Question: What are Memorandum and Articles of Association?Answer:
In Australia, a company’s internal management and operations can be governed by the replaceable rules set out in the Corporations Act 2001 (Cth), a company constitution, or a combination of both. Additionally, the shareholders may enter into a shareholders agreement, a separate contract regarding the governance of the company. Before 1 July 1998, the company constitution was known as the memorandum and articles of association. Many companies incorporated before 1998 still have a memorandum and articles of association and these are still valid.
The memorandum and articles of association consist of two separate documents. These are the:
- memorandum of association; and
- articles of association.
Memorandum of Association
The memorandum of association sets out:
- the name of the company;
- the share capital structure;
- its objects; and
- the liability of its shareholders.
The company could not perform any actions outside of, or any actions inconsistent with, the objects set out in its memorandum of association. Company legislation also sets out how to implement amendments to the memorandum of association.
Articles of Association
The articles of association cover all other matters about the internal governance of the company. They also confirm the contractual relationship between members by setting out the powers, rights and obligations of the company’s members and senior officeholders. Further, the articles govern operational matters such as the:
- appointment and powers of directors;
- appointment and powers of the company secretary;
- conduct of the board and general meetings; and
- issue, rights and transfers of shares.
Before the introduction of the Corporations Act, most state company legislation contained model articles of association that companies could completely or partly adopt into their articles of association.
Introducing Replaceable Rules
From 1 July 1998, there was no longer a requirement for companies to have a memorandum and articles of association. However, companies registered before this date were able to continue using their existing memorandum and articles of association as their constitution. The Corporations Act now has a model set of rules, replacing the model memorandum and articles of association, known as the replaceable rules.
Companies in other jurisdictions continue to use memorandum and articles of association. Each jurisdiction has its own set of documents regarding internal governance of a company. The documents may have different purposes or content, depending on the particular legal requirements of each jurisdiction. The documents may also go by different names. For example, the articles of association may sometimes be referred to as the articles of incorporation.
Time for an Update
If your company constitution is your old memorandum and articles of association, the documents may require updating. They may not correctly or adequately reflect how your company currently operates. Further, some rules may no longer apply because they do not reflect modern corporations practice and law. Therefore, it may be best to update your memorandum and articles of association with a more modern constitution. However, keep in mind that such an update usually requires a special resolution of all shareholders to approve the change.