When a new business comes to life, it transforms from a mere idea into a legal entity with a structured framework. At the heart of this transformation lie two critical documents — the articles of association and the memorandum of association.
These two documents play a fundamental role in shaping the company’s identity, governance, and interactions. One guides the company’s internal affairs and decision-making processes by defining the rights and responsibilities of the board of directors and other internal stakeholders. The other serves as the company’s charter, outlining its main objectives and establishing its relationship with the outside world.
What are Articles of Association?
Articles of association are rules and regulations governing a company’s internal management and day-to-day operations. These rules specify the rights, responsibilities, and duties of the members, shareholders, and directors. The board of directors is responsible for drafting these articles, and they help guide the company’s internal affairs and decision-making processes.
The articles of association (similar to articles of incorporation) address various aspects, such as the process of appointing directors, the responsibilities and powers of the board, the issuance and transfer of shares, dividend policies, and the conduct of general meetings. Essentially, articles set out the framework within which the company will function and how various stakeholders will interact.
What is a Memorandum of Association?
The memorandum of association, often referred to simply as the memorandum, is a fundamental document that outlines the company’s constitution and scope of operations. It defines the company’s main objectives and relationship with the outside world. The memorandum specifies the company’s name, location, objectives, and activities it can engage in.
The memorandum serves as the company’s charter and defines its external boundaries. It is a public document that anyone can access to understand the company’s primary purpose and its legitimacy to engage in specific business activities. Whether you operate as a limited company or private company, the memorandum of association is required.
Key Differences Between Articles of Association vs. Memorandum
Although both articles of association and memorandum of association are valuable documents for corporate governance, they serve distinct purposes and have significant differences in nature, scope, and legal implications. Here are the key contrasts between these foundational documents:
1. Nature and Scope
The memorandum of association outlines the company’s fundamental constitution, including its name, registered office location, objectives, and authorised capital. It defines the company’s external boundaries, stating what it can and cannot do.
On the other hand, the articles of association focus on the company’s internal management and operational rules. They provide the framework for day-to-day functioning, addressing matters such as the corporate structure, appointment and powers of directors, share issuance and transfer, dividend policies, and the conduct of general meetings.
2. Public Access
The memorandum of association is a public document accessible to anyone who wishes to understand the company’s foundational details, objectives, and legitimacy to engage in specific business activities. This transparency allows potential investors, partners, and stakeholders to evaluate the company’s purpose and determine its alignment with their interests.
In contrast, the articles of association are not required to be made publicly available. They remain an internal document that guides the company’s management and is typically shared only with relevant stakeholders, such as shareholders and directors.
3. Alteration Process
Amending the memorandum of association is more complex than the articles of association. Any changes to the memorandum require a special resolution passed by the company’s members and subsequent approval from the regulatory authorities. This stringent process protects the company’s core objectives and ensures that major alterations align with the shareholders’ best interests.
Conversely, the articles of association can be amended more easily through an ordinary resolution passed during a general meeting. This allows the company to adapt its internal rules and regulations as required, without the same level of formality as required for changes to the memorandum.
4. Relationship with Shareholders
The memorandum of association establishes a contractual relationship between the company and its shareholders. Shareholders invest in the company based on the objectives defined in the memorandum and are entitled to receive dividends and other benefits within its defined scope.
The articles of association, on the other hand, regulate the relationships between the shareholders and the company’s management. They outline the shareholders’ rights, duties, and voting powers and govern the conduct of meetings and decision-making processes.
5. Binding Nature
The memorandum of association is binding on the company and its members from the moment of incorporation. Any activity carried out by the company that falls outside the memorandum’s scope is considered ultra vires and void, providing a protective shield for stakeholders.
While crucial for internal management, the articles of association may or may not be adopted immediately upon incorporation. They can be altered later through the amendment process, allowing the company to refine its internal procedures and adapt to changing circumstances as it grows.
File Management Made Easy With OnBoard
Managing and organising board meetings and associated documents can be daunting for any company. Thankfully, there are software solutions to simplify this process, and one such excellent option is OnBoard. OnBoard’s board portal platform provides unlimited digital storage backed by enterprise security to house your articles of association, memorandum, and other important board documents.
In addition, OnBoard provides comprehensive board meeting management software designed to streamline board processes and communication for everyone from the CEO to the company secretary. We address the needs of directors, executives, and administrators, making board meetings more efficient and productive. Some of the features that set OnBoard apart include:
- Agenda creation and distribution: Our software allows you to create and distribute board meeting agendas seamlessly, ensuring that all relevant information and documents reach the participants promptly.
- Secure document sharing: Confidentiality is critical in board meetings, and OnBoard provides a secure platform for document sharing, reducing the risk of sensitive information falling into the wrong hands.
- Collaborative annotation: OnBoard enables collaborative annotation of documents, making it easier for board members to provide feedback and collaborate on important decisions, regardless of their physical location.
- Real-time updates and notifications: With OnBoard, you can keep all participants in the loop with real-time updates and notifications, ensuring everyone stays informed about the latest developments and changes.
- Voting and resolution management: Our software allows board members to vote on resolutions and access historical voting data, simplifying decision-making and facilitating better governance.
- Meeting minutes and archives: OnBoard automatically generates accurate meeting minutes, which can be easily accessed and referenced anytime, ensuring a comprehensive historical record of board decisions.
OnBoard’s effective board meeting management software can greatly enhance your company’s governance practices and contribute to its success. Download our free board meeting agenda template to maximise the effectiveness of your meetings!
About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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