956

2 (1931) A. C. 677

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of a company that is to have a share capital, to take at least one share each. The memorandum

no longer restricts what a company is permitted to do. Since October 2009, if a company's

constitution contains any restrictions on the objects at all, those restrictions will form part of

the articles of association.

Historically, a company's memorandum of association contained an objects clause, which

limited its capacity to act. When the first limited companies were incorporated, the objects

clause had to be widely drafted so as not to restrict the board of directors in their day to day

trading. In the Companies Act 1989 the term "General Commercial Company" was

introduced which meant that companies could undertake "any lawful or legal trade or

business."

The articles of association of a company are its bye-laws or rules and regulations that govern

the management of its internal affairs and the conduct of its business. „Articles‟ means

“article of association of a company as originally framed or as altered from time to time in

pursuance of any previous company laws or of the present Act, i.e., the Act of 1956”3. A

company is an incorporated body. So there should be some rules and regulations are to be

formed for the management of its internal affairs and conduct of its business as well as the

relation between the members and the company. Moreover the rights and duties of its

members and the company are to be recorded. There comes the need and origin of Articles of

Association. The Articles of Association is a document which contains rules, regulations and

bye-laws regarding the internal management of the company. Articles must not violate any

provision of the memorandum or any provision of the Companies Act. The rules laid down in

the articles must always be read subject to the rules contained in the memorandum.

In corporate governance, a company's articles of association (called articles of

incorporation in some jurisdictions) are a document which, along with the memorandum of

association (in cases where the memorandum exists) form the company's constitution,

defining the responsibilities of the directors, the kind of business to be undertaken, and the

means by which the shareholders exert control over the board of directors.

3 § 2(2) Company Act 1956

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RELATIONSHIP

Lord Crains in Ashbury Railway Carriage & Iron Co. v. Riche4 described the relationship

between memorandum and article in this language: “The memorandum is as were, the area

beyond which action of company cannot go; inside the area, the shareholders may make such

regulations for their own government as they think fit.”

1. The Articles are subordinate to Memorandum.

2. The Memorandum must be read in conjunction with Articles.

3. The terms of the Memorandum cannot be modified or controlled by the Articles.

4. The memorandum is fundamental and can be altered only under certain circumstances

provided by the Act.

5. The Articles are only internal regulations, over which the members of the company

have full control and may alter them according to what they think fit.

The article regulates the manner in which the company‟s affairs will be managed. The

memorandum defines the company‟s object and various powers it possesses; the articles

determine how those objects shall be achieved and those powers exercised. In case of

Ashubury v. Watson5 court held that care has to be taken to see that regulations provided for

in the articles do not exceed the powers of the company as laid down by its memorandum. In

Shyam Chand v. Catcutta Stock Exchange6 Articles going beyond the Memorandum are

ultra vires. Where the memorandum was silent as to whether the company‟s shares were to

be all of one class or might be of different classes, it was held that a power given by articles

is to issue shares of different classes resolved the uncertainty and enable the company to do

so.7 Where the memorandum of a trading company empowered to do all things incidental to

achieving the object, it was held that provision in the articles empowering the company to

lend money merely exemplifies the general words of the memorandum, and the company

was, therefore, entitled to lend money to its employees.8 Again, where memorandum

empowered the company to borrow on the security of its assets or credit and the articles

provided that it might mortgage its uncalled capital, it was held that the articles merely made

4 (1875) LR 7 HL 653

5 [1885] 30 Ch. D 376 CA

6 AIR 1947 Cal. 337

7 Re, South Durham Brewery Company [1885] 31 Ch. D 261

8 Rainford v. James Keith and Blackman Company Ltd. [1905] 2 Ch. 147

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specific the general words of the memorandum so that the company could have power to

mortgage its uncalled capital.9

The memorandum and articles van be read together only to remove an ambiguity or

uncertainty. If the memorandum is perfectly clear, a doubt as to its meaning cannot be raised

by reference to the articles; in such a case the articles are simply inconsistence with the

memorandum and are disregarded. Thus, where the memorandum exhaustively defined the

rights of preference shareholders, and the articles provided that on a winding up the

company‟s surplus assets, after paying all its debts and repaying share capital, should be

distributed among all its shareholders, it was held that preference shareholders were not

entitled to share any surplus assets; because their rights were to be ascertained from the

memorandum alone, and the memorandum did not confer the right to participate on them.10

9 Re Pyle Works (No.2) [1891] 1 Ch. 173

10 Duncan Gilmour & Co. Ltd., Re [1952] All ER 871

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THE LEGAL EFFECTS OF THE MEMORANDUM

The Contractual Powers of a Company

A Company or a Corporation is an artificial person created by law. It is a legal person capable

of suing and of being sued. But the contractual powers of a company are limited in two ways:

1) natural possibility and,

2) legal possibility.

I. Natural Possibility: The fact that a company is an artificial person leads to the result

that a company must always enter into contract through agents,

II. Legal Possibility: A joint stock company cannot enter into any contract the object of

which goes beyond the memorandum of association of the company. A statutory

corporation cannot enter into any contract which is beyond the scope of its powers as

laid down in the statute by which it was created.

LEGAL EFFECT OF THE ARTICLES

Section 36 of the Act provides that, “subject to the provisions of this Act, the memorandum

and articles shall, when registered, bind the company and the members thereof to the same

extent. It‟s if they respectively had been signed by the company and by each member, and

contained covenants on its and his part to observe all the provisions of the memorandum and

of the articles.”

