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).
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.
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 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 (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 Articles of Association (AoA) 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 determine the capital they can invest in the company.
- Provide all company information to stakeholders willing to associate with it.
What are Main Clauses of the Memorandum of Association?
The following are the 5 clauses of Memorandum of Association:
- Name Clause
- Registered Office Clause
- Object Clause
- Liability Clause
- Capital Clause
Contents of Memorandum of Association
The memorandum of association clauses/contents are as follows:
1. Name Clause:
This clause specifies the name of the company. The name of the company should not be identical to any existing company. Also, 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. For example, ABC Private Limited in the case of the private, and ABC Ltd for a public company. The name should be in compliance with the provisions laid down in the Companies Act and Rules.
2. Registered Office Clause:
This clause specifies the name of the State in which the registered office of the company is situated. It helps to determine the jurisdiction of the Registrar of Companies. The company must inform the registered office location and address to the Registrar of Companies within 30 days from the date of incorporation or commencement of the company. The registered office is the official office of the company. All communications, legal notices and documents will be sent to the registered office address.
3. Object Clause:
This clause states the objective with which the company is formed. The company must carry out its business activities to fulfill the objectives mentioned in this clause. It helps to protect the interests of the stakeholders since the company must operate within the scope of its object clause and should not engage in any activities not specified in this clause. The objectives can be further divided into the following 3 subcategories:
- Main Objective: It states the main business of the company
- Incidental Objective: These are the objects ancillary to the attainment of main objects of the company
- Other objectives: Any other objects which the company may pursue and are not covered in above (a) and (b)
4. Liability Clause:
It states the nature of liability of the members of the company in case of any loss or debts incurred by it. In the case of an unlimited company, the liability of the members is unlimited. Whereas, in the case of a company limited by shares, the liability of the members is restricted by the amount unpaid on their share. 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. It should also specify the type of shares the company is authorised to issue, i.e. equity shares, preference shares, or debentures.
Alteration of MoA
If there are any changes in the clauses of the MoA, the MoA must be altered or amended to include the changes. The following changes will lead to the alteration of the MoA:
- Change in the company name
- Change in location of the registered office
- Change in company objects
- Change in the nature of liability of company members
- Change in the maximum limit of authorised capital of the company or division of authorised capital
The process of alteration of the MoA is as follows:
- Hold board meeting: The company must hold a board meeting to approve the alterations to the MOA.
- Hold a general meeting: A general meeting should be conducted to obtain the approval of the shareholders for the alterations to the MOA.
- Filing of a special resolution: A special resolution to alter the MoA should be filed with the ROC within 30 days of the passing of the resolution.
- Approval of ROC: The ROC will scrutinise the special resolution and approve the MoA alteration.
You can also have a look at the Articles of Association