The Memorandum Of Association (MOA) And Articles Of Association (AOA) Are Charter Documents Of A Company: A Critical Analysis
Introduction
Memorandum Of Association (MOA) And Articles Of Association (AOA) And Charter Documents Of A Company A Critical Analysis
The establishment and commencement of business activities of a company do not follow a linear path, but rather involve a plethora of processes in various phases that must be completed in order to obtain legal recognition and conduct business activities. The process of formation and incorporation includes 4 main stages –
(a) Promotion,
(b) Registration/Incorporation
(c) Floatation
(d) Commencement
Additionally, the procedure involves the creation of charter documents (most notably, the MOA and AOA), which, according to CJ Marshall, are the “only source of properties that a company may own.” This article provides a critical analysis of the charter documents.
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Memorandum of Association
The Memorandum of Association is a document that specifies the constitution of an organization and acts as the foundation upon which the firm’s structure is established. It sets the scope of the company’s operations and its relationships with the outside market. Memorandum is stated in Section 2(56) as “originally framed or altered from time to time in pursuance of any provision of any previous law or this act”.
Defining these goals helps identify the likely extent of the company’s activity and the limits to which its behavior cannot extend. As a result, it serves to both define and constrains the company’s authority. This was said in Ashbury Railway Carriage & Iron Co. Ltd. v. Riche[1].
Memorandum of Association and the Principle of Ultra Vires
The theory of ultra vires forbids a company from doing anything that isn’t explicitly stated in the memorandum as an object or capability. As a consequence, an ultra vires act is null and invalid and does not compel the company. “The usual rule is that an act that is outside the scope of the company cannot be ratified. An act that is intra vires the business but beyond the scope of the directors may be confirmed in right form by the company.” This was held in Rajendra Nath Dutta v. Shailendra Mukherjee.[2]
Articles of Association
Articles are the company’s bye-laws, which govern internal matters and specify how the company will be administered. The term “Article”, according to section 2(5) of the Companies Act, 2013 is defined as articles of association as originally framed or as revised from time to time in line with any previous company legislation or the present Act, i.e. the Act of 2013. Since the articles prescribe the internal rules of the company, it has unlimited access to determining the stipulations to be put in the articles.
The doctrine of Constructive Notice
When the MOA and AOA are filed with the registrar of businesses, they become “public documents” that are open and accessible to the public. As a result, everyone contemplating doing business with the company possesses the resources to learn about and is thus presumed to be aware of the company’s capabilities and the extent to which they have been delegated to the directors. In other words, everyone who interacts with the firm is presumed to have fully comprehended these documents. This is referred to as the “doctrine of constructive notice.” In Mahony v. East Holyford Mining Co.[3], it was emphasized by the court that even if the party interacting with the corporation has no real knowledge of the contents of these documents, it is assumed that he has implied (constructive) knowledge of them.
Doctrine Of Indoor Management
The doctrine of indoor management operates to safeguard the interests of outsiders against the company. The individuals contracting with a business are presumed to understand the terms of the memorandum and articles, they are also permitted to infer that the conditions of the articles have been adhered to by the business’s authorities. It is not the job of an outsider to ensure that the firm adheres to its internal policies.
Comparative Analysis between Articles of Association and Memorandum of Association
The memorandum outlines the company’s aims and various powers; the articles detail how those objectives and powers will be fulfilled and exercised. However, the Companies Act of 2013 eliminates the requirement for articles to address certain themes in the same way as the memorandum does. As a result, the substance of the articles of incorporation of distinct organizations may vary greatly, and the individuals who found the company have complete discretion over how it is managed.
MOA & AOA Go Hand in Hand
Apart from cases of conflict between the two, they shall always be referred to together and in case of any ambiguity in one, the other shall be referred to. For instance, in Re South Durham Brewery Co.[4] it was held that if MOA is silent regarding uniformity of shares then AOA stating different classes of shares shall be referred to for resolving the uncertainty. Further, In Re Pyle Works[5], it was held that if AOA merely makes specific reference to object in MOA, such as mortgage of ‘uncalled share’ in AOA and ‘security of assets/credit’ in MOA, they shall be read together and are considered valid.
Conclusion
The inference drawn from this article is that the MOA and AOA are critical in today’s industrialized society because they help to clarify roles and responsibilities within a company and guard against abuses of power by the company’s shareholders, creditors, and other stakeholders. The judiciary has played an important role in establishing certain doctrines which help in forming a harmonious construct between MOA and AOA, to protect the interests of companies against outsiders and vice versa. The MOA and its object clause trump the AOA’s bye-laws and regulations in force. But in a situation when there is no disagreement, they work together to deliver a clear explanation.
Author: Simran Dhaner – a student of Hidayatullah National Law University, in case of any queries please write back us via email at support@ipandlegalfilings.com or contact us at IP And Legal Filings.
References:
[1] (1875) LR. 7 H.L. 653.
[2] Rajendra Nath Dutta v. Shilendra Mukherjee, (1982) 52 Com Cases 293 (cal.).
[3] (1875) LR 7 HL 869.
[4] (1885) 31 Ch.D 261.
[5] (1891) 1 Ch. 173.
