The memorandum of association is one of the two essential documents required for the constitution of a company. Section 4 of the Companies Act, 2013 outlines its fundamental components. While Section 3 of the Companies Act governs the incorporation process, Section 4 provides a clause-wise breakdown of the memorandum’s contents.
A group of people come together to form a company to achieve a specific purpose. A company is usually established to earn profits and is commercial in nature. An application must be filed with the Registrar of Companies (ROC) along with certain documents to register a company. One crucial document required to be submitted to the ROC while applying for registration is the company’s Memorandum of Association (MoA).
A Memorandum of Association (MOA) in company law is considered the Constitution or Charter of an incorporated company, as it contains all its basic legal details like name, registered address, business objective, liability, and subscription. The entire document is drafted in a specific format on a stamp paper of appropriate value, later stamped and notarised by a public notary. Adhering to the format of MOA is extremely crucial to maintain its legal validity and ensure successful registration with the Registrar of Companies (ROC).
What is MoA ?
A Memorandum of Association (MoA) represents the charter of the company. It is a legal document prepared during a company’s formation and registration process. It defines the company’s relationship with shareholders and specifies the objectives for which the company has been formed. The company can undertake only those activities mentioned in the Memorandum of Association.
As such, the MoA lays down the boundary beyond which the company’s actions cannot go. When the company’s actions are beyond the boundary of the MoA, such actions will be considered ultra vires and thus void. The MoA is a foundation upon which the company is established. The company’s entire structure is written down in a detailed manner in the MoA.
The Memorandum of Association is a public document. Any person can get the MoA of the company by paying the prescribed fees to the ROC. Thus, it helps the shareholders, creditors and any other person dealing with the company to know the basic rights and powers of the company before entering into a contract with it. Also, the contents of the MoA help by the prospective shareholders make the right decision while considering investing in the company. MoA must be signed by at least 2 subscribers in the case of a private limited company and 7 members in the case of a public limited company.
Format of Memorandum of Association
Section 4(6) of the Companies Act, 2013 (‘Act’) states that the format of an MoA will be as specified in Table A to Table E of Schedule 1 of the Act. Every company needs to select the appropriate format provided in Table A to E depending on its business type. The different formats provided in Act are as follows:
Table A – It is applicable to companies with a share capital.
Table B – It is applicable to a company limited by guarantee but does not have a share capital.
Table C – It is applicable to a company limited by guarantee having a share capital.
Table D – It is applicable to an unlimited company but does not have a share capital.
Table E – It is applicable to an unlimited company with a share capital.
The MoA should be numbered, printed and divided into paragraphs. The subscribers of the company must sign the MoA.
Legal Framework & Key Provisions of MOA under the Companies Act
| Key Sections | Detailed Provisions |
|---|---|
Section 3 | A company may be formed for any lawful purpose by the requisite number of shareholders after subscribing their name/s to the Memorandum of Association. |
Section 4 | MOA of a company must include crucial information such as the company’s name, the registered office address, the company’s objectives, the liability clause, and details about its capital structure. |
Section 7 | Outlines the process of drafting, submitting, and registering the MOA with the ROC during the Company Incorporation process |
Section 13 | Section 13 of the Companies Act mentions the process for altering the MOA. Companies may need to amend their MOA due to changes in name, business objectives, alterations in the capital structure, or shifts in the registered office. The section provides a legal framework and processes for such modifications, |
Significance of MOA in Company Registration & Governance
- Company Registration: The registration of a company is not possible without a valid and accurately drafted Memorandum of Association. The MOA is one of the documents that is submitted with the application for company registration. When the application reaches the Registrar of Companies, he not only registers the name of the company but also its Memorandum of Association.
- Company Changes: You cannot alter or change any foundational detail of the company without appropriately altering the MOA. For instance, if you are looking forward to changing the registered office address of the company, the application filed for the same to the ROC will be supported by an altered or modified copy of the MOA consisting of the new registered address. Upon receiving the application, the ROC will not only change the address but also update the MOA registered with it.
- Enhances Credibility: The MOA of a company registered with the ROC, is a document that can be publicly viewed and inspected. This enhances the credibility of a company, especially for its investors and creditors, as every detail with which the company is operating on the ground can be easily and accurately verified.
- Reliable Source of Information: The MOA, kept at the company’s registered office, serves as a key reference point for insiders and external visitors. It ensures easy access to information for executives and employees, fostering a clear understanding of the company’s mission. Additionally, external stakeholders, including investors and regulatory authorities, benefit from transparent insights into the company’s structure and objectives. By maintaining the MOA at the registered office, the company upholds regulatory compliance and builds trust through transparency.
- Supremacy in Compliance: The MOA defines the powers of a company. Any act done by the company or any of its stakeholders that contradicts the provisions of the MOA shall be deemed null and void. Even the Articles of Association of the company, which contains the rules, regulations, and procedures of its internal management, should be drafted in complete adherence to the provisions and clauses of the MOA.
Clauses Of Memorandum of Association (MOA)
| S.No. | Clause of MOA |
|---|---|
1. | Name Clause |
2. | Registered Office Clause |
3. | Object Clause |
4. | Liability Clause |
5. | Capital Clause |
6. | Declaration Clause |
7. | Nominee Clause (in case of one person company only) |
1. Name Clause
This section mandates that the company’s name be explicitly stated in the memorandum. For a public limited company, the name must end with ‘Limited,’ whereas a private limited company must use ‘Private Limited.’
