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Incorporation of Companies, including drafting of MOA & AOA - Canest

Canest > Incorporation of Companies, including drafting of MOA & AOA

Overview

Forming a business entity calls for detailed discussion on the objectives of the businessman and identifying the territory or territories of operation, scale of operations and thereafter discussing the pros and cons of a particular form of organization that is most suitable to meet the objectives. In the era of globalization we have to advise with respect to inbound as well as outbound proposals.

Setting up of companies, limited liability partnerships in India and setting up of joint ventures and wholly owned subsidiaries in India and abroad for Indian Parties and Foreign Parties is one of the much sought after services, our Firm specializes.

Drafting of charter documents such as memorandum and articles of association is not a cut and paste job. It requires discussion and proper framing of thoughts and as to how the promoters would want certain rights to be introduced in the articles. Companies Act, 2013 enables entrenching in the articles certain rights.

Operating in India or in several other regulated jurisdictions require studying the special regulatory requirements. For instance, setting up a company in the non- banking financial sector or banking sector or insurance sector requires a deeper study of applicable regulations and planning for such things in advance and it is essential to factor time and costs thereof.

Memorandum of Association (MOA)

Memorandum of Association (MOA) is the main, compulsory document required for the incorporation of the company. It must be registered with the ROC (Registrar of Companies) at the time of incorporation. It lays down the objects, scope, powers and area of operation of the company, all of which the company can’t transgress. Thus, it lays down the limits of the company.

It must be drafted very carefully as the company can’t go against it later. Moreover, it can only be amended by a difficult procedure in the Annual General Meeting with the knowledge of the Central Government. It can’t be amended retrospectively.

It guides all relations within and outside the company by laying guidelines and rules for the same and all the subordinate documents and agreements follow from it. Also known as the ‘charter of the company’, it must lay down the following six conditions:

Name Clause

– It is meant to register the official name of the company with the CG (Central Government) which must be original and must not, in any way, resemble that of a pre-existing one.

Situation Clause

– It deals with highlighting the name of the state in which the company’s registered office is located.

Object Clause

– The main and auxiliary objects of the company are specified here.

Articles of Association (AOA)

Articles of Association (AOA) is a secondary document that is constituted only after the MOA. It lays down the rules and regulations for the administration and management of the company. The articles lay down the right, responsibilities, powers, duties, etc of the members along with information regarding the accounts and audit of the company.

It is mostly advisable for every company to have its own article but a company limited by shares can adopt Table A for the same purpose. It is made to guide the working and governance inside the company.

It follows the MOA and can’t contradict it. It is easier to amend than MOA which can be done without any restrictions. It can be amended retrospectively in the Annual General Meeting as per the choice of the company.

Since both these documents sound similar, people often get confused between the two. You must not make that mistake. Make sure you get legal help in order to understand the true dynamics of both and to draft a copy for your company. In the meantime, here are some of the key differences between the two you must keep in mind.

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