EORUPA SCIENCE & COMMERCE ACADEMY

Q. No. 11: What are the salient points of distinction between Memorandum of Association and Articles of Association? ANSWER:

MEMORANDUM OF ASSOCIATION & ARTICLES OF ASSOCIATION

INTRODUCTION: The joint stock company is the 3rd major form of business organization. It has become very important in the modern business world due to its large capital and operations. However there are certain documents are very important for the operation of a company. DEFINITION: Memorandum of Association: According to Lord Cairns: The memorandum of association of the company is its charter and defines the limitations of the powers of the company established under the ordinance. Articles of Association: The Articles of association are the regulations or by laws which govern the internal organization and conduct of a company. Explanation: Both these documents are necessary for the formation and proper working of the company. A company cannot be formed until it has formed both these documents.

DIFFERENCE BETWEEN MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION

MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION 1: Meaning Memorandum of association is the Section 25 of the companies ordinance documents of a company which defines the powers to a company to alter or add the rights, powers and an objective of the articles by special resolution. company for which it is floated. 2: Primary Objective It is the primary document of the company. It is the 2nd most important documents It regulates the external affairs of the filed with the registrar. It contains rules company. It enables the shareholders, and regulations for the internal creditors, buyers, sellers to know what the administration management of the permitted range of the company is. company. 3) Need A company cannot be incorporated without A company limted by shares may not own a memorandum of association. articles of association. It may adopt it. 4) Registration A company cannot be registered without It is not necessary to submit after submitting the memorandum of registration. In case of public Ltd. association. Company table-A can be adopted in its place. Prepared By: H.ABDUL REHMAN 0321-6485593

EORUPA SCIENCE & COMMERCE ACADEMY

5) Compliance of the provision The clauses of memorandum of association The articles of association are subject are subject to the provisions of companies provisions of the companies ordinance of ordinance 1984. the memorandum of association. 6) Legal Status It has more legal importance then A O A. But if violation of articles takes place it is Law cannot enforce and agreement which void if the other party of this violation. is not permitted by the M O A. 7) Alteration According to section 20 of the companies Section 25 of the companies ordinance ordinance a company shall not alter the gives powers to a company to alter or add conditions contained in its memorandum to its articles by special resolution. except under exceptional cases a laid down in the companies ordinance. 8) Ratification If a company violates the memorandum of If a company does anything beyond the association, it is absolutely void. It cannot scope of the articles (but within its powers), be ratified even by the unanimous consent it is not void. It can be ratified later on a by of all the shareholders. a special resolution. 9) Relationship It determines the relationship, between the It determines the relationship between the company and the other persons outside the company and the internal persons e.g., company like bankers and creditors. shareholders, directors, officers etc. 10) Dependence Relationship It is not dependent on articles; on statutory It is dependent on memorandum of matters it is unchallenged. association. They are read and understood in the light of the memorandum. 11) Priority If there is any disagreement between Priority is not given by the company memorandum and company ordinance the ordinance to the articles over memorandum provision in ordinance will hold good. of association. In case of conflict with memorandum, the provision s of memorandum will be considered as valid. 12) Importance Memorandum of association is the primary An article of association is a sub subsidiary document of the company. It is known as to the memorandum of association. charter of the company. CONCLUSION: Summing up both these documents are necessary for the establishment of the company, as memorandum defines the powers and limitations while articles defines the rules and regulations that are helpful for proper management of the company.

Prepared By: H.ABDUL REHMAN

0321-6485593