What is Memorandum of Association and Articles of Association?

17Apr, 21

What is Memorandum of Association and Articles of Association?

In the dynamic business landscape of the United Arab Emirates (UAE), business professionals and entrepreneurs must grasp the fundamentals of setting up and operating a company effectively. Two essential documents that play a pivotal role in this process are the Memorandum of Association (MOA) and the Articles of Association. One of the benefits of forming a corporation is that you would not be personally responsible for the company's assets and liabilities. You'll also be able to raise substantial sums of money to fund the company's expansion plans. The development of memorandum and articles of association is an essential prerequisite for business setup in the UAE. This blog will delve into MOA and Articles of Association, their significance, and how to obtain them in the UAE.

Memorandum of Association (MOA) in the UAE:

A Memorandum of Association (MOA) is a corporate contract signed by all founder members or partners who consent to the company's formation. All shareholders must sign the MOA to affirm their consent to the company's incorporation by UAE regulations.

In the United Arab Emirates, a memorandum of agreement must be written in a specific format. To understand the memorandum's specified structure, it is recommended that you contact us at Dhanguard for assistance from a legal drafting team in the UAE. The paper must have a compliance declaration and be forwarded to the authority along with the company setup submission.

Key points to understand about MOA in the UAE:

  • Scope of Business: The MOA defines the range of activities the company can engage in. Ensuring that the activities listed align with the intended business operations is essential.

  • Share Capital: MOA specifies the company's share capital and the value of shares held by each shareholder. This information is crucial for determining ownership and liability within the company.

Contents of a Memorandum of Association

According to UAE law, a Memorandum of Association (MOA) must have the following information and clauses:

Name Clause 

The clause includes the company's name, which is suffixed appropriately. 

Object Clause 

The segment gives an idea of the products that a company sells. This can be changed if a company wishes to extend and add more products.

Situation Clause 

The clause specifies that the business will work in the UAE and outlines the company's geographical restrictions.  

Capital Clause 

This section will include the company's stock, the number of registered shares, and how the shares are divided now or will be split in the future. If there is only one proprietor, that person is the corporation's sole owner.

Liability Clause 

If the corporation is unrestricted, limited, or government-owned, the clause addresses the owners' or shareholders' responsibility. The sum (unpaid) related to the number of shares each member owns is a shareholder's liability. This is the case if the company has a finite number of shares. Penalty applies to the amount each shareholder would contribute if a company is restricted by warranty. This may include the company's properties if it closes when the owners are still shareholders or a year after they leave. Shareholders became responsible for paying the company's obligations and debts incurred as shareholders. Shareholders are also responsible for paying the fines and expenses accrued during the company's liquidation process and distributing donations per applicable legislation. 

Name Guidelines in the Memorandum of Association in the UAE

The name of the company in a MOA must adhere to the rules mentioned below:

  • The title should not be equivalent or comparable to an actual company's brand name;

  • The title should be original and not be used by any other company;

  • According to UAE law, the title cannot be insulting or unfavourable;

  • The term does not include words that imply a connection to or patronage from the government.

Articles of Association in the UAE:

The Articles of Association complement the MOA and provide more detailed guidelines on how the company will be managed and governed. While the MOA outlines the broader framework, the Articles of Association specify internal procedures, shareholder rights, board meetings, and other operational matters.

Critical aspects of Articles of Association:

  • Shareholder Rights: It delineates the rights of shareholders, including voting rights, dividend distribution, and transfer of shares. This section ensures transparency and fairness within the company.

  • Board of Directors: The Articles of Association define the board of directors' roles, responsibilities, and appointment procedures. This helps establish effective corporate governance.

Provisions of Articles of Association for Retrenchment

The papers contain fixed rules that enable introductory provisions to be changed. Anybody can create an AoA's rules:

  • Public Company : with the use of a special resolution

  • Private company : when revised or reformed by all stakeholders and decided upon 

What's the Difference Between an Articles of Association and a Memorandum of Association?

While all legal instruments serve as charters for a business, a memorandum of association provides essential information about the business. The AoA, the other hand, includes the business's rules and regulations. An MOA acts as the foundation upon which the organization is based. The AOA is a set of bylaws that make the business run smoothly. All forms of paperwork must be submitted for registration before a corporation can be licensed. 

Here are the primary differences between MOA and AOA:

  • The articles of association specify operating principles, while the memorandum of association describes the business's objects and forces.

  • The articles of association are a subordinate of the memorandum of association, which is a subordinate of the UAE Company Act.

  • The MOA cannot and should not be changed after the fact. Changes to the AoA are possible.

  • The MOA includes six main provisions, and if the organization requires it, an AoA is drafted.

  • All companies must have a memorandum of association.

  • Following the passage of a special resolution from an annual general meeting and the consent of the president, a memorandum of association can be amended. Changes within an AoA are possible after adopting a special resolution at an annual general meeting. 

Both are essential business papers, so legal drafting lawyers in the UAE are needed. Using the services of an experienced lawyer will aid in the careful writing of legal documents. Please do not hesitate to contact our technical experts, who will assist you at every phase of drafting an MOA and AOA for your company.

Binding Force of Memorandum and Articles

Members bound to the company

All members must follow the terms of the articles and memorandum.

A company tied to members

Whatever is written in a company's memorandum and articles of association binds its members.

Member bound to a member

The articles attach the members regarding the privileges and obligations resulting from the reports.

Whether a company or member is bound to outsiders? 

No, even though the outsiders' names are stated in the documents, the memorandum or articles do not grant outsiders any contractual privileges against the organization or its owners.

Whether the Articles of Incorporation protect directors? 

Yes, the company's directors derive their authority from the articles, subject to any restrictions imposed by them.

How to Obtain a Memorandum of Association in the UAE:

The process to  Obtain a Memorandum of Association in the UAE is as follows:

  1. Choose a Business Activity: Before drafting the MOA, you must decide on your company's business activity. This will determine the relevant regulatory authority and licensing requirements.

  2. Legal Consultation: Consult with Dhanguard in Dubai to draft a customized MOA that adheres to UAE laws and regulations.

  3. Notarization: The MOA must be notarized by a notary public in the UAE. This step ensures the document's legal validity.

  4. Licensing Authorities: Depending on your business activity, you will submit the notarized MOA to the licensing authorities, such as the Department of Economic Development (DED) or the relevant free zone authority.

Conclusion:

The Memorandum of Association (MOA) and Articles of Association are fundamental documents establishing a company's legal framework and operational guidelines in the UAE. These documents clarify business activities, share capital, corporate governance, and shareholder rights. To obtain an MOA, entrepreneurs and business professionals should carefully plan their business activities, seek legal counsel, and follow the required procedures to ensure compliance with UAE regulations. Understanding the importance of these documents is the first step towards building a successful business in the UAE. Contact us today for more guidance on business setup in the UAE.