A company is made when a certain group of people come together to achieve a particular objective. Usually, such an objective is commercial in nature that allows them to make financial profits. There are a number of steps that must be followed to form a company. An application is filed with the Registrar of Companies (ROC), and that application is enclosed along with a number of documents. One such essential document that is to be submitted with the application is the Memorandum of Association. In this article, we shall have a complete review of the various aspects of the Memorandum of Association (MOA), including its objective, features and key contents.
Memorandum of Association
Memorandum of Association (MOA) means the legal document which spells out the prime reason for a company’s incorporation. An MOA specifies the powers of the company and the conditions that determine its working. The document contains the rules and regulations that regulate and governs the company’s relations with the people on the outside.
It is a mandatory legal document that defines the scope of the operations of a company. A company cannot function beyond the scope or the terms of the document. In case a company works beyond the scope of the document, then such work shall be ultra vires act and will be considered void.
The Companies Act 2013 defines the meaning of MOA in Section 2(56). It says that the Memorandum means two things (a) the Memorandum of Association of a company originally framed or (b) as altered from time to time in pursuance of any previous company law. The whole structure of the company is specified in the MOA. It can be noted that the MOA is also a public document that means if a person wants to enter into any contract with a company, then he or she can pay the requisite fee to the Registrar of companies and thereafter obtain the MOA. The memorandum document shall contain all the details of the company.
Significance of MOA
The significance and the importance of the MOA can be deduced from the fact that without such a legal document, a company cannot be formed. All companies formed under the Companies Act in India must have the MOA. It applies to all kinds of companies. The MOA governs the relationship between the company and its stakeholders. It is an essential document for the registration of a company. The Memorandum of Association and the Articles of Association should be signed by the subscribers and filed with the Registrar for the incorporation of a company.
In addition to this, it allows the shareholders to understand the company before buying its shares. The MOA helps them to ascertain the capital they should invest in the company. The document provides access to information to all the stakeholders who are looking to associate with the company. Therefore if you are looking to enter into a contractual relationship with the company, then you may refer to its MOA in order to gain knowledge about the company.
A Memorandum of Association is called the charter of the company because of its key contents that include the details of the company and its members along with their liabilities. Thus, one can imagine why such importance is given to this document. It is a crucial document in the registration process as well, without which the company cannot be incorporated.
Construction of a Good MOA
There are very easy steps to write a brief memorandum of association for a small and medium businessman.
- Language should be simple and brief.
- Specify each clause with clear intent and clarity.
- Clear mentioning of the name of the company.
- Objectives should contain the present as well as the future perspective of the firm.
- Core operational areas and future operational areas and divisions required to be included.
- The registered office address must also specify the region and state in which the business will operate.
Content of MOA
Under Section 4 of the Companies Act 2013, a Memorandum of Association should comprise of the following clauses as discussed below:
- Name Clause: It is mandatory to mention the name of the company while drafting the Memorandum of Association. A company may select any name that it prefers but it should not be identical to an existing company. The chosen name of the company as it appears in the Memorandum of Association should be exactly the same as the one approved by the Registrar of Companies. A Public Limited Company should end with the word “Limited” and likewise, a Private Limited Company should end with the words “Private Limited”. In order not to mislead the public a company must not use a name which is prohibited under the Emblems and Names (Prevention of Improper Use) Act of 1950. A company is restricted from using any name which may connect it to the government of the state, without obtaining prior permission from the government.
- Situation Clause: The Memorandum of Association of a company must contain the name of the state where the company operates and the jurisdiction of the Registrar of Company must be specified. It is mandatory for the company to have a registered office within 15 working days. Likewise, the verification of the registered office must be completed in 30 days. This procedure is done to fix the domicile of the company which may or may not be the place where the company is operating.
In the event of a change in location of the registered office the memorandum needs to be altered.
- Object Clause: The objective for which the company is formed must be mentioned in the Memorandum of Association. It is one of the key clauses and should be drafted carefully mentioning all the types of businesses that the company may possibly engage in the future. A company is legally prohibited from carrying out any activity that is not specified in the object clause. The objects are classified as ‘Main Objects’, ‘Ancillary Objects’ and ‘Other Objects’. The objects must be stated articulately and must not be ambiguous in nature. The objects must not also be illegal or against the prohibition of the Act or the public policy of the country.
- Liability Clause: The liabilities of the members of the company must be clearly stated in the Memorandum of Association. They may be limited by shares or by guarantee. In the case of unlimited liability companies, the entire clause can be eliminated.
When a company is limited by shares, the liability of its members remains limited to any unpaid amount on the shares owned by them. When it is limited by guarantee the members of the company are liable to pay the amount stated in the memorandum at the time of liquidation of the company. In case of unlimited companies, the liability of the members is unlimited, involving personal assets.
- Capital Clause: The maximum amount of authorised capital that can be generated by the members of the company is ought to be specified in the Memorandum of Association. Stamp duty is applicable on this amount. Although there is no legal limit to the maximum amount of capital that can be raised by a company, it cannot increase the authorised share capital once it has been incorporated.
- Association or Subscription Clause: The amount of authorised capital and the number of shares owned by each member of the company should be mentioned in the Memorandum of Association of the company. The subscribers to the memorandum must own a minimum of one share each. Each subscriber must write the number of shares owned by him and sign the memorandum in the presence of at least one witness who is required to attest the signature.
Forms of MOA
The memorandum of a company should be formulated in accordance with the respective forms as mentioned in the tables A, B, C, D & E under Schedule 1 of the Companies Act, 2013.
- Form in Table A is applicable to companies that are limited by shares.
- Form in Table B is applicable to companies that are limited by guarantee and do not have an authorised share capital.
- Form in Table C is applicable to companies limited by guarantee and have an authorised share capital.
- From is Table D is applicable to unlimited companies that do not have an authorised share capital.
- Form in Table E is applicable to unlimited companies that have an authorised share capital.
Alteration in MOA under Companies Act, 2013
Alteration means any change in the existing thing. From the purpose of the MOA, alteration means any addition, substitution or omission to the Memorandum. The company has the right to alter the Memorandum, but it is only limited to an extent permissible under the Act. Any alteration in the clauses can be made after passing a special resolution.
The resolution is a term used to denote a formal decision made in a meeting. A special resolution requires a 2/3rd majority. The alteration is a critical undertaking that can happen for different reasons. It may be to enable the company to work more efficiently or to amalgamate with any other company. It can also be altered to achieve the objectives or to help companies dispose of the undertaking.
The Memorandum of Association is an essential legal document for the incorporation of a company. It is the foundation upon which a company is formed. Every company must have it. It should be drafted with utmost sincerity. All the social responsibilities and supporting activities and range of other related activities should also be clearly stated in the Memorandum of Association to provide flexibility to undertake new projects as and when the opportunities arise. Hence it is advisable to present the company’s scope of activities in a more generic manner instead of mentioning any particular area of focus.
- Shanti Sarup vs. Radhaswami Satsang Sabha. (AIR 1968)
- Nagavarapu Krishna Prasad And Others vs. Andhra Bank Ltd.(AIR 1982)
- J.K. Hosiery Factory vs. Commissioner of Income Tax.(1970)
- Companies Act 2013 by Taxmann