The Memorandum of Association . ( Meaning , Definitions, Clauses , Importance )

A joint stock company does not come into existence on its own .

The Indian Companies Act contains provisions regarding the legal formalities for setting up a company .

The formation of a joint stock company passes through the following stages :-

• Promotion; • Incorporation ; • Raising of Capital ; • Commencement of Business .


Incorporation of a company requires legal documents to be filled with the Registrar of Companies of the State in which the registered office of the company is to be suitable .
Therefore, several legal documents and papers are prepared and filed with the Registrar of Companies.
Three most important documents include :-

• Memorandum of Association
• Articles of Association
• Prospects or Statement in lieu of prospectus.


Memorandum Of Association ( MOA):-

Memorandum of Association of a Company is one of the most important documents.
According to Palmer, “It is a document of great importance in relation to the proposed company.”


Memorandum of Association required to be filed with the Registrar of Companies at the time of formation of a company.
It defines the objects and scopes of the company’s activities as well as its relation with the outside world.
MOA is a document which contains the fundamental rules and regulations regarding the constitution and activities of a company .

MOA states the limits to which a company can proceed.
A company is said to be ‘ultra vires’ if it proceeds beyond the limits mentioned in the memorandum.

Memorandum of association is a public document .The entire structure of the company is detailed in the Memorandum of Association. Through the Memorandum of Association he will get all the details of the company. To know the company details one can contract with the company by obtaining the Memorandum of Association ,which can be obtained by paying the required fees to the Registrar of Companies.

Memorandum of Association is a legal document which describes the purpose for which the company is formed.
It is a foundation on which the superstructure of the company is built. It is mandatory for every company to have a Memorandum of Association.

Thus , Memorandum of Association is the charter of a company .


Definitions :-

“The Memorandum of Association of a company is it’s charter and it defines the limitations of the power of the company . The memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated.”
– Lord Cairns

“The purpose of the memorandum is to enable the shareholders , creditors and those who deal with the company to know it’s permitted range of activities .”
– Lord Macmillan.

According to the Indian Companies Act

“Memorandum means the Memorandum of Association of a company ,as originally framed or as altered from time to time in pursuance of any previous Companies Act .”
– Section 2(56) of Indian Companies Act , 2013.




Clauses of The Memorandum of Association

The Memorandum of Association contains the following clauses :-

1:
Name clause :-

•The name of the proposed company is mentioned in this clause.
• The name of the a company must end with the word ‘Limited ‘ in the case of public company and
‘ Private Limited ‘ in the case of a private company .
•The name should not be identical with the name of the existing company .
• The name should not be misleading i.e creating confusion regarding its nature of business .

2:
Registered office (i.e domicile ) clause :-

•The name of the ‘State ‘ in which the registered office of the company is to be situated is mentioned in this clause.
•This clause determines the jurisdiction of the Registrar of Companies and the court .
• This clause also ascertains the nationality of the company .
• The full address of the registered office must be communicated to the Registrar of Companies for future communication.

3: Object clause :-

This clause states the object with which the company is proposed to be established . A company is not legally entitled to do any business other than the specified in the object clause .

The object clause should include the following :-
•.the main objects to be pursued after incorporation ;
• incidental objects ancillary to the attainment of the main objects ;

The object clause must not include anything which is illegal or opposed to the public interest or against the general law of the country or Contradictory to the Companies Act itself.

4:
Liability Clause :-

This clause states the nature not the liability of the members of the company i.e whether limited by shares or by guarantee or unlimited .
• In the case of a company limited by shares , the member’s liability is limited to the face value of the shares .
• In case of a company limited by guarantee ,the liability clause must state the extent of liability of each individual member in the event of its being wound up .
• In case of an unlimited company ,the liability clause does not appear in the memorandum of association .

5:
Capital Clause :-

•This clause states the total capital of the proposed company .
• A company cannot collect funds exceeding the authorised capital.

The division of capital into equity share capital and preference share capital should also be mentioned.The number of shares in each category and their value should be given in the Memorandum.

6:
Subscription / Association Clause :-

The name , addresses , signature and descriptions of the signatories to the memorandum are given in this clause

This clause also states the amount and number of shares taken by the signatories of the memorandum . The number of signatories to the memorandum shall not less than :
• seven in case of public company
• two in the case of a private company.



Importance of Memorandum of Association

1:. Basis of Incorporation :- It is the basis of Incorporation of a company . A company cannot be registered without filing this document .

2: Informing the name , address, object , capital and liability of the company to outsiders :- Every outsider can easily obtain information about the company regarding its name , address , object , capital and liability etc., through the Memorandum of Association.

3: Determine the extent of working of the company :- It lays down the objects and scope of activities outside the scope of the fundamental will be ultra vires’ and void .

4:. Unalterable document :- The provisions of this document cannot be changed without passing a special resolution (passed by 75% majority ) . In certain cases ,the change can be made by seeking permission from the Company Law Board or Central Government .

5: Determining the relationship between the company and others :- It enables outsiders to know whether the company is authorised to enter into a particular transaction or not .



Difference between Memorandum of Association and Articles of Association .

• Memorandum of Association is the fundamental charter of a company whereas articles are subsidiary to the charter .

• Memorandum defines the relationship between the company and an outsider whereas articles contain provisions for internal management of the company .

• Memorandum is the supreme document. It provides the area within the articles are to operate whereas articles are to act within the orbit of the memorandum .

• Memorandum cannot be altered easily whereas alteration of articles is easy .

• Registration of the memorandum is compulsory whereas registration of articles is not necessary in the case of a public company.