Using the term ‘Limited’ without an intention to limit liability constitutes an offence. However, such an illegality does not invalidate contracts entered into in the ordinary course of business, as observed in Cotronic (UK) Ltd v Dezonie (1991) BCLC 721. Additionally, the Registrar has the authority to refuse registration if the proposed name is deemed ‘undesirable’ due to scandalous or obscene words (R v ROC ex parte Bowen, 1914 3 KB 1161).
A notable exception exists for not-for-profit companies incorporated under Section 8 (formerly Section 25 of the 1956 Act). Since these companies are prohibited from distributing dividends and are not established for commercial purposes, they are exempt from using ‘Limited’ or ‘Private Limited’ in their name.
2. Registered Office Clause
Section 4(1)(b) requires that the memorandum specify the state in which the company’s registered office will be situated. However, the exact address need not be provided at the time of incorporation. The company must file its registered office details with the Registrar within 30 days of incorporation through Form INC 22 and e-Form ACTIVE, as per the Companies (Incorporation) Rules, 2014.
3. Object Clause
Section 4(1)(c) requires the memorandum to specify the company’s objectives. This includes both primary objects and ancillary objects, which must facilitate the attainment of the primary objectives. Ancillary objects cannot exist independently but must support the main purpose of the company.
The memorandum serves as the company’s charter, defining its operational scope. In Cotman v Brougham (1918 AC 514), it was emphasized that the memorandum helps shareholders, creditors, and stakeholders understand the company’s permitted activities. Courts have ruled that the objects clause should be interpreted broadly to confer necessary powers for fulfilling the company’s objectives (Egyptian Salt and Soda Co. Ltd v Port Said Salt Association Ltd., 1931 1 Com Cases 285). The natural and ordinary meaning of the words in the memorandum determines whether a particular transaction aligns with its stated objectives (Bell Houses Ltd v City Wall Properties Ltd., 1966 2 All ER 674 (CA)).
Ultra Vires Doctrine
Any act exceeding the scope of the memorandum is considered ultra vires. The doctrine of ultra vires renders such acts invalid and incapable of ratification by shareholders. Ashbury Railway Carriage Company v Richie (1875 LR 7 HL 653) established that a company cannot undertake actions beyond its stated objectives. Courts have reinforced this principle in Dr. Lakshmanaswami Mudaliar v LIC (1963 33 Com Cases 420), affirming that ultra vires transactions are void. If a company engages in an unauthorized activity, those responsible may be held liable to compensate the company (Radha Cinema & Co v Chitralipi Films, 1974 Tax LR 2180).
Implied Powers
A company possesses all necessary powers to achieve its stated objectives. These include certain implied powers inferred from the memorandum, provided they align with the company’s purpose and remain intra vires.
- Main object which contains the primary business activities
- Ancillary object which contains the secondary business activities carried out to fulfill the main object
- Other objects which contain any other miscellaneous business activities carried out by the company which is not its primary or secondary activity.
3. Liability Clause
This clause defines whether the members’ liability is limited or unlimited. In the case of a company limited by shares, members’ liability is restricted to the unpaid portion of their shareholding. Even if the company operates in a jurisdiction where unlimited liability is permitted, its status as a limited liability company remains unaffected (Risdon Iron and Locomotive Works v Furness, 1905 1 KB 304). The term ‘Limited’ signifies that members’ liability is confined to their shareholding contributions.
Let’s understand what each of these liabilities means.- Limited by Shares: The liability of each shareholder is limited to the unpaid amount of their individual subscribed capital, which is worth the amount of shares bought by them from the company.
- Limited by Guarantee: The liability is limited by guarantee of the promoters. Each promoter guarantees an amount they will pay in the event of the company being wound while he is a member, or a year after he ceases to be a member. This amount will be used to pay off the debts and liabilities of the company that were accumulated while the promoter was a member, in addition to the charges and expenses of winding up.
- Unlimited: Unlimited Liability indicates that the shareholder’s liability is unrestricted by any fixed amount. Additionally, their personal assets are at risk of loss during unprecedented circumstances like winding up or debt recovery.
4. Capital / Subscription Clause
This clause specifies the maximum capital a company can raise, known as authorized or nominal capital. It also details the division of capital into shares of fixed value and the types of shares the company is authorized to issue (e.g., equity shares, preference shares, or debentures).
5. Declaration Clause
6. Nominee Clause
Memorandum of Association Clauses Changes
- Adherence to MOA & AOA: Any alteration in the clauses of MoA must confirm to the provisions outlined in both the Companies Act and AOA. The AOA specifies the internal rules and regulations governing the company, including the specific procedures for changing the MOA clauses.
- Special Resolution & Shareholder’s Approval: Changes in the Memorandum of Association clauses necessitate the passing of a special resolution by shareholders during a general meeting. This resolution, approved by a two-thirds majority, lays the foundation for proposed alterations.
- Approval by Other Regulatory Authorities: Certain substantial changes may require additional approval by other relevant regulatory authorities like the NCLT, Regional Directors, State Governments, and Central Governments. The process of approval mentioned in the AOA must be followed diligently.
- Notice to Registrar: Following the approval of alterations of MOA clauses by shareholders and applicable regulatory authorities, the company must promptly file the revised MOA with the Registrar of Companies (ROC), ensuring the updation of public records.
FAQs
How does the MOA enhance a company’s credibility?
The MOA is a publicly accessible document that can be viewed and inspected by anyone. This transparency enhances a company’s credibility as investors and creditors can easily verify and validate the company’s operational details, strengthening trust and reliability.
Why is the MOA considered a reliable source of information for the company’s stakeholders?
The MOA, kept at the company’s registered office, serves as a key reference point for executives and employees. It provides easy access to information, fostering a clear understanding of the company’s mission. External stakeholders, including investors and regulatory authorities, benefit from transparent insights into the company’s structure and objectives.