Memorandum of Association: All you need to know

The Memorandum of Association (MOA) is a vital document that establishes the legal framework for the operation of a company in India. It lays down the company’s objectives, powers, and limitations, and serves as a guide for its operations. The memorandum of association is an essential document that any entrepreneur or business owner must understand thoroughly to ensure compliance with the law and avoid legal challenges. 

This article explores the different clauses of the MOA and their significance, the legal requirements for its alteration, and landmark cases that have helped to shape its interpretation in India. Understanding the memorandum of association is crucial for any company that wants to establish a strong legal foundation and operate successfully in India.

What is a Memorandum of Association?

The Memorandum of Association is a legal document that serves as a charter for a company’s formation. It is a crucial document as it defines the company’s legal identity and purpose. According to the Companies Act 2013 in India, a memorandum of association is one of the documents that must be filed with the Registrar of Companies during the incorporation process. 

It sets out the fundamental and essential elements of a company, including its name, registered office address, objectives, authorized share capital, and liability of members. The MOA outlines the company’s scope of activities and serves as a guide to the company’s internal operations. 

The memorandum of association must comply with the requirements of the Companies Act and include the mandatory clauses specified by the Act. Therefore, it is essential for entrepreneurs and business owners to understand the significance of MOA and create it with utmost care and attention to detail.

Purpose of MoA

The main purpose of the Memorandum of Association is to define the legal identity and scope of activities of a company. It serves as a charter for the company’s formation and sets out the fundamental and essential elements of the company. 

The memorandum of association outlines the company’s name, registered office address, objectives, authorized share capital, and liability of members. It also specifies the objects for which the company is formed and operates. 

By defining these crucial elements, the MOA provides clarity and transparency to the company’s stakeholders, such as investors, shareholders, creditors, and regulators. It serves as a guide to the company’s internal operations and helps in ensuring that the company is managed in accordance with the legal framework.

Clauses in Memorandum of Association

A Memorandum of Association is a legal document that sets out the fundamental and essential elements of a company. According to the Companies Act 2013 in India, a memorandum of association contains six mandatory clauses that must be included during the incorporation of a company. These clauses are

Name Clause: This clause specifies the name of the company and should end with “Private Limited” or “Limited” for a company limited by shares, or “Unlimited” for a company not limited by shares.

Registered Office Clause: This clause sets out the registered office address of the company. It should be located in the same state where the company is incorporated.

Objective Clause: This clause outlines the company’s main objectives and activities. It specifies the objects for which the company is formed and operates.

Liability Clause: This clause sets out the liability of the company’s members in case the company goes into liquidation. The liability can be limited or unlimited, depending on the type of company.

Capital Clause: This clause specifies the authorized share capital of the company. It sets out the maximum amount of capital that the company can raise through the issue of shares.

Association Clause: This clause is a declaration by the subscribers of the MOA stating that they wish to form a company and agree to become its members. It must be signed by at least two persons in the case of a private company, and by at least seven persons in the case of a public company.

Name Clause in Memorandum of Association

According to the Companies Act 2013 in India, the name clause is a mandatory clause that must be included in the Memorandum of Association of a company. It specifies the name of the company and should end with “Private Limited” or “Limited” for a company limited by shares, or “Unlimited” for a company not limited by shares. 

The name of the company should be unique, and the Registrar of Companies must approve it before the company’s incorporation. The name clause should also comply with the rules and regulations laid down by the Ministry of Corporate Affairs. The name of the company should not be identical or similar to any existing company, and it should not be offensive or violate any copyright or trademark laws. 

The name clause is a crucial part of the memorandum of association as it defines the legal identity of the company and helps in identifying and differentiating it from other companies.

Registered Office Clause in Memorandum of Association

The Registered Office Clause is a mandatory clause that must be included in the Memorandum of Association of a company. It sets out the registered office address of the company, which is the official address of the company where all legal notices, communications, and documents will be sent. 

The registered office must be situated in the same state where the company is incorporated. The Registered Office Clause should include the full address, including the city, district, state, and PIN code. It is important to note that any change in the registered office address must be communicated to the Registrar of Companies within 30 days of the change. 

The Registered Office Clause is a crucial part of the MOA as it establishes the official address of the company and helps in determining the jurisdiction of the company for legal purposes.

