Articles of Association vs. Memorandum: What’s the Difference?

When forming a company, understanding the key documents that define its structure, operations, and purpose is essential. Two fundamental documents in this process are the Articles of Association and the Memorandum of Association. Although they may seem similar, they serve distinct purposes in a company’s legal framework. Here’s a closer look at each document, their roles, and how they differ.

What is the Memorandum of Association?

The Memorandum of Association (MOA) is a legal document that outlines the founding intent of the company and serves as a foundational charter. This document specifies essential details such as the company’s name, registered address, objectives, and the initial shareholders’ names. The MOA is filed with the relevant government body at the time of incorporation and is required for the company to legally exist.

In the context of business, MOA meaning extends to a document that establishes the company’s scope of activities, limiting the company to only those actions stated within its memorandum. The MOA is generally short and unchanging over time, unlike the Articles of Association, which may require amendments as the company evolves.

Key Elements of the Memorandum of Association

1. Company Name and Location: The MOA defines the official name and registered address of the company, often including its jurisdiction.
2. Objective Clause: This is one of the most crucial sections, specifying the purpose and primary activities of the company. The company is bound to operate within the scope defined here.
3. Liability of Members: For limited companies, the MOA outlines whether members' liability is limited by shares or guarantee, detailing their financial responsibility in case of insolvency.
4. Capital Structure and Shareholders: In the case of companies with share capital, the MOA includes initial share allocation, which signifies ownership among the founding members.
5. Subscription Clause: The MOA also contains a section where initial subscribers sign to confirm their intention to form the company and take up the initial shares.

In summary, the company memorandum is a high-level document that provides a legal framework for the company's existence, purpose, and the rights of shareholders at the time of formation.

What are the Articles of Association?

The Articles of Association (AOA) are the rulebook that governs the company’s operations, detailing the regulations for management, governance, and internal structure. Unlike the MOA, which remains mostly static, the AOA is a more flexible document that can be amended over time to meet the evolving needs of the company.

The Articles of Association define how the company is managed day-to-day, outlining procedures for decision-making, the roles and powers of directors, and how shares are issued and transferred. It serves as an operational guideline that empowers directors to act in the company’s best interests within defined boundaries.

Key Elements of the Articles of Association

1. Director Powers and Responsibilities: The AOA outlines directors’ powers, including decision-making processes, appointment, and removal. It sets expectations on how directors should act in the best interests of the company.
2. Share Issuance and Transfer: The AOA details rules for issuing shares, transferring shares, and managing shareholder rights. It can include restrictions on who can buy or sell shares to protect the company’s ownership structure.
3. Meeting Protocols: The AOA defines procedures for board and shareholder meetings, voting rights, and quorum requirements to ensure decision-making aligns with company standards.
4. Dividend Distribution: Guidelines on the distribution of profits as dividends are also included, outlining conditions and approval processes.
5. Conflict Resolution: In the event of disputes among directors or shareholders, the AOA may contain procedures for mediation or arbitration, ensuring that disagreements are resolved within a structured framework.

The article of association can be seen as a customizable document that shapes the internal workings of the company, allowing directors and shareholders to tailor operations in response to business growth or change.