What is Memorandum of Association and Articles of Association?

What is Memorandum of Association and 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 forming in the UAE. We'll go through all of the main differences between Articles of Association (AOA) and Memorandums of Association (MOA) in this post. 

What is Memorandum of Association?

A Memorandum of Association (MOA) is a type of corporate contract that is signed by all founder members or partners who consent to the company's formation. The MOA must be signed by all shareholders to affirm their consent to the company's incorporation in accordance with UAE regulations.

In the United Arab Emirates, a memorandum of agreement must be written in a specific format. In order to understand the memorandum's specified structure, it is recommended that you contact us at Dhanguard for assistance of 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.

Contents of a Memorandum of Association

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

Contents of a Memorandum of Association

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) that relates to the number of shares each member owns is referred to as a shareholder's liability. If the company has a finite number of shares, this is the case. Liability applies to the amount that 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 when they were shareholders. Shareholders are also responsible for paying the fines and expenses accrued during the company's liquidation process, as well as distributing donations in accordance with applicable legislation. 

Name Guidelines in the Memorandum of Association

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

  • The name should not be equivalent or comparable to an actual company's brand name;
  • The name should be original and not be used by any other company;
  • According to UAE law, the name cannot be insulting or unfavourable;
  • The name does not include any words that imply a connection to or patronage from the government.

What are Articles of Association?

According to the UAE Company Act 2015, "books" refers to the initial or copies of the articles of association that are registered with regulatory bodies and conform with the UAE Company Act's provisions. As previously stated, AoAs are documents that include laws or guidelines that regulate the management of an organisation. 

Provisions of Articles of Association for Retrenchment

The papers contain entrenchment rules that enable basic provisions to be changed. An AoA's rules can be created by anybody:

Provisions of Articles of Association for Retrenchment

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 forms of legal instruments serve as charters for a business, a memorandum of association provides important information about the business. The AoA, on the other hand, includes the business's own rules and regulations. An MOA acts as the foundation upon which the organisation 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 licenced. 

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 organisation 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 the adoption of 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 the process of drafting a MOA and AOA for your company.

Binding Force of Memorandum and Articles

Members bound to the company

The terms of the articles and memorandum must be followed by all members.

Company bound to members

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

Member bound to member

The articles attach the members to one another in terms of the privileges and obligations resulting from the articles.

Whether a company or member bound to outsiders? 

No, even though the name of the outsiders is stated in the documents, the memorandum or articles do not grant outsiders any contractual privileges against the organisation or its owners.

Whether directors are protected by the Articles of Incorporation? 

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

By Om Chaudhary

17-Apr, 2021

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