A company is created when a group of people come together to accomplish a common goal. Typically, this objective has a commercial focus, and companies are often established to benefit from their commercial operations. The Registrar of Companies must receive an application before a company may be incorporated (ROC). A number of papers must be presented with this application; one among them is the Memorandum of Association, one of the key documents that must be included with the application for incorporation.
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Definition of Memorandum of Association
The phrase “Memorandum of Association as originally framed” relates to the memorandum as it was when the Company was incorporated. All modifications made to the memorandum throughout time will be included in the memorandum of association.
The provision further specifies that any amendments should be done per the current Act or any earlier company legislation. Additionally, anybody may view any document submitted to the Registrar per the Act’s requirements under Section 399 of the 2013 Companies Act. As a result, anybody who wants to do business with the Company may learn more about it by reading the Memorandum of Association.
A Memorandum of Association (MoA) represents the Company’s constitution. It is a legal document created during a company’s creation and registration procedure that outlines the Company’s relationship with shareholders and the goals for which it was established.
Format of Memorandum of Association
A memorandum must take the Form specified in Tables A, B, C, D, and E of Schedule 1 following Section 4(5) of the Companies Act. Because different sorts of firms exist, there are many types of tables.
- TABLE A: It covers the company limited by shares.
- TABLE B: It covers a company limited by guarantee without a share capital.
- TABLE C: It covers company limited by guarantee and has a share capital.
- TABLE D: It applies to an unlimited company without a share capital.
- TABLE E: It applies to any unlimited company with a share capital.
Importance of Memorandum of Association
Determines the operational area
It is a list of potential initiatives that a company may take on. Any additional operation outside those on this list will be invalid.
Determines how the company interacts with external parties
This document’s main objective is to provide essential information to shareholders, creditors, and other stakeholders. It displays the breadth and strength of entrepreneurship.
Fixed charter of the Company
For the Company, the memorandum of association serves as a set charter (per section 16 of the Companies Act).
To incorporate it, you must submit a memorandum of association to the Registrar of corporations. For this, it must be signed by a minimum of 2 signatories for a private firm and 7 for a public corporation.
Use of Memorandum of Association
The Memorandum of Association (MoA) aids in defining the breadth and depth of the commercial activities that a certain company may engage in.
The business may engage in commercial activities in the Memorandum of Association (MoA). You will need to adjust the memorandum if you decide to take your business operations into more market segments.
MoA outlines the connection between the corporation and its shareholders.
The MoA enables shareholders, creditors, and anyone interacting with the Company to understand its fundamental rights and powers.
Additionally, the information in the Memorandum of Association aids potential shareholders in making the best choice when considering an investment in the business. A public limited corporation requires the signatures of at least 7 members and at least 2 subscribers for a Memorandum of Association.
Memorandum of Association Clauses
- Name Clause
- Domicile Clause
- Objective Clause
- Liability Clause
- Capital Clause
- Subscription Clause
The name of the Company serves as its primary distinguishing identity. Consequently, the name clause in the memorandum includes the Company’s actual, authorised, and genuine name. Company names should differ from companies with the same name already registered since these businesses commonly file trademarks to protect their company names.
Companies covered by Section 8 of the Act may not be required to abide by these regulations. These businesses can get recognised by words like
- Election Faith
Domicile Clause/ Registered Office Clause
The Company Registered Office is discussed in Section 12 of the Companies Act 2013.
The domicile clause contains all relevant information about the Company’s registered office. The specific address of the office may or may not be included, along with the name of the State or Union Territory that houses the registered office. The terms of the registered registrars are also included.
Each office where the Company conducts business must have its name and registered office address permanently displayed outside. The phrase “One-person Company” should be inserted in brackets beneath the attached name of the Company if it is a one-person operation.
The Objects Clause serves as the memo’s major content and offers a list of all the Company’s business. The object clause must include information on the purposes and activities that the Company engages in. Additionally, any operation not covered by the object clause is seen as being outside the organisation’s purview.
As outlined below, there are two categories for a company’s goals:
- The anticipated purposes of the Company for which incorporation is being sought
- As well as any matters deemed essential to those purposes
The Company’s statement of objects in its Memorandum of Agreement (MoA) does more than list the Company’s goals; it also provides the following advantages to those connected to the Company. Because they fully know where their hard-earned money is being invested, it protects the subscribers.
Protects those who do business with the concerned Company since they know the scope of the Company’s authority.
The Company’s board of directors is limited to spending company money exclusively for the purposes listed in the Memorandum.
The liability of each Company member is mentioned in the Liability Clause. Simply put, it says that each organisation’s employee is only liable to a certain extent. The clause also details the agreed-upon contribution amounts for each member individually in case of a firm closure or winding up.
