During the process of incorporation of a company you need to submit Memorandum of Association as a document to the Registrar of Companies (ROC). The purpose of this article is to provide a basic knowhow of what is Memorandum of Association and what are its contents. Let us know everything in detail.
What is Memorandum of Association?
The Memorandum of Association is a legal document which states the purpose of a company, i.e., it describes why a company is formed. It establishes the authority of a company and the terms and conditions under which the company operates. It also includes all the laws and regulations through which it operates and intersects with the outside world.
The Memorandum of Association defines the boundaries within which the company operates. If the company goes beyond its authority, as defined in the Memorandum of Association, then the activity is deemed to be supra vires and therefore null.
The Memorandum of Association is open for media and any other person who want to have the information of the company. Anyone can pay the required fee to the Registrar of Companies and receive the Memorandum of Association of the company. If a person or an organization is going to do some business with a company or is entering into a contract with the company, then it is always advisable that he/she should go through the Memorandum of Association of the company to have a thorough knowledge about the authority, rules and regulations of the company.
Why the Memorandum of Association (MOA) is Registered?
The Memorandum of Association is an essential document, which contains all the necessary information and details of the company. The relationship between the company and its stakeholders is governed by the Memorandum of Association.
As per the section 3 of the Company Act, 2013, following people are required to form a company.
- In case of a public company, seven or more people are required;
- In case of a private company, two or more people are required;
- In case of a one-person company, only one person is required.
In all of the above cases, the above persons should establish a Memorandum of Association and submit it to the Registrar of Companies as a necessary document for registration of the company. The Memorandum of Understanding is a mandatory document for the incorporation of a company. As per Section 7(1) (a) of the Company Act, 2013, Memorandum of Association and Articles of Association of the company should be duly signed by the subscribers and filed with the Registrar.
The Memorandum of Association enables the stakeholders to know about the company before buying any shares of the company or being associated with the company in any manner.
Format of Memorandum of Association
There are various tables given in Section 4(5) of the Companies Act. The format of the Memorandum of Association may be in any form as given in these tables. For different kind of companies, different tables are given.
Table A – It is applicable to a company limited by shares.
Table B – It is applicable to a company limited by guarantee and not having a share capital.
Table C – It is applicable to a company limited by guarantee and having a share capital.
Table D – It is applicable to an unlimited company not having a share capital.
Table E – It is applicable to an unlimited company having a share capital.
The format should be printed, numbered and divided into paragraphs. It should be signed by all the subscribers of the company.
Contents of Memorandum of Association
As per the section 4 of the Companies Act, 2013, the Memorandum of Association should contain the following:
The first clause of the Memorandum of Association is ‘Name Clause’. You can use any name for your company. There are certain conditions to be complied with:
Section 4(1)(a) states:
- If a company is a public company, then the word ‘Limited’ should be there in the name. Example, “Robotics”, a public company, its registered name will be “Robotics Limited”.
- If a company is a private company, then ‘Private Limited’ should be there in the name. “Secure”a private company, its registered name will be “Secure Private Limited”.
- This condition is not applicable to Section 8 companies.
Section 8 Companies:
Section 8 companies are described in the Section 8 of the Companies Act, 2013. This section describes companies which are established to promote commerce, art, sports, education, research, social welfare, religion etc. Section 8 companies are similar to Trust and Societies but they have a better recognition and legal standing than Trust and Societies.
Registered Office Clause
It specifies the official address of the company’s registered office, which is used for legal correspondence and serves as the company’s official address for regulatory purposes. It also describes the nationality of the company and the jurisdiction of courts. This clause is mentioned in Section 12 of the Companies Act.
It is mandatory for every company to fix its name and address of its registered office on the outside of every office in which the business of the company takes place. If the company is a one-person company, then “One-person Company” should be written in brackets below the affixed name of the company.
Change in place of Registered Office should be notified to the Registrar within the prescribed time period.
Section 4(c) of the Companies Act, 2013 describes the object clause. This is one of the most important clauses of the Memorandum of Association. This clause defines the primary objectives and activities that the company intends to pursue. It outlines the scope of the company’s operations and activities, and any restrictions or limitations on its business activities may also be mentioned here. This clause consists of both the main object of the company as well as the incidental or ancillary objects, which are the matters necessary to achieve the main object.
It describes the nature of liability for the company’s members or shareholders. The liability clause is an important clause which provides legal protection to the stakeholders from being held personally liable against any loss to the company. There are two types of limited liabilities:
Limited by Shares: Section 2(22) of the Companies Act, 2013 defines a company limited by shares. In the case of a company limited by shares, the liability of the shareholders is limited to the value of their shares.
Limited by Guarantee: This is defined in the Section 2(21) of the Companies Act, 2013. If a company is limited by guarantee, then it has members instead of shareholders. In a company limited by guarantee, the liability of the members is limited to a predetermined amount they agree to contribute in the event of the company’s winding up. The members give guarantee of a fixed amount that they will be liable for.
Non-profit Organizations and other charities organizations usually are limited by guarantee.
This clause outlines the authorized share capital of the company, which represents the maximum value of shares that the company can issue. It may also include details about the division and value of shares, rights attached to different classes of shares, and provisions for share transfers.
This clause states that the subscribers to the Memorandum of Association wish to form a company and agree to become members or shareholders.
This section includes the names, addresses, and signatures of the initial subscribers (also known as shareholders or members) who are involved in the formation of the company. It specifies the number of shares subscribed by each subscriber.
This clause includes the names, addresses, and signatures of witnesses who attest to the signing of the Memorandum of Association.
Doctrine of Ultra Vires in Memorandum of Association
The powers of the company are mentioned in the object clause. If a company operates beyond its powers as mentioned in the object clause of the Memorandum of Association, then the action of the company will become Ultra Vires and thus void.
Consequences of Ultra Vires
It is the responsibility of the directors of the company that the capital of the company is used for right purpose only. If the capital of company and shareholders is used for any other purpose, then as mentioned in the scope of the company then the directors of the company will be responsible for that.
If any bank lends money to the company for the purpose other than as mentioned in the object clause, the that borrowings will become ultra vires and thus the bank will not be able to recover the amount.
Similarly, if the company lends money to other entities for the purpose as mentioned in the object clause of the Memorandum of Association, then the lending will become ultra vires.
Any act done by the company, which is beyond the powers stated in the object clause, will become ultra vires.
Any member of the company can use the remedy of injection to prevent the company for using the ultra vires act.
The Memorandum of Association is a fundamental document which has to be mandatorily submitted to the Registrar of Companies for the incorporation of a company. The memorandum together with the article of association form the constitution of the company. It is a crucial document that outlines the foundational details and objectives of a company. It typically includes clauses such as the name of the company, registered office address, objectives of the company, liability of the members, authorized share capital, and details of the initial subscribers. However, it’s important to note that the specific contents and structure of the Memorandum of Association may vary based on the legal requirements of the jurisdiction in which the company is registered. Consulting the relevant laws and seeking legal advice is recommended to ensure compliance with specific jurisdictional requirements.