Binding Contract

Thus the articles constitute a binding contract between the company and its members. Beattie

v. E & F Beattie Ltd 11

, Hanuman Prasad v. Hiralal.12

A company is bound to the members in the same manner as the members are bound to the

company. The Articles constitute a contract between members. But the Articles do not

constitute any binding contract as between the company and an outsider.

The provisions of the articles can be enforced by suit by the company and the members.

11

[1938] Ch 708 (CA) 714

12 [1970] 40 Comp Cas 1058, 1061; AIR 1971 SC 206

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But if the articles are violated by a member, a suit for the enforcement of the articles can be

brought only by the Company and not by other-members, unless the person against whom

relief is, sought, controls the majority of shares and will not allow a milt to be brought in the

name of the company. Burland v. Earle13

, The Dhakeswari Cotton Mills Ltd. v. Nilkamal

Chakravorty & Ors. 14

The articles come within the definition of public documents. All persons dealing with the

company are presumed to know the provisions of the articles. So if anything is done contrary

to or beyond the provisions of the articles, the company is not bound.

Examples:

i. The articles of a company provided that the company will have a first charge on the

shares for debts due to the company from the members. A member, owing money to

the company, borrowed money from a bank on the security of the shares. Held, the

company‟s claim would have priority because of the provision in the articles,

Bradford Banking Company v. Briggs & Co.15

ii. The articles of a company provided that if a member became insolvent, his shares

were to be sold to a nominee of the company at a fixed price. Held the provision was

binding and the trustee in bankruptcy cannot claim the share. Borland’s Trustee v.

Steel Brothers & Co Ltd.16

iii. By a special resolution the Company reduced the remuneration of each director, with

retrospective effect from the end of the preceding year. Held, the company can vary

the terms of the service as to the further but it cannot vary the terms adversely with

retrospective effect Sawby v. Port Darwin Gold Mining Co.17

13

[1902] AC 83, 93

14 AIR 1937 Cal 645, 173 Ind Cas 622

15 (1886) 12 AC 293

16 [1901]1 Ch 279

17 [1889] 1 Meg. 385

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DIFFERENCES

Memorandum and articles are public documents. They are inter-linked and require to be

registered for the formation of a company. Where there is any ambiguity or where the

memorandum is silent on any point, the articles may serve to explain or supplement the

memorandum. Beyond this, the two documents have nothing in common and differ from one

another in the following respects:

The memorandum contains the fundamental conditions upon which alone the

company is allowed to be incorporated. It defines and limits the objects of the

company beyond which the action of the company cannot go. The articles are the

internal regulations of the company and are subsidiary to the memorandum.

The memorandum is subordinate to the Act only, while the articles are not only

subordinate to the Act but also to the memorandum.

The memorandum must compulsorily be filed with the Registrar by all types of

companies at the time of incorporation while a public company limited by shares need

not file a separate set of articles at the time of incorporation as it may choose to adopt

'Table A'—the model set of articles.

The memorandum defines the relation between the company and the outsiders e.g.,

creditors, buyers, sellers, debtors and members etc. Articles govern internal

relationship between the company and the members and generally have nothing to do

with the outsiders.

The memorandum cannot be easily altered while articles are easily alterable by

passing a special resolution only,

Acts done by a company ultra vires the memorandum are void and cannot be ratified

by the shareholders. But acts done by a company ultra vires articles but inter vires the

memorandum are simply irregular and not void and can be ratified subsequently by

the shareholders.

Outsiders have no remedy against the company for contracts entered into ultra vires

the memorandum, while they can enforce the contract against the company even if it

is ultra vires the articles i.e., where some formality relating to internal regulation like

passing of the required resolution, might have not been performed, provided they act

carefully and had no notice of the irregularity.

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BIBLIOGRAPHY

BOOKS REFERRED:

Davies, P. L. (Paul Lyndon), 1944-. - Introduction to company law / Paul L. Davies.-

Oxford: Oxford University Press, 2002. - (Clarendon law series).

Dine, Janet. - Company law. - 4th ed. - Basingstoke: Palgrave, 2001. - (Palgrave law

masters)

Ferran, Eil´‡s. - Company law and corporate finance / Eil‡s Ferran. - Oxford :

Oxford University Press, 1999.

Griffin, Stephen. - Company law: fundamental principles / Stephen Griffin. - 3rd ed. -

Harlow: Longman, 2000.

Hicks, Andrew. - Cases and materials on company law / Andrew Hicks & S.H. Goo. -

4th ed. - London: Blackstone, 2001.

Majumdar A.K. & Kapoor G.K., Companty Law, Taxman, 15 Edn.

Mayson, Stephen W. - Mayson, French & Ryan on company law / Stephen W.

Mayson, Derek French and C. - 2002-2003. - 19th ed. - Oxford: Oxford University

Press, 2002.

Pettet, B. G. - Company law / Ben Pettet. - Harlow: Longman, 2001. - (Longman law

series).

Proctor, Giles. - Corporate governance / Giles Proctor, Lilian Miles. - London:

Cavendish, 2002.

Singh Avtar: Indian Company Law, Eastern Book Co.

WEBSITES REFERRED:

www.dsiidc.org

www.lawyersnjurists.com

www.manupatra.com

www.nsdcindia.org

www.publishyourarticles.net

www.scconline.co.in

www.scribd.com

www.ssrn.com

www.sweetandmaxwell.co.uk