Two categories of limited liability exist:
- Limited By Shares – The Companies Act of 2013 (section 2(22)) defines a company limited by shares. The sole cost incurred by shareholders in a corporation limited by shares is the cost of the shares they have subscribed for. Their obligation will only extend to the unpaid balance if, for any cause, they do not pay the full price for the shares and the firm fails.
- Section 2(21) of the 2013 Companies Act defines limited by guarantee. Instead of stockholders, a business limited by guarantee has members. These members agree to contribute to the Company’s assets upon dissolution. The members promise that they will be responsible for a specific sum.
The share capital with which the firm is registered is mentioned in this section. The capital clause should also specify the quantity of each Form of share, the categories of shares, and their respective face values.
Depending on various criteria, private corporations and public companies not meant for stock exchange listing may assume any face value; nevertheless, public companies intended for stock exchange listing will have mandated share face values.
The subscription clause is the last and final clause in the Memorandum of Association. The subscription clause outlines the stockholders’ motivations for forming the Company and specifies that subscribers are committing to purchase shares in the Company. Additionally, it details how many shares each subscriber has purchased. Everything is done under the information described in the MoA Subscriber Sheet.
Amendment of Memorandum of Association
According to Section 2(3) of the Act, a “alter” or “alteration” is any additions, deletions, or substitutes. Only changes allowed by the Act may be made to the memorandum by the corporation. By adopting a special resolution, the firm can change the provisions of the memorandum per Section 13.
Modification of MOA
It is necessary to alter the MoA if any of the following changes occur:
- If there is a change to the Company’s name.
- Whether there are any alterations made at the registration office.
- If there is a change to the Company’s object clause.
- If there is a change in the Company’s authorised capital.
- If any modifications are made to the business members’ legal obligations.
The 13th clause of The Companies Act of 2013 specifies the steps to be taken for making any form of revisions to the memorandum of association.
Alteration of Memorandum of Association
Distinct parts of the memorandum have different processes for amendment:
Change in Name Clause: A specific resolution is needed to change the Company’s name. A copy of the resolution is delivered to the Registrar upon adoption.
The application for a name change must be submitted in Form INC- 24, together with the required costs. A new certificate of incorporation is issued following the name change.
Change to the Registered Office Clause: A Form INC-23 application and the required costs must be submitted to the Central Government to change the location of the Company’s registered office.
The clearance of the Central Government is necessary if the firm is switching its Registered Office. The Central Government must resolve the issue within 60 days and ensure that all parties involved in the Company agree with the new location.
Changes to the Object Clause: A specific resolution must be adopted to make changes to the object clause. The authority must approve the adjustments. The revised memorandum should be filed with the Registrar, and the paperwork that validates the changes by authority.
If the firm is a public company, the modification must be announced in the newspaper serving the Company’s registered office. The Company’s website must also note the revisions to the object clause.
Liability Provision Amendment: The memorandum’s liability clause cannot get changed without the unanimous written permission of all of the Company’s members.
The company directors’ responsibility can be increased by changing the liability clause. In any scenario, the stockholders’ responsibility cannot be deemed limitless. By passing a special resolution and providing a copy of the resolution to the Registrar of Companies, changes to the liability provision may be made.
As a result, the Memorandum of Association is a crucial document for creating a corporation. It is stated in the Company’s charter. An organisation cannot be incorporated without a memorandum, and the Memorandum and the Articles of Association comprise the Company’s Constitution. Only the activities listed in the MoA are permitted for the corporation to engage in. As a result, the MoA sets the limit that the Company’s actions are not allowed to cross. So, it’s essential to keep the cruciality of the MoA.
Are a company's Memorandum and Articles of Association (MoA) identical?
No, the articles of association (AoA) and the memorandum of association (MoA) are not interchangeable. While the AoA contains the Company's information rules and regulations, the MoA includes key information about the Company. The MoA has priority over the AoA.
Is a Memorandum of Association necessary to register a company?
Yes. Before applying for company registration, the firm's proprietors must draught the MoA.
Why is a Memorandum of Association necessary?
The MoA's primary goal is to restrict the Company's scope of operations and authority, and a company is only permitted to act per the MoA's grant of authority.
Is a startup needed to have a Memorandum of Association?
Yes. An MoA is necessary for any company, regardless of whether it is registered as a private, public, or one-person entity.
Is a Memorandum of Association required for an LLP (Limited Liability Partnership)?
No, the Limited Liability Partnership Act of 2008 governs the registration of the LLP. An LLP is needed to draught the LLP deed per the LLP Act, 2008. Therefore, LLPs are exempt from creating an MoA.