This article has been written by Ritika Goel, a 2nd year LLB student from Faculty of Law- Delhi University.

INTRODUCTION

WHAT IS MEMORANDUM OF ASSOCIATION?

A Memorandum of Association 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 shareholder 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 persons dealing with the company to know the basic rights and power of the company before entering into a contract with it. Also, the contents of the MoA help prospective shareholders make the right decision while considering investing in the company. MoA must be signed by at least 2 members in the case of the private limited company and 7 members in the case of public limited company.

FORMAT OF MEMORANDUM OF ASSOCIATION

Section 4(6) of the Company Act, 2013 states that the format of the 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 the act are as follow-

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 but does not have 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 members of the company must sign the MoA.

OBJECTIVES IN REGISTERING MoA

The Memorandum of Association is a necessary document that includes the 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 Public Company.
• Two or more members in the case of Private Company.
• Only one member in the case of One Person Company (OPC).

A company can be registered only when the MoA is drafted and it is signed/subscribed by the minimum numbers as provided above. Thus, the MoA of all companies is required for company registration. Section 7(1)(a) of the act further provides that a company’s Memorandum of Association and Article of Association must be duly signed by the subscribers for the company to be registered with the ROC. The MoA copy should be given to the ROC while applying for company registration. The ROC can provide the certified copy of the MoA to the public upon payment of the prescribed fees. It helps shareholders in the following ways:

• Allowing shareholders to know about the company before buying its shares and determines the capital they can invest in the company.
• Provide all company information to stakeholders willing to associate with it.

CLAUSES OF MEMORANDUM OF ASSOCIATION

The following are the clauses in Memorandum of Association:

1. Name Clause
2. Registered Office Clause
3. Object Clause
4. Liability Clause
5. Capital Clause

CONTENTS OF MEMORANDUM OF ASSOCIATION

1. Name Clause

This clause states the company’s proposed name.

• It must end in the word “limited” if it’s a public company or “private limited” if it’s a private company.
• It can’t be identical to any existing company’s name.
• It can’t allude to the new company doing the business of an existing company.
• It should not be misleading in any way.

1. Registered Office Clause

The registered office clause lists the name of the state where the company’s registered office is physically located.

• The registered office’s physical location determines which jurisdiction the Registrar of Companies and which court the company would fall under.
• It also confirms the company’s nationality.
• The registered office’s full address must be provided to the Registrar of Companies to simplify further communications.

1. Objects or Objective Clause

The objects clause, also called the objective clause, is considered the most important in the MOA.

• It defines and limits the scope of the company’s operations.
• It details the company’s scope of activity for the members and explains how the members’ capital will be used.
• It protects shareholders’ funds and ensures the funds will be used for the specific business purposes for which they were raised and that they won’t be risked in other endeavours.

1. Object Clause

The object clause explained why the company is establishing. Companies aren’t legally allowed to do any kind of business other than the kind of business that is specifically stated in this clause. An object clause should contain:

• A list of the main objects the company will be pursuing after it’s Incorporated
• Incidental objects that are necessary to achieve the main object
• Any other objects that aren’t included in the main objects or incidental object
• Nothing illegal
• Nothing that’s against the public interest
• Nothing that’s against the country’s general rule of law

1. Liability Clause

The liability clause explains what liability each of the company’s members faces. If the company is limited by shares, the liability that each member faces can be no more than the face value of shares that he or she holds. If it’s a company that’s limited by guarantee, this clause must define how much liability each individual company member holds. If it’s an unlimited company, this particular clause would not be included in the MOA.

1. Capital Clause

The capital clause lists information about the total capital held by the proposed company. This amount is called the company’s authorized capital. Companies aren’t permitted to collect more money than the amount listed under authorized capital. The way the capital is divided into equity share capital and preference share capital also needs to be listed in the capital clause. The number of shares the company puts in equity share capital and preference share capital, alongside their value, needs to be included in the MOA.

1. Association Clause

The association clause explains that any individual signing the bottom of the MOA wants to be part of the association that’s being formed by the memorandum. The MOA has to be signed by at least seven people or more if it’s a public company. It has to be signed by at least two or more people if it’s a private company. The signatures also have to be affirmed by witnesses. There can be one witness for all of the signatures, but none of the subscribers can witness the signatures of the others. All subscribers and witnesses must provide their addresses and occupations in writing.

CONCLUSION-

While concluding the article it can be clearly seen that the Memorandum of Association is a fundamental document for the formation of a company. It is a charter of the company. Without memorandum, a company cannot be incorporated. The memorandum together with Articles of Association form the constitution of the company.

REFERENCE

• K. Leela Kumar v. Government of India- In this case, the Court held that Memorandum of Association cannot contain anything contrary to Companies Act, 1956 however articles of association in many cases deals with personal matters and may not be challenged on the above ground. 
• NEPC India Ltd. v. Registrar of Companies- In this case, the Court held that a complaint alleging that a company was indulging in activities not mentioned in the objects clause of the Memorandum of Association had to be filed within six months of the date of knowledge.
• Sivashanmugam v. Butterfly Marketing (P.) Ltd.– In this case, the Court held that where the objects clause provided that the company may enter into any partnership for any purpose which may benefit the company, it was held that this enabled the company enter into partnership for manufacturing garments.
•  Ashbury Railway carriage and iron co. ltd v. Riche. Lord Cairn- In this case, court defined the memorandum of association as the charter of the company which provides the limitations of the company. Lord cairn stated that it contains both negative and positive limitations. Like it positively stated the limitations of the powers also negatively stated the consequences of crossing the limitations of the powers.

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