While incorporating a company, there are certain documents which needs to be submitted with company registrar, which is guided by the Companies Act, 2013. The act prescribes for two important documents, namely the Memorandum of Association (MoA) and Article of Association (AoA). These documents are of primary importance stating the roles and responsibilities, rules, capital, registered office, object, etc.
Section 2(56) of the Companies Act, 2013, which defines “memorandum” as a memorandum of a company drawn up initially during the formation of a company which can be subject to changes as per the provision of the law. The definition is silent about the scope and importance of the document. However, the nature of the document can be understood by its content.
WHAT IS THE MEMORANDUM OF ASSOCIATION?
MoA may be defined as the Constitution or charter of the Company, which is binding on the company, and at no point, the company should work at par with it. The document speaks about various aspects of the company, namely the authority, legal compliances, the authority responsible, rights, and responsibilities. It is a written code between the company and any third party, i.e. its shareholders, beneficiaries, stakeholders, investors, members.
Memorandum of association tells the other person the reason behind the incorporation of the company and the opportunity of activities. The activities will be the company will be undertaking, and the ancillary clauses to the object clause are mentioned in MoA and set’s up to the frontier.
MoA is a document which is of public nature which is available with the registrar of companies as per the provision of Section 399 of Companies Act. The document is the essential one because it stipulates the rights, duties, liabilities, privileges, and powers.
FORMAT OF MEMORANDUM OF ASSOCIATION
There is a format which is prescribed for every MoA, which is mentioned in Schedule 1 of the Act, which depends upon whether the company is limited by shares.
Table A: Form for the MoA of a company limited by shares
Table B: Form for the MoA of a company limited by guarantee not having share capital
Table C: Form for the MoA of a company limited by guarantee having share capital
Table D: Form for the MoA of an unlimited company
Table E: Form for the MoA of an unlimited company having share capital.
CONTENTS OF THE MOA
Under section 4 of the Companies Act 2013, the contents of the MoA are mentioned.
- NAME CLAUSE:
This is the most important point where the name of the company is decided upon. The factors which needs to be considered while choosing a name are
- It should not be identical to any company’s name already existing.
- It should not be offensive or misleading as per the provisions of Emblems and Names (Prevention of Improper Use) Act of 1950.
- If it is a private company, must include “private limited” in its name and if it is a public company then name should include “limited” **this clause is not applicable for a Section 8 company, they must include the word association, Council, forum, etc.**
- Use of generic words like King, Queen, World Bank, etc. is prohibited
REGISTERED OFFICE CLAUSE:
- Every company should have a registered office. In this clause, the name of the state should be clearly mentioned, which helps decide the jurisdiction of the company.
- The exact address can be communicated within 15 days after the incorporation of the company to the registrar.
- The reason for communicating the exact address is so that the notices and communications to the company.
- This is telling the third person what operations the company will carry on and why is the company incorporated.
- The scope of operations is mentioned in this clause, which should not be for carrying out any illegal activity or anything against the public interest.
- Any other object which is not main, but incidental to the main objective of the company is called ancillary object.
- This, as the name suggests, defines the liability which each of the members has agreed upon.
- When the company is limited by shares, the liability of the member is only that of the face value of the shares which the person is holding.
- In a company limited by guarantee, the amount each member has agreed to contribute is the liability of the person towards the company.
- In the case of an unlimited company, this clause is not included in MoA.
- This is the clause which states the maximum capital which a person can raise, which is called the authorized capital of the company.
- If limited by shares, the capital amount divided into a number of shares is mentioned. Equity share capital and preference share capital division should be mentioned.
- If shareholders are granted any special privilege or right, then it is mentioned in this clause.
- The number of shares allotted to each member should also be specified.
OTHER ESSENTIAL POINTS:
- The doctrine of Constructive notice is a doctrine which protects the company from any third party. Any person entering into any transaction with the company is expected to have full knowledge of the facts mentioned in the MoA and AoA.
- Subscribers: For Private limited Company, MoA must be printed and signed by at least 2 subscribers. For a public Limited Company, 7 members should sign the MoA.
- Amendments: Any amendment to the name, the office of registration, object clause should be done as per section 13 of the Act. Such amendments must be registered by filing MGT-14, otherwise will have no effect.
This is a document of vital importance which should be drafted with sincerity. Though alteration and amendment of the document are possible, still due care must be exercised while drafting the objective and other clauses to avoid hassle and to have the flexibility of fitting in the new business within the object clause. This document being the binding document for the company must be abided by at all times. Any company working beyond the object clause mentioned in the MoA is ultra vires as per section 13 of the Act.