What is Memorandum of Association?
Memorandum of Association is the most important document of a company. It states the objects for which the company is formed. It contains the rights, privileges and powers of the company. Hence it is called a charter of the company. It is treated as the constitution of the company. It determines the relationship between the company and the outsiders. The whole business of the company is built up according to Memorandum of Association. A company cannot undertake any business or activity not stated in the Memorandum. It can exercise only those powers which are clearly stated in the Memorandum.
Memorandum of Association is a document clearly displays the company’s relationship with the outside world. It enables the creditor and shareholders to know the range of activities that the company is permitted to be involved in and authorises them to learn about the company’s objectives. It is the legal document that has to be filed with the registrar of companies at the time of incorporation of the company. It is mandatory for every company that wants to get registered as a private/public limited to prepare the memorandum of association. You need to file the memorandum of association with the registrar of the companies in order to get it incorporated. For this, it should be signed by at least 7 persons in the case of a public company and 2 persons in the case of a private company.
Once the document is prepared the company cannot perform anything beyond the limit as mentioned in the memorandum of association.
A memorandum (memo) is used to communicate something of immediate importance to people within a business or organization. A memo also can be sent to people or firms that have close or long-standing relationships, such as vendors or consultants. Like a business letter, a memo is a permanent record of your communication. Every company must have a memorandum in place, they will all be in the same format and contain the same information. This includes:
- Company name
- Date of incorporation
- Type of company
- Act under which the company is registered
- Names and signatures of all subscribers (original shareholders or guarantors)
- Limited liability of shareholders or guarantors
Any person who adds their name to the memorandum during incorporation will become a member of the company, and will continue to be members until they decide to leave. Details of members will be made public on the Companies House website under the company details. It is mandatory for every company to print its Memorandum of Association and have it signed by each of its members.
The key features of a successful memo are as follows:
- A memo should always start by representing the reason for the communication among companies.
- Focus one key topic or subject at a time.
- Explain total subject in short, simple, direct sentences.
- Use language that is clear and unambiguous with a polite tone.
What is the purpose of Memorandum Of Association-:
• It allows the prospective shareholders to get a basic idea about the company and understand the risks involved with their investments. It helps in understanding the law of the company
• The outsiders dealing with the company can obtain the objects of the company and understand whether the contract between them fall within the object of the company. It determines whether the deal between the companies are profitable or not.
Contents of Memorandum of Association
According to the section 13 of Companies Act 2013 The memorandum of every company should include-:
- Name of the company
- State where the company is registered
- Objects of the company
- Limited Liability
- Amount of share capital of the company is registered with the division of them in to fixed amount.
Under Section 4 of the Companies Act 2013, a Memorandum of Association should comprise of the following clauses as discussed below:
Name Clause: The Name of the Company
The first clause of Memorandum of Association requires a company to state its name. It is mandatory to mention the name of the company while drafting the Memorandum of Association. A company may select any name that it prefers but it should not be identical to an existing company. The chosen name of the company as it appears in the Memorandum of Association should be exactly the same as the one approved by the Registrar of Companies. A Public Limited Company should end with the word “Limited” and likewise, a Private Limited Company should end with the words “Private Limited”. A company is restricted from using any name which may connect it to the government of the state, without obtaining prior permission from the government.
Situation Clause: The Registered Office of the Company
This clause of Memorandum states the name of the State where the registered office of the company is to situate. This is required in order to fix the domicile of the company, that is, the place of its registration. The Memorandum of Association of a company must contain the name of the state where the company operates and the jurisdiction of the Registrar of Company must be specified. It is mandatory for the company to have the registered office within 15 working days. Likewise, the verification of the registered office must be completed in 30 days.
Object Clause: The Objects of the Company
The objective for which the company is formed must be mentioned in the Memorandum of Association. It is one of the key clauses because it not only determine the object of the company but also help in determining the extent of power of the company to achieve the object or objects . It should be drafted carefully mentioning all the types of businesses that the company may possibly engage in the future. The objects are classified as ‘Main Objects’, ‘Ancillary Objects’ and ‘Other Objects. The objects must not also be illegal or against the prohibition of the Act or the public policy of the country.
Liability Clause: The Liability of Shareholders
This clause of Memorandum of Association has to state the nature of liability that the members incur. The liabilities of the members of the company must be clearly stated in the Memorandum of Association. They may be limited by shares or by guarantee. In case of unlimited liability company, the entire clause can be eliminated. When it is limited by guarantee the members of the company are liable to pay the amount stated in the memorandum at the time of liquidation of the company.
Every limited company having a share capital must state the amount of its share capital with which the company is proposed to be registered . This capital is described as “registered”, “authorised” or “nominal” capital and the stamp duty is payable on this amount. The maximum amount of authorised capital that can be generated by the members of the company is ought to be specified in the Memorandum of Association. Stamp duty is applicable on this amount The denomination for each such share has to be either RS 10 or RS 100 in case of equity and preference shares respectively. A company should make sure that the raised authorised capital is sufficiently high for further expansion of business in the future.
Association or Subscription Clause:
Under this clause we have the “declaration of association”, which is made by the signatories of the Memorandum of Association .The amount of authorised capital and the number of shares owned by each member of the company should be mentioned in the Memorandum of Association of the company. Each subscriber must write the number of shares owned by him and sign the memorandum in the presence of at least one witness who is required to attest the signature.
