As per Section 2(56) of the Companies Act,2013 “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.
Memorandum of Association
A Memorandum of association is a legal document which fixes the object of a company and also states the power beyond which the company can not go. Therefore, the actions and objects of a company are limited within the scope of the Memorandum of Association.
A Memorandum of Association is prepared during the formation and registration process of a company.
Further, altering the capital clause of the memorandum of association should be exercised bonafide and in the interest of the company not for any group.
If the memorandum of association authorises, the company may sell, mortgage or lease such property in the ordinary course of its business.
Clauses of memorandum of association
Name clause: Every company has a unique name identity. The name of the company is not supposed to be identical to any of the existing companies. A company must contain the end word with private ltd., in the case of a private company and in the case of a public company, the name must be limited. Anyway, the name of the company should not be misled.
Registered office clause: This clause specifies the physical location of the registered office, and determines the states where the company is registered. The full address of the registered office must be provided to the Registrar of companies within 30 days from the date of incorporation, and it also simplifies the communication.
Object clause: The object clause defines the objectives of a company for which it is formed and limits the scope of the company’s operations. By limiting the power of a company, it protects the shareholder, creditors and public interest.
Object clause helps the shareholders to know about their investment, and where to invest as the clause clearly states the operations which company will perform.
This clause states how the capital provided by the members will be used and makes sure they are used for specific purposes.
The object clause defines the main objectives of a company as well as the incidental objectives (ancillary objectives).
Liability clause: Liability clause states the liability of each member of the company. Therefore, this clause protects the shareholders from being personally liable for the loss of the company.
As per section 2(22) of the Companies Act, 2013 defines a company limited by shares. In a company limited by shares, the shareholders only have to pay the price of the shares they have subscribed to. If for some reason they have not paid the full amount for the shares and the company winds up then their liability will only be limited to the unpaid amount.
As per section 2(21) of the Companies Act, 2013. A company limited by guarantee has members instead of shareholders. These members undertake to contribute to the assets of the company at the time of winding up. A guarantee is given for a fixed amount for which the member will be liable.
Capital clause: This clause states the share capital of the company with which it is registered, also called authorised capital. In addition, it also mentions the types of shares (equity share or preference share), the number of each type of share along with the face value of the shares. Bypassing an ordinary resolution for altering the capital clauses in the memorandum of association will be enough.
Prescribed format of Memorandum of Association
Table A - Applies to a company limited by shares
Table B - Applies to a company limited by guarantee but not having a share capital
Table C - Applies to a company limited by guarantee of having a share capital
Table D - Applies to the unlimited company not having a share capital
Table E - Applies to the unlimited company having a share capital
What is the use of the Memorandum of Association?
It defines the scope of business activities and power of a company beyond which the company can not operate.
Regulates the relationship of a company with the outside world.
MoA is prepared in the process of company registration, without Memorandum of Association no company can be formed.
Memorandum of Association is a legal document applicable to limited liability companies.
Anyone who enters into the contract with the company can gain knowledge about the company from a memorandum of association.
Memorandum of Association is a public record which can be seen by anyone who wishes to.
As it contains all the details of a company, its members and their liability, it is also called a company's charter.
Frequently Asked Questions (FAQs)
Q1. How many people need to sign Memorandum of Association?
In a public company, at least 7 people are required to sign,
In a private company, at least 2 people are required to sign,
One person company, at least 1 person is required to sign.
Q2. What do you understand about the doctrine of ultra vires?
When the company operates beyond the power stated in the object clause of the memorandum of association, then the actions of a company will be ultra vires and thus void.
Q3. Whether the MoA is required for a startup?
Yes. Every company whether a public company, private company or one-person company registered requires MoA. Thus, if the startup registers as a company under the Companies Act, 2013, then the startup must prepare a Memorandum of Association.
Q4. What is the difference between a memorandum of association and article of association?
A Memorandum of Association is the document that governs the company’s relationship with the outside world, whereas the Articles of Association govern the company’s internal affairs.
A Memorandum of association contains the details about the company, while articles of association include the internal rules of the company.
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