Objective Clause in Memorandum of Association

The Objective Clause specifies the objects and purposes for which the company is formed and operated. The Objective Clause should clearly state the main objects, which are the primary objectives of the company, and other objects, which are incidental or ancillary to the main objects. The objects should be specific, definite, and not vague or ambiguous. 

The memorandum of association should also include the necessary incidental or ancillary objects that are required for achieving the main objects. Any changes to the objects of the company must be approved by the shareholders and communicated to the Registrar of Companies. The Objective Clause is a crucial part of the MOA as it defines the scope of activities of the company and helps in determining the legality and validity of the company’s operations. 

It also helps in protecting the interests of the stakeholders by ensuring that the company operates within the legal framework and does not engage in any activities that are not specified in the MOA.

Liability Clause in MOA

The Liability Clause is an essential clause that must be included in the Memorandum of Association of a company according to the Companies Act 2013 in India. It specifies the liability of the members of the company in case of any debts or losses incurred by the company. 

In a company limited by shares, the liability of the members is limited to the unpaid amount of the shares held by them. On the other hand, in a company limited by guarantee, the liability of the members is limited to the amount they agree to contribute to the assets of the company in case of its winding up. 

The memorandum of association should clearly state the nature of the company’s liability, whether it is limited or unlimited. It is important to note that any misrepresentation or false statement regarding the liability clause can result in severe legal consequences. 

The Liability Clause is a crucial part of the MOA as it defines the extent of the liability of the members and helps in protecting their personal assets in case of any debts or losses incurred by the company.

Capital Clause in Memorandum of Association

The Capital Clause is an important clause that must be included in the Memorandum of Association of a company according to the Companies Act 2013 in India. It specifies the authorized capital of the company, which is the maximum amount of capital that the company can issue to its shareholders. 

The Capital Clause should clearly state the amount of authorized capital, the number of shares, and the nominal or face value of each share. The memorandum of association should also specify the types of shares, such as equity shares, preference shares, or debentures, that the company is authorized to issue. 

Any changes to the authorized capital of the company must be approved by the shareholders and communicated to the Registrar of Companies. 

The Capital Clause is a crucial part of the MOA as it defines the maximum amount of capital that the company can raise and helps in determining the financial capacity of the company. It also helps in protecting the interests of the shareholders by ensuring that the company does not issue more shares than the authorized capital.

Association Clause in Memorandum of Association

The Association Clause is a fundamental clause that must be included in the Memorandum of Association of a company according to the Companies Act 2013 in India. It specifies the name of the company, the state in which the registered office is situated, and the objects for which the company is formed. 

The Association Clause should also include the names, addresses, occupations, and signatures of the subscribers, who are the persons who have agreed to form the company and become its members. The memorandum of association must be signed by at least seven subscribers in the case of a public company, two subscribers in the case of a private company with a share capital, and one subscriber in the case of a private company without a share capital. 

The Association Clause is a crucial part of the MOA as it establishes the legal existence of the company and defines its identity. It also helps in identifying the subscribers who have agreed to form the company and become its members.

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 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 authorised share capital.
• Table C is applicable to companies limited by guarantee and has authorised share capital.
• Table D is applicable to unlimited companies that do not have authorised share capital.
• Table E is applicable to unlimited companies that have 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

The Memorandum of Association is a vital document that defines the constitution, the scope of activities, and the powers of a company. However, the memorandum of association may require alterations in certain situations, such as changing the name of the company, increasing the authorized capital, or altering the objects clause to reflect the changing needs of the company.

The Companies Act 2013 in India provides a detailed procedure for the alteration of the MOA, which involves obtaining the approval of the shareholders and complying with the provisions of the Act. The procedure for the alteration of the memorandum of association includes the following steps:

Convening a Board Meeting: A board meeting should be convened to approve the proposed alterations to the MOA.

Convening a General Meeting: A general meeting should be convened to obtain the approval of the shareholders for the proposed alterations to the MOA.

Filing of Special Resolution: A special resolution should be filed with the Registrar of Companies (ROC) within 30 days of the passing of the resolution.

Approval of ROC: The ROC will scrutinize the special resolution and, if satisfied, will approve the alteration of the memorandum of association.

Issuance of Certificate of Incorporation: The ROC will issue a fresh Certificate of Incorporation reflecting the alterations made to the MOA.