Form of Memorandum
The Memorandum of Association of a company should be divided into paragraphs, numbered consecutively and printed. The memorandum of a company should be formulated in accordance with the respective forms as mentioned in the tables A, B, C, D & E under Schedule 1 of the Companies Act, 2013.
- Table A is applicable to companies that are limited by shares.
- Table B is applicable to companies that are limited by guarantee and do not have an authorised share capital.
- Table C is applicable to companies limited by guarantee and have an authorised share capital.
- Table D is applicable to unlimited companies that do not have an authorised share capital.
- Table E is applicable to unlimited companies that have an authorised share capital.
At least seven persons in the case of a public company and at least two in the case of a private company must subscribe to the memorandum.
Alteration of Memorandum of Association of a Company
Companies Act 1862 permitted a company to change its name and its authorized share capital, but forbade any other alteration. Subsequent acts have extended the range of alteration that may be made . A company who is desiring to change its name may do it according to the provision of Section 13 read with Section 4 of the Act by passing Special Resolution and the name approved by the Ministry of Corporate Affairs (MCA) on prescribed application. The registration of the company involves one or more person who signs and delivers the memorandum of association stating the intention of the subscribers to the Registrar of companies(ROC) . The power of the Central Government under Section 13(2) to approve change in name has been delegated to Registrar of Companies (ROC).
The expression “alter” means to modify/change or vary; to make or become different in some respect.
As per Section 2(3) of the Companies Act, 2013 (the Act) “alter” and “alteration” shall include the making of additions, omissions and substitutions.
The cases where a company has to /can alter its Memorandum of association(MOA) as per provisions of Section 13 of the Act read with Companies (Incorporation) Rules, 2014 are as follows-:
- Change of Name of the company
- Alteration of Authorized Capital of the company
- Change in Objects of the company
- Shift of Registered Office
Lets describe It in brief-:
Change in name of the company
A company desiring to change its name may do so in accordance with the provisions of Section 13 read with Section 4 of the Act by passing Special Resolution and the name approved by the Ministry of Corporate Affairs (MCA) on prescribed application. The power of the Central Government under Section 13(2) to approve change in name has been delegated to Registrar of Companies (ROC).
Alteration of Authorized capital of the company
A Company may alter its Authorized Capital i.e. Capital Clause by virtue of Section 13 read with Section 61 by passing an Ordinary Resolution. The capital Clause will be alter according to the prescribed process as per rules and payment of relevant stamp duty as may be applicable and levied by concerned state in which the registered office of the Company is situated.
Change in Objects of the Company
A company may alter Its object by passing special resolutions. Alteration of the object of company can done for special reasons like for carrying out the business more efficiently and economically, for improving the local area of its operations and for the purpose of aboding any of objects mentioned in the Memorandum of Association. However, Section 13 (8) restricts the change in object of a company which has raised money from public through prospectus. A special resolution is passed by the company and the details of such resolution shall be published in one vernacular language and one English language newspaper in circulation at the place of registered office of the company as well as on the website of the company indicating the justification for such change in the object.
Shift In Registered office
Every company within 30 days of its incorporation or any change in the address of its registered office shall furnish a verification of its registered office in INC-22 prescribed under Companies (Incorporation) Rules, 2014.
A company may change the place of its registered office for the smooth running of its business and the realization of its objects. Such change in the situation can be: (a) from one place to another in the same city or town (b) from one town to another in the same state and (c) from one state to another. For shifting from one place to another in the same city or town the board of directors must pass a resolution and send the name and address of the registered office to ROC with in 30 days after the change of address.
For shifting from one town to another in the same state the it must pass a special resolution at its general meeting with in 30 days of the change of address. Shifting from one state to another: This kind of shifting is a much more complicated affair, as it involves alteration of the memorandum itself. Shifting from one state to another: This kind of shifting is a much more complicated affair, as it involves alteration of the memorandum itself. The alteration of the memorandum for this purpose is subject to the provisions of Section 17 which requires, in the first place, a special resolution of the company and in the second, confirmation by the Company Law Board can confirm the alteration only if the shifting of the registered office from one state to another is necessary for any of the purpose detailed in section 17.
Case Law-: The Supreme Court in Mackinnon v. Mackenzie & Co refused to sustain the contention of the state and allowed the transfer of the company to another state. The court said there is no statutory right of the state as a state to intervene in an application made under section 17 for alteration of the place of the registered office of a company.
Landmark cases on Memorandum of Association
In the case of K. Leela Kumar v. Government of India , 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.
In NEPC India Ltd. v. Registrar of Companies ,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.
In Sivashanmugam v. Butterfly Marketing (P.) Ltd. , 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.
In Ashbury Railway carriage and iron co.ltd v. Riche. Lord Cairn 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.
In Ewing buttercup Margarine co. Ltd. The company Buttercup Diary Co. Successfully obtain an injunction against Buttercup Margarine on the ground that Buttercup being a fancy word people might construe that the company may be connected.
Memorandum of Association is an important document which is necessary for every organizations. This document should be printed and divided in to paragraphs and serially numbered. regulations framed cannot go beyond the powers of the company mentioned in Memorandum of Association. It has to be maintained by the company because it advises the company in various aspects. It also helps in managing administration of the company. It forms a necessary part in the incorporation of the company. If any alteration is done then the company has to follow a legal procedure which is mentioned under the Companies Act 2013.
Author Details: Swarnali Chandra (Student, Techno India University)