A company is formed when a group of individuals comes together with a common goal, typically to pursue a commercial purpose and generate profit. To legally establish a company, an application must be submitted to the Registrar of Companies (ROC), along with certain required documents. One of the key documents needed for company registration is the Memorandum of Association (MoA).
What is a Memorandum of Association (MoA)?
The Memorandum of Association, often referred to as the MoA, serves as the company’s charter. It is a critical legal document created during the process of forming and registering a company. The MoA outlines the company’s relationship with its shareholders and clearly defines the objectives for which the company has been established. The company is restricted to carrying out only those activities that are specified in the MoA.
In this sense, the MoA sets the legal boundaries for the company’s operations. Any actions taken by the company that fall outside the scope of what is permitted in the MoA are considered “ultra vires” (beyond its powers) and are therefore invalid. The MoA acts as the foundation on which the company is built, detailing its entire structure in a comprehensive manner.
As a public document, the Memorandum of Association is accessible to anyone, provided they pay the requisite fees to the ROC. This transparency allows shareholders, creditors, and others doing business with the company to understand its basic rights and powers before entering into any agreements. The information in the MoA also assists potential investors in making informed decisions about whether to invest in the company.
For a private limited company, the MoA must be signed by at least two subscribers, while for a public limited company, a minimum of seven members is required.
Format of the Memorandum of Association (MoA)
As per Section 4(6) of the Companies Act, 2013, the format of a Memorandum of Association (MoA) is defined in Table A to Table E of Schedule 1 of the Act. Companies are required to choose the appropriate format based on their specific type of business. The different formats outlined in the Act are:
- Table A – For companies with share capital.
- Table B – For companies limited by guarantee without share capital.
- Table C – For companies limited by guarantee with share capital.
- Table D – For unlimited companies without share capital.
- Table E – For unlimited companies with share capital.
The MoA must be printed, numbered, and structured into paragraphs. It must also be signed by the subscribers of the company.
Purpose of Registering a Memorandum of Association
The MoA is a vital document containing key information about the company. Section 3 of the Companies Act, 2013, specifies that a company is formed when the following members subscribe to the MoA:
- Public company: At least seven members.
- Private company: At least two members.
- One Person Company (OPC): Only one member.
A company can only be officially registered once the MoA is drafted and signed by the minimum required number of subscribers, as per the rules mentioned above. Hence, the MoA is an essential requirement for all companies during the registration process.
According to Section 7(1)(a) of the Act, both the MoA and the Articles of Association (AoA) must be signed by the company’s subscribers and submitted to the Registrar of Companies (ROC) for the registration process. The ROC can issue a certified copy of the MoA to the public upon request and payment of the applicable fees.
The MoA serves several important functions for shareholders and stakeholders, such as:
- Informing potential shareholders about the company before they decide to invest, helping them evaluate the capital they wish to contribute.
- Providing relevant company information to stakeholders interested in forming a business relationship with the company.
Main Clauses of the Memorandum of Association
The Memorandum of Association (MoA) consists of five key clauses that define various aspects of a company’s structure and operations. These are:
- Name Clause:
This clause outlines the official name of the company. For private companies, the name must end with “Private Limited,” while public companies should conclude their name with “Limited.” The name must not be identical to any existing company and must adhere to the provisions of the Companies Act and its rules. For example, “XYZ Private Limited” for private companies and “XYZ Ltd” for public companies. - Registered Office Clause:
This clause indicates the state where the company’s registered office is located, establishing the jurisdiction for legal matters and communications. The company must notify the Registrar of Companies (ROC) about the exact address within 30 days of incorporation. All official correspondences, including legal notices, will be sent to this address. - Object Clause:
The object clause specifies the purpose for which the company is formed and limits the company to those activities. It protects stakeholders by ensuring the company operates within its defined objectives. The object clause is divided into three categories:- Main Objective: The primary business activities of the company.
- Incidental Objective: Activities that support the main objective.
- Other Objectives: Any additional objectives the company may pursue beyond the main and incidental ones.
- Liability Clause:
This clause defines the nature of the liability of the company’s members in case of losses or debts. In an unlimited company, the liability of members is unlimited. In companies limited by shares, liability is limited to any unpaid amount on their shares. For companies limited by guarantee, liability is restricted to the agreed contribution of each member. - Capital Clause:
The capital clause specifies the maximum authorized capital the company can raise, known as nominal or authorized capital. It also outlines the division of this capital into shares of a fixed value and the types of shares the company can issue, such as equity shares, preference shares, or debentures.
These clauses form the foundation of a company’s legal framework and govern its operations within specified boundaries.
Alteration of Memorandum of Association (MoA)
If any changes occur within the clauses of a company’s MoA, it must be modified or amended to reflect those changes. The following scenarios can necessitate the alteration of the MoA:
- Change in the company’s name
- Relocation of the registered office
- Modification of the company’s objectives
- Alteration of the nature of member liabilities
- Adjustment of the company’s authorized capital or its division
Steps to Alter the MoA:
- Board Meeting:
The company must first convene a board meeting to propose and approve the required changes to the MoA. - General Meeting:
A general meeting is then held to secure shareholder approval for the proposed amendments to the MoA. - Filing a Special Resolution:
Once the resolution to alter the MoA is passed, it must be filed with the Registrar of Companies (ROC) within 30 days. - ROC Approval:
The ROC will review and scrutinize the special resolution. Upon their approval, the alterations to the MoA become official.
This process ensures that any significant changes in a company’s structure, operations, or obligations are properly documented and legally recognized.
FAQ’s
What is the purpose of a Memorandum of Association (MoA)?
The MoA outlines the scope and limitations of a company’s operations, specifying the activities it can legally engage in. It governs the company’s interactions with external parties and serves as a foundational document, also known as the company’s charter. No company can be registered without an MoA, as it provides essential details about the company, its members, and their liabilities. It is a reference for anyone considering a business relationship with the company.
Is an MoA required for an LLP (Limited Liability Partnership)?
No, an MoA is not required for an LLP. LLPs are governed by the Limited Liability Partnership Act, 2008. Under this act, an LLP must draft an LLP deed instead of an MoA, which serves a similar purpose in defining the partners’ roles and obligations.
Is an MoA necessary for company registration?
Yes, an MoA is essential for company registration. It is a mandatory document that must be submitted to the Registrar of Companies (ROC) during the registration process. All directors and members of the proposed company are required to sign the MoA before submitting it.
Who can subscribe to the MoA?
The following individuals and entities can subscribe to a company’s MoA:
- Individuals
- Foreign citizens and Non-Resident Indians (NRIs)
- Minors, represented by a natural guardian
- Companies, through their authorized representatives
- Limited Liability Partnerships (LLPs), through an authorized partner
- Corporate bodies established under an Act of Parliament or State Legislature
What is the liability clause in an MoA?
The liability clause defines the extent to which shareholders are responsible for a company’s debts or losses. It protects shareholders by ensuring they are not personally liable beyond their investment. In a company limited by shares, shareholders are only responsible for the unpaid amount of their shares. In a company limited by guarantee, members agree to pay a fixed sum if the company faces a loss.
