A group of individuals joins forces with a common goal of creating a company, typically driven by the desire to generate profits, marking its commercial nature. To formalise this endeavour, an application needs to be submitted to the Registrar of Companies (ROC), accompanied by specific documents. Among these, a vital document is the company’s Memorandum of Association (MoA).
This memorandum serves as a foundational legal statement, signifying the company’s purpose and structure. It plays a crucial role in the registration process and outlines the company’s objectives and relationships. To simplify, the MoA acts as the initial guide for the company’s journey, providing a framework for its operations.
In the upcoming article, we will discuss in depth the significance of the Memorandum of Association (MoA) in the context of company registration, along with its key elements and importance in shaping the company’s identity and purpose.
What is a Memorandum of Association (MoA)?
The full form of MOA is a Memorandum of Association, a crucial legal document articulating an organisation’s founding purpose. This document not only defines the authority of the company but also outlines the terms governing its operations. Essentially, it serves as a comprehensive manual encompassing all the rules and regulations guiding the company’s interactions with the external world.
Every business is required to have a Memorandum of Association that precisely delineates the scope of its activities. Until this document is in place, the organisation is bound by its provisions and cannot operate beyond the specified limits. Any attempt to exceed this authority would render the activity “supra vires” and, therefore, invalid.
Considered the bedrock of the business, the Memorandum of Association meticulously outlines the entire organisational structure of the company. This foundational document is open to the public, allowing anyone interested in engaging with the company to obtain it by paying the requisite fees to the Registrar of Companies. All relevant information about the company, including its purpose and boundaries, can be gleaned from the Memorandum of Association.
It is incumbent upon anyone entering into contracts or transactions with the company to acquaint themselves with its Memorandum of Association. This ensures a comprehensive understanding of the company’s framework, fostering transparency and adherence to its established guidelines.
MoA Format
The format of a Memorandum of Association (MoA) is outlined in Section 4(6) of the Companies Act, 2013. According to this section, the format of MoA is specified in Table A to Table E of Schedule 1 of the Act. Companies are required to choose the appropriate format from Table A to E based on their business type. The various formats provided in the Act are as follows:
- Table A: Applicable to companies with a share capital.
- Table B: Applicable to a company limited by guarantee but without a share capital.
- Table C: Applicable to a company limited by guarantee having a share capital.
- Table D: Applicable to an unlimited company without a share capital.
- Table E: Applicable to an unlimited company with a share capital.
Companies need to carefully select the relevant format based on their specific business structure. The MoA should be appropriately numbered, printed, and organised into paragraphs. It is a crucial legal document that must be signed by the subscribers of the company, indicating their agreement with the outlined terms and conditions. The meticulous adherence to the specified format ensures clarity and conformity with the legal provisions of the Companies Act of 2013.
Objectives of Memorandum of Association (MoA)
The registration of a Memorandum of Association (MoA) serves crucial objectives in the process of forming a company, as stipulated by Section 3 of the Act. The formation of a company requires a specified number of members to subscribe to the memorandum, which varies based on the type of company:
- Public Company: Requires a subscription by seven or more members.
- Private Company: Requires a subscription by two or more members.
- One Person Company (OPC): Can be formed with the subscription of only one member.
The registration of a company becomes possible only when the MoA is drafted and signed/subscribed by the minimum required number of members as outlined above. This underscores the fundamental role of the MoA in the registration process of all companies.
Furthermore, Section 7(1)(a) of the Act mandates that a company’s Memorandum of Association and Articles of Association (AoA) must be duly signed by the subscribers for the company to be officially registered with the Registrar of Companies (ROC). When applying for company registration, the MoA copy is submitted to the ROC. Upon payment of the prescribed fees, the ROC can provide a certified copy of the MoA to the public.
This process holds several benefits for shareholders and stakeholders:
- Informed Investment: It allows shareholders to gain insights into the company before purchasing its shares, helping them make informed investment decisions and determining the capital they can invest in the company.
- Transparency for Stakeholders: It provides comprehensive company information to stakeholders interested in associating with it. This transparency fosters trust and informed collaboration between the company and its stakeholders.
To be concise, the registration of the MoA not only satisfies legal requirements but also serves as a vital tool for transparency, accountability, and informed decision-making in the corporate landscape.
Clauses in Memorandum of Association
A Memorandum of Association has the following clauses:
Name Clause
This clause specifies the name of the company, ensuring it is distinct from existing companies. Private companies must include ‘Private Limited,’ and public companies should end with ‘Limited’ in their names, as per the Companies Act and Rules.
Registered Office Clause
Specifies the State where the registered office is situated, determining the Registrar of Companies’ jurisdiction. The company must inform the Registrar within 30 days of incorporation. The registered office is the official address for communications, legal notices, and documents.
Object Clause
Defines the company’s objectives, guiding its business activities. It safeguards stakeholders’ interests by ensuring the company operates within this scope. Objectives are categorised as Main (primary business), Incidental (ancillary to the main objects), and Other (not covered in Main or Incidental).
Liability Clause
States the nature of members’ liability in case of losses or debts. Unlimited companies have unlimited member liability, limited by shares restricted liability to unpaid share amounts, and companies limited by guaranteed restricted liability by agreed contributions.
Capital Clause
Details the company’s maximum authorised or nominal capital. It outlines the maximum capital that can be issued to shareholders and specifies the division into shares of a fixed amount. This clause also indicates the type of shares authorised, such as equity shares, preference shares, or debentures.
