When setting up a limited or public limited company, you need to ensure you have all of the necessary documents ready. These documents can help you to understand how a company works, who the shareholders are, and its procedures. You will also need to understand who has authority, when the accounts are audited and how the rules are formulated. You can achieve these objectives using Memorandums of Association and Articles of Association. However, it’s not always clear as to the difference between each of these documents. This article aims to set out the differences, so you know exactly what they are used for and what information they contain.
- What Are Articles of Association?
- What is a Memorandum of Association?
- What are the Differences Between Articles of Association and Memorandum of Association?
- Memorandum of Association Templates
What Are Articles of Association?
An Article of Association (AoA) is a document that defines a company’s procedures. It also sets out its other operations. An AoA does this for purposes of execution. The document includes other procedures which the organisation needs to accomplish. The articles of association tend to contain some of the points mentioned below:
- The directors, their power, duties and appointment.
- The shares that belong to a certain class will have their rights and value attached.
- The call, conversion and transfer of shares, along with the alteration of any capital.
- The Minute of Meeting circulation along with the statement.
- Reverse and dividends.
- The formulation of rules.
- The minimum subscription.
- The proposed alteration which increases the liability of members
- The appointment of auditors and their pay.
- The accounts and when they are audited and when.
- The regulations and rules that allow shares (fully paid) to convert into stocks.
What is a Memorandum of Association?
A Memorandum of Association is a document that is vital to every company. It shows what the company’s principals are. These principals highlight the competency, the extent of authority, the objective, legal rights and liabilities. The memorandum of association also defines the relationship that the company has with its shareholders. Acting as a code of conduct, the MoA creates a bond which keeps the company along with its shareholders, beneficiaries, and investors together.
A Memorandum of Association (MoA) has the following clauses:
- A Name Clause
A private limited company should have a name that ends with the words ‘Private Limited’.
A public limited company should have a name that ends with the word ‘Limited’.
- A Registered Office Clause
It specifies where the registered office is situated.
- An Object Clause
This defines the company’s objective. If the company does not fulfil the purpose, it can change its name but only within 6 months of the date of incorporation.
- A Liability Clause
In a liability clause, the liabilities of every member is stated. The members must be limited by guarantee or shared. If there is unlimited liability the clause can be abolished.
- A Capital Clause
This defines the maximum capital that is generated by the company’s members. This maximum capital should be included in the Memorandum of Association.
- An Association or Subscription Clause
The MoA should mention the amount of authorised capital. It should also mention the number of shares that each company member owns.
What are the Differences Between Articles of Association and Memorandum of Association?
There are a few differences between articles of association and memorandums of association.
- A MoA is a document that sets out which documents are needed so a company can be registered. Articles of association define the rules for the administration of the company in question.
- Typically, a contradiction takes place between the articles of association and a memorandum. A memorandum will always take precedence over an article of association.
- A memorandum contains information about the company’s powers. The AoA contains all the rules and regulations that need to be implemented.
- A MoA typically consists of 6 clauses, an AoA can be designed at the company’s discretion.
- The MoA establishes a relationship with external bodies to ensure that the operations are streamlined. The AoA regulates any relationship that the company and its members have.
Quick Comparison between a Memorandum and Article of Association
|Memorandum of Association||Article of Association|
|The Definition||Specifies the fundamental data so the company can be incorporated.||Defines the regulations and rules so the company can be governed.|
|The Registration||Registered during incorporation.||Isn’t mandatory to register.|
|The Document’s Scope||Characterises the powers and limits powers of the organisation.||Defines the rights and power of the individual. This is so the organisation can be governed.|
|The Document’s Status||A vital document.||Not as important as the MoA.|
|The Document’s Power||Ensures the company use the Company Act.||The AoA is constrained by the Company Act.|
|The Contents||It contains 6 clauses.|
Any company can create the articles.
|The Objectives||It specifies the power & objective of the company.||The articles help the company to attain the objectives and power.|
|The Document’s Validity||It reserves the right to attain all the objectives.||The AoA follows the procedures of the MoA|
|The Relationship||It dictates the relationship between the company and all outsiders.||It dictates the relationship between the company and all of its members.|
Memorandum of Association Templates
You can find a memorandum of association template at GOV.UK. The templates include those for a company that has share capital and those without. Using a template can make the whole process so much easier.