Meaning of the Memorandum of Association (MoA)
The Memorandum of Association sets down the constitution of a company containing certain fundamental matters. The Companies Act, 2013, in Section 2(56), defines “Memorandum” to mean a company’s memorandum of association, including its original form and any later alterations. It is a basic document for the very existence of the company.
The Memorandum of Association is a public document. Any person can get the MOA of the Company by paying the prescribed fees to the Registrar of Company. Thus, it enables shareholders, creditors, and anyone dealing with the company to understand its fundamental rights and powers before contracting with it.
Purpose of Memorandum
The Memorandum of a company serves two main purpose.
“Firstly, prospective shareholders can understand the company’s field of operation and purpose, allowing them to assess the risks associated with their investment.”
Secondly, outsiders can ascertain a company’s objects and ensure their intended contract aligns with those objects.
Forms of Memorandum
Section 4(6) of the Companies Act, 2013 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.
Objectives in Registering MOA
The Memorandum of Association (MoA) contains a company’s crucial information. Section 3 of the Act, states that the company can be formed when the following members subscribe to the Memorandum:
- Seven or more members in the case of a public company.
- Two or more members in the case of a private company.
- Only one member in the case of a One Person Company.
The following are 5 clauses of Memorandum of Association (MoA):
(1) NAME CLAUSE
A company being a legal person, must have a name of its own. As pointed by Johnson, J. in Osborn v. Bank of U.S., “the name of an incorporated is the symbol of its personal existence”. A company must not adopt a name identical or too similar to a previously registered company’s name. If it is a private company, then it should have the word ‘Private Limited’ at the end. In the case of a public company, then it should add the word “Limited” at the end of its name.
Explaining the reasons for not allowing an identical name to a new-comer company is mentioned in Lord Lawrence, J. in Society of Motor Manufacturer & Traders Ltd. v. Motor Manufacturers & Traders Mutual Insurance Co. Ltd. observed, ” no other company can be registered under a name identical with it or so nearly resembling it as to be calculated to deceive; since the name of a company is a part of its business reputation and that would definitely be injured if a new company could adopt an allied name”.
(2) REGISTERED OFFICE CLAUSE
The Companies Act of 2013, in Section 12(1), sets a clear mandate. Companies must establish a registered office. This office must be in place no later than 30 days after the company incorporates. If the company starts doing business before that 30-day mark, the office must be established by the time business commences. The registered office is crucial. It ensures that the company receives all official communications and important notices. It helps to determine the jurisdiction of the Registrar of Companies.
Companies sometimes need to move their registered office to a different state. If this happens, they must change their Memorandum of Association. Section 13 of the Companies Act, 2013 outlines the specific requirements for this change. The company must first pass a special resolution. Then, they must obtain approval from the Central Government. These steps ensure the move complies with legal standards. In Orient Paper Mills Ltd. v. State, the company proposed to shift its registered office from the State of Orrisa to West Bengal by a special resolution and sent it for Court’s approval.
(3) OBJECTS CLAUSE
The most important clause of the memorandum of association is the objects clause because it sets out the purpose for which the company is formed and the kind of activities or business it intends to carry on. The object clause of a company serves three distinct purposes:
Firstly, it enable the subscribers to know the use to which their investment money is put and thus extends protection to shareholders.
Secondly, it also protects creditors to some extent. The company cannot use its capital for activities outside the scope of the objects clause.
Thirdly, the objects clause ensures public interest by restricting the company to the activities it specifies.
(4) LIMITED LIABILITY CLAUSE
In case of a company whose liability of members is limited by shares or guarantee, the memorandum must contain a clause stating that ‘the liability of the members is limited‘. Even a company which is exempted from using the word ‘Limited’ as a part of its name under Section 8 of Companies Act, 2013 is also required to state in its memorandum that the liability of members is limited. For a company limited by guarantee, the liability of the members is restricted by the amount each member has agreed to contribute.
(5) CAPITAL CLAUSE
This clause details the maximum capital a company can raise, also called the authorized/nominal capital of the company. It provides the maximum amount of capital that can be issued to the company shareholders. It also explains the division of such capital amount into the number of shares of a fixed amount each. The capital of the company may be divided into two different categories namely, (a) equity share capital, which may be (i) with voting rights; or (ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed, and (b) preference share capital.
Binding Effect of Memorandum on Members (Section 10)
Section 10 of the companies Act, 2013 provides that the Memorandum, when registered bind the company and its members to the same extent as if they have been signed by the Company and by each member to abide by all the provisions contained therein. This is applicable to every member irrespective of the fact whether he became a member through allotment, transfer or transmission of shares.
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