Setting up a limited company has many benefits. The foremost benefit is that you won’t be personally liable for debts and other liability incurred by the company. Moreover, you will be able to raise a large amount of capital to finance the expansion activities of the business.
One of the important requirements of establishing a limited company in the UK is creating a memorandum of association (MOA) and articles of association (AOA) and knowing the difference between memorandum of association and articles of association. In this post, we will explain the major point of differences between Memorandum & Articles of Association.
Memorandum of Association (MOA)
MOA is a legal statement. All the shareholders are the founding members of the company must sign the MOA. The shareholders signing the MOA confirm that they want to form a company as per the terms of the UK Companies Act 2006.
The MOA should be in a specific format. You can contact accountants for a small limited company to know the prescribed format for the memorandum. The document must include a statement of compliance and submitted to the Companies House along with the registration document.
The MOA has the name of every shareholder in it who are the founding members. The shareholders are also the subscribers as they are subscribing their names in the incorporation of the company. The document contains information on just one or two pages depending on the list of subscribers.
After the company incorporation, you cant make any changes in MOA. So, it’s important to carefully review the accuracy of the information before submitting it for incorporation.
Articles of Association (AOA)
AOA is also a legal document that contains rules and regulations on how the company should be governed. The company directors, shareholders, and secretary sign the MOA document.
The AOA is a more detailed document as compared to MOA. It contains various rules for admin, officers, and company management. The AOA document must have the following elements in it
- Members Liability
- Rules regarding voting, meeting, and conflict of interest
- Responsibilities of directors
- Procedure for retaining records
- Procedure for appointing and removing directors
- Share certificates in case of a company limited by shares
- Process of decision making by members
- The preferred medium of communication
- Rules regarding the use of company seal
- General administrative provisions
- Financial accountability of members
Company members mentioned in the AOA need to adhere to the prescribed rules. The document should be referred to before passing business judgments. It can create restrictions on the powers of company directors and they may be required to obtain approval of shareholders before pursuing a certain course of action.
Unlike MOA, AOA can be changed anytime over the course of the business. Any changes in the document must be informed to the Companies House no longer than 15 days after the change. To make changes in the AOA, more than 75 percent of members should vote in favour of the changes. Voting usually takes place during the general meeting of the members. You should consider getting specialized guidance from limited company accountants before making any significant changes in the document.
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Tips for Creating MOA and AOA
You can create a personalized MOA and AOA according to the requirements of your company. The MOA should inform the Companies House that each member who has signed the MOA agrees to become a member of the company, establish the company according to the Companies Act 2006, and agrees to take shares of the company. It should include the company name along with the name and signature of each member. This is where the difference between memorandum and articles of the association lies.
You can submit a personalized AOA when registering the company. However, if you are registering the company through the Companies House website, you must use Model Articles available online.
After Companies House accepts your application for incorporation. You will receive a copy of the AOA. You must have a printed or electronic copy of the document at your registered office.