IMPORTANT DOCUMENTS PREPARED WHILE FORMING A COMPANY
There are three basic documents, which are prepared and filed with the Registrar
during the formation of a company. These are:
1)Memorandum of Association (MOA)
(2) Articles of Association (AOA)
(3) Prospectus
1)Memorandum of Association (MOA):
The Memorandum of Association is the principal document in the formation of a company. It is
called the charter of the company. It contains the fundamental conditions upon which the
company is allowed to be incorporated or registered. It defines the limitations of the powers of
the company.
The Memorandum of Association usually contains the following six clauses:
Name Clause: It contains the name by which the company will be established.
Situation Clause: It contains the name of the state in which the registered office of the
company is or will be situated.
Objects Clause: It contains detailed description of the objects and rights of the
company, for which it is being established.
Liability Clause: It contains financial limit up to which the shareholders are liable to pay
off to the outsiders on the event of the company being dissolved or closed down.
Capital Clause: It contains the proposed authorized capital of the company. It gives the
classification of the authorized capital into various types of shares, (like equity and
preference shares) with their numbers and nominal value.
Subscription Clause: It contains the name and address of at least seven members in
case of public limited company and two members in case of a private limited company,
who agree to associate or join hands to get the undertaking registered as a company
(2) Articles of Association (AOA):
The Articles of Association of a company contains the various rules and regulations for the day
to day management of the company. These rules are also called the bye-laws. The rules given
in the AOA must be inconformity with the Memorandum of Association.
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Articles of Association of a company generally contain rules and regulations with regard to
the following matters:
(a)Preliminary contracts
(b)Use and custody of common seal
(c)Allotment, calls and lien on shares
(d)Transfer and transmission of shares
(e)Forfeiture and re-issue of shares
(f)Alteration of share capital
(g)Issue of share certificates and share warrants
(h)Conversion of shares into stock
(i)Procedure of holding and conducting company meetings
(j)Voting rights and proxies of members
(k)Qualification, appointment, remuneration and power of Directors
(l)Borrowing powers and methods of raising loans
(m)Payment of dividends and creation of reserves
(n)Accounts and audit
(o)Winding up.
A company can register its own
Articles of Association or adopt Table A, which contains a model set of rules as given in the
Schedule I of the Companies Act.
(3) Prospectus:
After getting the Certificate of Incorporation or Registration a public limited company invites the
public to subscribe to its shares. This is done by issuing a document called Prospectus. Under the
Companies Act, a prospectus has been defined as “any document described or issued as a prospectus
and includes any notice, circular, advertisement or other document, inviting deposits from the public or
inviting offers from the public for the subscription or purchase of shares or debentures of a company or
body corporate”.
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The main objectives of issue of a prospectus are:
(a) to inform the public about the company;
(b) to induce people to invest in the shares or debentures of the company; and to
provide an authentic information about the company and the terms and conditions
of issue of shares and debentures
The prospectus usually contains the following information which is considered important for the
prospective investors of shares and debentures of the company.
General information regarding the name, office of the company, stock exchange where shares are to
be listed, date of opening and closing of the issue, credit rating information, name of underwriters,
brokers and bankers
Capital structure of the company.
Terms of payment and application procedure.
Company management and details of the project and project report
Other listed companies under the same management.
Outstanding litigations and defaults.
Management perception of risk factors.
The prospectus must be prepared with great care because on the basis of its details the public
subscribes to the capita l of the company. It must not contain even an idea of falsehood.
DIFFERENCE BETWEEN MOA AND AOA:
Differences Memorandum of Articles of
based on Association Association
(a) Subject It containsaims and Articles of Associations contain rules
Matter objectives of the company. for implementation of the aims
and objectives contained in the
Memorandum of Association.
(b) Relationship It defines the relationship Articles defines the relationship
between the company and between the company and its
outsiders. members.
(c) Amendment It is very difficult to amend The rules given in the articles
the aims and other provisions can be easily amended by a
of theMemorandum of special resolution.
Association.
(d) Limitations The provision given in the The rules given in the Articles of
Memorandum of Association Association can neither be
can not be outside the scope outside the scope of companies
of Companies Act. Act nor of the Memorandum of
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Association.
(e) Obligation It is obligatory for a company It is not obligatory to submit this
to prepare and submit this document to Registrar of
document to the Registrar Companies. The company may
of Companies. adopt Table A of the companies Act.
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