The Memorandum of Association (MOA) is a legal document that specifies the scope of business activities of the Company and defines the Company’s relationship with its shareholders. It is one of the most important documents of a Company as it states the objectives of the Company and contains the powers within which it can act. It is the foundation of the Company upon which the upcoming future structure of the Company will be determined.
As per section 2(56) of the Companies Act, 2013,
“Memorandum” means the memorandum of association of a Company as originally framed or as altered from time to time in pursuance of any previous Company law or of this Act.
Here, originally framed means framed at the time of incorporation and altered from time to time means as and when amended.
Why is Memorandum of Association required?
Memorandum of association is a public document which defines the scope of company’s operations. Every investor before investing in the Company is assumed to read and understand the inherent powers of Company. It also informs the investors of the purposes for which their money raised by the company will be utilised by the Company. It enables outsiders to know whether the Company is authorised to enter into a particular transaction.
It is important to limit company’s areas of work, as in the basic mechanism of company form of business, the ownership and management lies with different people. Therefore, to safeguard the stake of owners and make sure that the funds are being utilized for the purpose they are raised, concept of MOA came into picture.
It determines the areas of a Company’s activities. Any activity done outside the scope of the memorandum will be ultra vires and void. Hence, to protect the interest of stakeholders and provide awareness about the aims & objectives of the Company, MOA is required.
What are the various clauses of Memorandum of Association?
MOA is divided into 6 clauses namely –
- Name Clause
The name of a Company should
- Should contain last word as Limited (in case of public limited) or Private limited (In case of private limited) Company.
- Be unique and activity word that reflects its objectives
- Be in line with Company Name Guidelines issued by Ministry of Corporate Affairs. (Rule 8 of the Companies (Incorporation) Rules, 2014)
- Situation Clause
This clause comprises of the details of the registered office of the Company. It has the name of the state or Union Territory of the office location which may or may not contain the exact address of the office. It includes the name of the state and UT of the registered office.
Every company is required to specify a registered office of the Company, within 15 days from the incorporation and also file a verification of the office address within 30 days from the Incorporation of the Company.
- Object Clause
This clause defines the purpose for Company’s formation. Hence drafting of this clause is very crucial and should be done with precision and expertise. The Company cannot carry on any activity which is not a part of its object clause. Such activities are called Ultra Virus (beyond powers) and cannot be ratified even by members.
Doctrine of Ultra Vires
If the Company operates beyond the scope of the powers stated in the object clause, then such act will be considered ultra vires and thus void.
Effects of ultra vires Transactions –
- Void ab initio: The ultra vires acts are null and void. These acts are not binding on the Company. Neither the Company can sue, nor it can be sued for such acts.
- Estoppel or ratification cannot convert an ultra-vires act into an intra-vires act.
- Injunction: When there is a possibility that Company has undertaken or is about to undertake an ultra-vires act, the members can restrain it from doing so by getting an injunction from the court.
- Personal liability of Directors: The directors have a responsibility to ensure that all corporate capital of the Company is used for a legitimate purpose only. If such funds are diverted for a purpose which is not authorized by the memorandum of the Company, it will attract personal liabilities for the directors.
- Liability Clause
The liability clause of MOA defines the liability of members of the Company i.e. the owners or shareholders of the Company. Companies Act, 2013 identifies two types of company classified on the basis of liability of its members –
- Company limited by shares – liability of its members is limited to the amount unpaid on the shares subscribed by the member, if any; and
- Company limited by guarantee – liability of the members is limited to the amount up to which each member undertakes to contribute.
A Company limited by guarantee can be further classified into with share capital and without share capital. The members undertake to contribute to the assets of the Company at the time of winding up. The members give guarantee of a fixed amount that they will be liable for.
- Capital Clause
This clause defines the Company’s authorized capital with which the Company is registered. It also has details of the number of shares of each kind and the face value of each share.
- Subscription Clause
The Subscription Clause states who is signing the memorandum. Each subscriber must state the number of shares he is subscribing to. The subscribers have to sign the memorandum in the presence of two witnesses. Each subscriber must subscribe to at least one share each.
Who can be the subscribers of Memorandum of Association?
Subscribers are the first shareholders of the Company. They are the promoters of the Company who has come together to form a Company. The name of each subscriber along with their particulars are mentioned in the memorandum.
Companies Act, 2013 requires certain minimum number of subscribers for each company depending upon the nature of the Company –
- Private Company: The minimum number of subscribers required are 2.
- Public Company: The minimum number of subscribers required are 7.
- One-Person-Company: One person is required to form a Company.
Signatories to MOA
- The MOA of the Company shall be signed by each subscriber to the memorandum, in the presence of two witnesses.
- Where the subscriber to the memorandum is a body corporate, the MOA shall be signed by director, officer or employee of the body corporate duly authorized in this behalf by a resolution.
Provided that in either case, the person so authorized shall not, at the same time, be a subscriber to the memorandum and articles of Association.
- Where subscriber to the memorandum is a foreign national residing outside India certain additional requirements also needs to be complied.
What are the different forms of MOA?
The MOA should be in any one of the Forms specified in Tables A, B, C, D or E of Schedule I to the Companies Act, 2013 as may be applicable to the type of Company proposed to be incorporated or in a Form as near thereto as the circumstances admits.
- The Form in Table A is applicable in the case of companies limited by shares;
- the Form in Table B is applicable to companies limited by guarantee not having a share capital;
- the Form in Table C is applicable to the companies limited by guarantee having a share capital;
- the Form in Table D is applicable to unlimited companies not having a share capital;
- the Form in Table E is applicable to unlimited companies having a share capital.
A Company have to adopt any of the model Forms of the MOA mentioned above, as may be applicable to it.
Where will you find MOA of any company?
MOA is a public document and is kept at the registered office of the Company. Further, you can get memorandum and articles of association of any Company from Ministry of Corporate Affairs website upon payment of Fees of Rs. 100.
Memorandum of association of the Company defines the scope of its activities that are required for the Incorporation of the Company which helps in running the Company efficiently and effectively. Properly defined functions and rules increases the efficiency and transparency. Hence, they are indispensable for any private or public limited Company.
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