In the realm of corporate governance, the most crucial document for a company is its Memorandum Of Association (MOA). It outlines the purposes for which the company is established. The memorandum of association serves as the foundation upon which the company's entire business is based. A company is not permitted to engage in any operation or activities not specified in the memorandum. Only those powers that are expressly indicated in the memorandum may be exercised by it.
Definition of Memorandum of Association:
Section 2(56) of the Companies Act 2013 defines memorandum of association. It states that a memorandum means 2 things:
Memorandum of association as originally framed: memorandum as originally framed refers to the memorandum as it was during the incorporation of the company.
Memorandum as altered from time to time: this means that all the alteration that are made in the memorandum from time to time.
Content of memorandum of association:
The content of the memorandum are stated under section 4 of the Companies Act, 2013. It includes all the important information that the memo must include;
Name Clause
The company name is stated in the first clause. The company name can be anything. However there are several requirements that must be met.
According to section 4(1)(a) states-
A company should include the word ‘limited’ if it is a public company or private limited should appear in its name if a company is private one. A private corporation like “JJ Tax” would have “JJ Tax private limited” as its registered name. Section 8 companies are not subject to this stipulation.
Remember, the name stated in the memorandum shall not be,
Identical to the name of another company
Too nearly resembling the name of an existing company.
Registered Office Clause
The country of origin and judicial jurisdiction of a company are determined by its registered office. It serves as a dwelling and the hub for all communication with the business.
The company must provide its correspondence address at the time of incorporation. However, the company must declare the precise location of the registered office after incorporation. Within 30 days of establishment the business must also verify its location. Every company shall paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on.
Object Clause
The object clause is described in section 4(c) of the Companies Act, 2013. The most significant portion of the memorandum of association is the object clause. It outlines the purpose for which the company was incorporated. The principal object as well as element required to accomplish the specified object commonly to as incidental or supplementary object are both included in the object clause.
The following are protected by the object clause
Shareholder: the object clause makes it clear which operation the firm will conduct. This makes it easier for the shareholder to understand how their investment in the business will be put to use.
Creditors: it assures the creditor that their money is safe and that the business is operating within the restrictions outlined in the clause.
Public interest: this clause restricts the range of objects the company can operate making it impossible for the company to diversify its business lines.
Doctrine of ultra vires:
The company action will be ultra vires and void if they go beyond the purview of the authority specified in the object clause.
Impact of ultra vires:
Directors are responsible for making sure that the company capital is solely used for the intended purposes. The capital is used for a purpose other than what is specified in the memorandum then the director will be held responsible.
void ab initio: the company ultra vires action are regarded as void from the beginning.
Injunction: any member of the company may use an injunction as a remedy to stop the company from acting outside of its legal authority.
Liability Clause
The liability clause shields the shareholders from personal liability from the company’s losses so offering them legal protection.
There are 2 categories;
Limited by Shares: In a company limited by shares, the liability of its members is limited to the amount unpaid on their shares. This means that if the company runs into financial trouble and cannot pay its debts, the shareholders are only liable to contribute the remaining unpaid amount on their shares. Once they have paid for their shares in full, they have no further financial obligations to the company.
Limited by guarantee: A company limited by guarantee does not have shareholders or share capital in the traditional sense. Instead, it has members who act as guarantors, agreeing to contribute a predetermined amount (usually nominal) towards the company's debts in the event of its winding up.
Capital Clause
The capital clause in the Memorandum of Association (MOA) defines the authorized share capital i.e. maximum amount of capital a company can raise by issuing shares to its shareholders. Amendments to the capital clause require shareholder approval and compliance with regulatory requirements.
Subscription Clause
Who is signing the memorandum is stated in the subscription clause. Each subscriber must specify how many shares he/she is purchasing. A minimum of one share must be purchased by each subscriber.
The number of subscriber required for incorporation varies depending on the type of company. These are:
Private company: A private company must have a minimum of two subscribers.
Public company: A public company must have a minimum of seven subscribers.
One Person Company: Only one person is necessary for a one person company.
In simple terms, the Memorandum of Association (MOA) is like the constitution of a company, containing all the essential information that defines its identity and purpose. By understanding its components and importance, we gained insight into how companies operate and why they exists.
Thank You for reading
JJ Tax