FACULTY OF LAW, JAMIA MILLIA ISLAMIA, NEW DELHI

On

Memorandum of Association & Articles of Association

Submitted to: Submitted by:

Mr. Qazi Usman Dilwar Hussain
Professor B.A.LL.B. (H); VI Sem.
 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 Mr. Qazi

Usman (Professor) for his guidance and excellent insights which gave direction and focus to
this paper. I thank him for lending his precious time in making this assignment an authentic
piece of work. He 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 endeavors to which I am honored to thank. My
sense of gratitude is due to FACULTY OF LAW, JMI.

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.......

Dilwar Hussain

Dilwar Hussain, Faculty of Law, JMI | MOA & AOA i

 INDEX

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

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

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

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

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

ALTERATION OF AoA………………………………………………………………………9

PROCEDURE FOR ALTERATION OF AoA……………………………………………….11

BIBLIOGRAPHY ...................................................................................................................13

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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

1
§ 2(28) Company Act 1956
2
(1931) A. C. 677

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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 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

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

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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 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

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

11
[1938] Ch 708 (CA) 714
12
[1970] 40 Comp Cas 1058, 1061; AIR 1971 SC 206

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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.

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. Earle 13 , 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.

13
[1902] AC 83, 93
14
AIR 1937 Cal 645, 173 Ind Cas 622
15
(1886) 12 AC 293
16
[1901]1 Ch 279

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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

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,

17
[1889] 1 Meg. 385

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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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ALTERATION OF ARTICLES OF ASSOCIATION

Sec. 31 of the Companies Act, 1956, provides that a company may by passing a
special resolution, alter regulations contained in its Articles any time subject to

(a) the provisions of the Companies Act and

(b) Conditions contained in the Memorandum of Association [Section 31(1)].

A copy of every special resolution altering the Articles shall be filed in Form no 23,

with the Registrar within 30 days its passing and attached to every copy of the

Articles issued thereafter. The fundamental right of a company to alter its articles is

subject to the following limitations:

(a) The alteration must not exceed the powers given by the Memorandum of

Association of the company or conflict with the provisions thereof.

(b) It must not be inconsistent with any provisions of Companies Act or any other

statute.

(c) It must not be illegal or against public policies

(d) The alteration must be bona fide for the benefit of the company as a whole.

(e) It should not be a fraud on minority, or inflict a hardship on minority without any

corresponding benefits to the company as a whole.

(f) The alternation must not be inconsistent with an order of the court. Any

subsequent alteration thereof which of inconsistent with such an order can be made by

the company only with the leave of the court.

(g) The alteration cannot have retrospective effect. It can operate only from the date of

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amendment. [Pyarelal Sharma v. Managing Director, J & K Industries Ltd. [1989] 3

comp. L.J. (SL) 70].

(h) If a public company is converted into a private company, then the approval of the

Central Government is necessary. Printed copies of altered articles should be filed

with the Registrar within one month of the date of Central Government’s approval.

[Section 31 (2A)].

(i) An alteration that has the effect of increasing the liability of a member to

contribute to the company is not binding on a present member unless he has agreed

thereto in writing.

(j) A reserve liability once created cannot be undone but may be cancelled on a

reduction of capital.

(k) An assumption by the Board of Directors of a company of any power to expel a

member by amending its Articles is illegal or void.

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PROCEDURES FOR ALTERATION OF ARTICLES OF ASSOCIATION

For effecting alteration to the articles of association, the following procedures is required to
be followed:

Take the necessary decision by convening a Board Meeting to change all or any of the
existing Articles of Association and fix up the day, time, place and agenda for a
general meeting for passing special resolution to effect the change.

See that any such change in the Articles of the company conforms to the provisions
of the companies Act, 1956 and the conditions contained in the Memorandum of
Association of the company.

See that any such change does not increase the liability of any member who has
become so before the alteration to contribute to the share capital of or otherwise to
pay money to, the company.

See that any such change does not have the effect of converting a public company into
a private company. If such is the case, then make an application to the Central
Government for such alteration.

See that any such change does not provide for expulsion of a member by the
company.

Issue notices for the General Meeting proposing the Special resolution and explaining
inter alia, in the explanatory Statement the implication and reasons of the changes
being proposed.

If the shares of the company are enlisted with any recognised Stock Exchange, then
forward copies of all notices sent to the shareholders with respect to change in the
Articles of Association to the Stock Exchange.

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Hold the General Meeting and pass the special resolution.

File with the stock exchange with which your company is enlisted six copies of such
amendments as soon as the company adopts it in General Meeting. Out of the six
copies, one copy must be a certified true copy.

Forward promptly to the Stock Exchange with which your company is enlisted three
copies of the notice and a copy of the proceedings of the General Meeting.

File the Special resolution with the concerned Registrar of companies with
explanatory statement in Form No.23 within thirty days of its passing after payment
of the requisite filing fee in cash as per Schedule X. If the Articles of Association
have been completely or substantially changed, file a new printed copy of the Articles
after paying the requisite fee in cash prescribed under Schedule X to the Companies
Act, 1956. payments upto Rs.50/-

Effect the changes in all copies of the articles of association.

Any alteration so made be as valid as if originally contained in the Articles of

Association and be subject to alteration by Special Resolution as above.

If the articles are altered pursuant to an order of the Company law Board made under
section 397 or 398 then see that such alterations is not inconsistent with the said and if
it is so then obtain first leave of the Company Law Board to make such alteration.

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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

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 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

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