What is a Memorandum of Association?
Memorandum of Association is the most important document of a company. It states the objects for which the company is formed. It contains the rights, privileges and powers of the company. Hence it is called a charter of the company. It is treated as the constitution of the company. It determines the relationship between the company and the outsiders.
The whole business of the company is built up according to Memorandum of Association. A company cannot undertake any business or activity not stated in the Memorandum. It can exercise only those powers which are clearly stated in the Memorandum.
Definition of Memorandum of Association
“The memorandum of association of a company is the charter and defines the limitation of the power of the company established under the Act”.
Thus, a Memorandum of Association is a document which sets out the constitution of the company. It clearly displays the company’s relationship with outside world. It also defines the scope of its activities. MoA enables the shareholders, creditors and people who has dealing with the company in one form or another to know the range of activities.
Contents of Memorandum of Association
According to the Companies Act, the Memorandum of Association of a company must contain the following clauses:
1. Name Clause of Memorandum of Association
The name of the company should be stated in this clause. A company is free to select any name it likes. But the name should not be identical or similar to that of a company already registered. It should not also use words like King, Queen, Emperor, Government Bodies and names of World Bodies like U.N.O., W.H.O., World Bank etc. If it is a Public Limited Company, the name of the company should end with the word ‘Limited’ and if it is a Private Limited Company, the name should end with the words ‘Private Limited’.
2. Situation Clause of Memorandum of Association
In this clause, the name of the State where the Company’s registered office is located should be mentioned. Registered office means a place where the common seal, statutory books etc., of the company are kept.The company should intimate the location of registered office to the registrar within thirty days from the date of incorporation or commencement of business.
The registered office of a company can be shifted from one place to another within the town with a simple intimation to the Registrar. But in some situation, the company may want to shift its registered office to another town within the state. Under such circumstance, a special resolution should be passed. Whereas, to shift the registered office to other state, Memorandum should be altered accordingly.
3. Objects Clause of Memorandum of Association
This clause specifies the objects for which the company is formed. It is difficult to alter the objects clause later on. Hence, it is necessary that the promoters should draft this clause carefully. This clause mentions all possible types of business in which a company may engage in future.
The objects clause must contain the important objectives of the company and the other objectives not included above.
4. Liability Clause of Memorandum of Association
This clause states the liability of the members of the company. The liability may be limited by shares or by guarantee. This clause may be omitted in case of unlimited liability.
5. Capital Clause of Memorandum of Association
This clause mentions the maximum amount of capital that can be raised by the company. The division of capital into shares is also mentioned in this clause. The company cannot secure more capital than mentioned in this clause. If some special rights and privileges are conferred on any type of shareholders mention may also be made in this clause.
6. Subscription Clause of Memorandum of Association
It contains the names and addresses of the first subscribers. The subscribers to the Memorandum must take at least one share. The minimum number of members is two in case of a private company and seven in case of a public company.
Thus the Memorandum of Association of the company is the most important document. It is the foundation of the company.