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We all are familiar with the process of incorporation of company in India, all company registrations
are mainly governed by few legal documents. In case of private limited company registration these documents are Memorandum of Association and Article of Association most commonly known as MoA and AoA.
Now what exactly does MoA and AoA means?
MoA (Memorandum of Association)
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Is basically a document that list down all the information about the company to be incorporated, such as what exactly the company will do,
what is it name and address and most importantly it is a document that defines the scope of activities, companies main object and authority
of main agents of the company such as directors and the promoters. All in all we may say that MoA is a constitution of the company.
AoA (Article of Association)
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On the other hand, mainly contains rule and regulations about the internal management of the company.
We may say the MoA is constitution and AoA is preamble of the company.
Why MoA and AoA are Important?
As both the documents are fundamental documents in company formations, few key points must be carefully drafted while drafting a MoA or AoA of the company.
Now let us understand about the importance of main clauses of MoA and AoA
Object Clause:
An object clause clearly states about the main services or function or field the company will be functioning.
It is the only clause whereby the shareholders and promoters get a clear picture about where their investment will be used. So a clear, concise and extent of object clause is important.
Object clause also clearly dictates the main acts and limitations of companies functions, any act conducted beyond the scope of object clause will be held ultra vires in lay man language may be termed as acts not allowed or null and void.
So always take a great care while drafting the object clause, because in case it is done wrong it involves a tedious process to set it right.
Transfer of Shares:
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This clause is important to decide and regulate the power of shareholders, generally a pre-emptive right condition or restriction is defined in this clause, so that the existing shareholders or the members of the company get the first preferential chance to buy the shares in case any shareholder is willing to share its shares at any point of time, to any person outside the company.
For example, A and B are shareholders in company C , A wants to sell its share now , so in case of pre-emptive right, A has to first offer to sale its shares to B first and in case B denies to buy them at market price only than A may opt to sell the shares outside.
As the shares are important part for deciding the voting rights, it is always good to keep this condition in transfer of shares.
Liability Clause of Memorandum of Association:
This clause states the liability of the members of the company. The liability may be classified as limited by shares or by guarantee.
This clause may be avoided in case of unlimited liability.
Voting rights of members, voting by poll, proxies:
This clause defines the rights of the members of the company to vote on certain company matters and the manner in which voting is to be done is
defined in the articles of association.
This basically outlines the decision making power of the members and hence needed to be carefully drafted.
For more information on this topic please refer our page on Company Registration