It is important to note that any alteration to the memorandum of association must be made in compliance with the provisions of the Companies Act 2013 in India and any other applicable laws. Also, the alteration should not be inconsistent with the existing provisions of the MOA and should not adversely affect the rights of the shareholders or the public.

What can be altered in an MOA?

The Memorandum of Association is a fundamental document that sets out the constitution, objectives, and powers of a company. The memorandum of association may require alterations in certain situations, such as changing the name of the company, increasing the authorized capital, or altering the objects clause to reflect the changing needs of the company.

According to the Companies Act 2013 in India, the MOA can be altered by making changes to its various clauses, such as

Name Clause: The name of the company can be changed by altering the Name Clause of the MOA.

Object Clause: The Object Clause defines the objectives and powers of the company. It can be altered to reflect the changing needs of the company or to include new objectives.

Liability Clause: The Liability Clause specifies the liability of the members or shareholders of the company. It can be altered to change the liability of the members from limited to unlimited or vice versa.

Capital Clause: The Capital Clause defines the authorized share capital of the company. It can be altered to increase or decrease the authorized share capital.

Registered Office Clause: The Registered Office Clause specifies the registered office address of the company. It can be altered to change the registered office from one location to another.

Memorandum of association of a one-person company

The Memorandum of Association is a critical document for a One-Person Company (OPC) in India. An OPC is a type of business entity that is owned and managed by a single person, and the memorandum of association serves as a guide for its operations. The MOA of a one-person company must comply with the provisions of the Companies Act 2013 and must contain clauses that outline the company’s objectives, powers, and limitations.

The name clause is one of the essential clauses in the MOA of a one-person company, which specifies the name of the company. The registered office clause specifies the location of the registered office of the company. The objective clause outlines the activities that the company can undertake, and the liability clause determines the extent of the liability of the owner in case of debts and losses. The capital clause specifies the amount of authorized capital of the company.

An OPC is required to have a nominee who will take over the management of the company in case the owner becomes incapacitated or dies. The memorandum of association must contain a clause that specifies the name of the nominee and their consent to act as the nominee. The MOA of an OPC must also contain a clause that specifies that the company is an OPC.

Landmark cases related to MOA 

Here are some landmark cases related to MOA in India:

Ashbury Railway Carriage and Iron Co. Ltd. v. Riche (1875)

This case established the principle that the objects clause of the memorandum of association is a fundamental document that determines the capacity and powers of a company. The objects of the company must be clearly stated in the MOA, and any activity that falls outside the scope of the objects clause is considered ultra vires (beyond the legal power) of the company.

Rayala Corporation Pvt. Ltd. v. Director of Income Tax (2016)

In this case, the Supreme Court of India held that the MOA must be interpreted in a manner that is consistent with the provisions of the Companies Act 2013. The memorandum of association cannot be used to circumvent the statutory requirements or to engage in activities that are prohibited by law.

Sterling Computers Ltd. v. M/s. M & N Publications Ltd. (1993) 

This case established that the MOA of a company is a public document that can be inspected by any person upon payment of the prescribed fee. Any alteration or amendment to the memorandum of association must be filed with the Registrar of Companies (ROC) and must comply with the provisions of the Companies Act 2013.

Messer Holdings Ltd. v. Shyam Madanmohan Ruia (2019) 

In this case, the Supreme Court of India held that the MOA of a company cannot be used to evade statutory obligations. The company cannot cite the memorandum of association to avoid compliance with statutory requirements or to engage in activities that are prohibited by law.

These landmark cases have played an important role in shaping the interpretation and understanding of the provisions related to MOA in India.

Conclusion

The Memorandum of Association is an essential document for any company in India. It outlines the company’s objectives, powers, and limitations, and serves as a guide for its operations. 

The MOA is a public document that can be inspected by any person, and any alteration or amendment to the memorandum of association must comply with the provisions of the Companies Act 2013. The MOA cannot be used to circumvent statutory requirements or to engage in activities that are prohibited by law. 

Landmark cases such as Ashbury Railway Carriage and Iron Co. Ltd. v. Riche and Rayala Corporation Pvt. Ltd. v. Director of Income Tax have helped to clarify the legal interpretation of the memorandum of association in India. It is crucial for companies to understand the clauses of the MOA and their significance in order to avoid any legal disputes or challenges. 

By adhering to the regulations and guidelines outlined in the MOA, companies can establish a strong foundation for their business and ensure compliance with the law.