Alteration of Memorandum of Association (MoA)
The business landscape is dynamic and changes in a company’s structure or operations may necessitate alterations to its Memorandum of Association (MoA). The following circumstances may prompt the need for MoA alteration:
- Change in Company Name: If there is a change in the company’s name, it requires an alteration of the MoA.
- Change in Registered Office Location: A change in the location of the registered office necessitates an amendment to the MoA.
- Change in Company Objects: Any modification to the company’s objectives requires an alteration of the MoA.
- Change in Nature of Liability of Members: Alterations are needed if there is a shift in the nature of liability of company members.
- Change in Authorized Capital or its Division: Changes in the maximum limit of authorised capital or the division of authorised capital necessitate MoA alteration.
Process of MoA Alteration
- The company initiates the alteration process by holding a board meeting to approve the proposed changes to the MoA.
- A general meeting is convened to seek the approval of the shareholders for the proposed alterations to the MoA.
- A special resolution, reflecting the approved alterations, is filed with the Registrar of Companies (ROC) within 30 days of passing the resolution.
- The ROC scrutinises the special resolution and, upon approval, acknowledges the alteration of the MoA.
This systematic process ensures that any changes in the company’s fundamental document are conducted transparently, with due approval from both the board and shareholders. The approval by the ROC validates the alterations, providing legal recognition to the modified MoA.
Articles of Association (AoA)
The Articles of Association (AOA) of a company encompass its rules, bylaws, and regulations governing the conduct of business and managing internal affairs. It operates under the Memorandum of Association (MOA) and is subject to its governance. The AOA is a crucial document for every company, delineating internal rights, operations, management, and duties. Its contents must align with the MOA and adhere to the Companies Act of 2013.
Key Contents of AOA
- Specifies details related to the company’s share capital structure.
- Outlines qualifications, appointment procedures, powers, remuneration, and duties of directors.
- Defines rules governing the distribution of dividends and management of reserves.
- Specifies the procedures for maintaining company accounts and conducting audits.
- Outlines the company’s authority and limits concerning borrowing.
- Establishes provisions and protocols for conducting various types of meetings.
- Describes the procedures and protocols for the winding up of the company.
The Articles of Association, in conjunction with the Memorandum of Association, form the legal backbone of a company, providing a comprehensive framework for its internal operations and governance.
Differences between MoA and AoA
We have discussed the differences between the two in great detail in our table below:
| Particulars | MOA | AOA |
|---|---|---|
| Description | Defines the company’s constitution, powers, objectives, and constraints of the organisation. | Defines rules and regulations of the company, including the duties, powers, liabilities, and rights of individuals associated with the organisation. |
| Contents | It contains the five mandatory clauses. | It contains provisions as per the requirements of the organisation. |
| Area of operation | Defines the relationship between the company and third parties. | Defines the relationship between the company and its members and also amongst members. |
| Filing at the time of registration | It is a mandatory document filed with the ROC at the time of company registration. | The drafting of AOA is mandatory; however, filing with the ROC is optional at the time of company registration. |
| Importance and position | MOA is a supreme legal document and subordinate to the Companies Act. | AOA is subordinate to the MOA and the Companies Act. |
| Relationship between the two | MOA is a dominant document that helps in the drafting of the AOA. | Any provision in the AOA contradicting the MOA is considered null and void. |
| Acts done beyond its scope | Acts done beyond the scope of MOA are void and cannot be ratified. | Acts done beyond the scope of AOA can be ratified by shareholders. |
| Alteration | An alteration can be made in the MOA only after passing a special resolution in the Annual General Meeting (AGM) and obtaining prior approval from the Central Government. | An alteration in the AOA can be made by passing a special resolution in the Annual General Meeting (AGM). |
| Retrospective amendment | The MOA cannot be amended with retrospective effect. | The AOA can be amended retrospectively. |
Both the MOA and AOA are essential documents for a company, aiding owners and founders in efficient business operations. They hold significance for One Person Companies (OPCs), private companies, and public limited companies.
FAQs on Memorandum of Association (MoA)
What is the difference between MoA and AoA?
The Memorandum of Association (MoA) serves as the supreme document, defining the company's relationship with outsiders. Articles of Association (AoA) support the MoA, specifying the internal rules for the company and its members. Amending AoA is simpler compared to MoA.
What does the MoA begin with?
The MoA of all companies starts with the 'Name Clause,' followed by the 'Office Clause' and other clauses.
What is the liability of MoA?
The liability clause outlines the extent of shareholders' liability, protecting them from personal liability for company losses. It specifies whether the company is limited by shares or guarantee.
What is the name clause?
The name clause, the first in the MoA, states the official name of the company. It must comply with conditions, such as not being identical to existing company names.
Who can subscribe to the MoA?
Individuals, foreign citizens, minors through a natural guardian, companies, limited liability partnerships, and certain bodies corporate can subscribe to the MoA.
Is MoA the same as Articles of Association (AoA)?
No, MoA and AoA are distinct. MoA outlines essential company details, while AoA includes internal rules. AoA is subordinate to MoA.
Is MoA required for company registration?
Yes, the MoA is mandatory for company registration. It must be submitted to the Registrar of Companies and signed by all directors and members.
Is MoA required for startups?
Yes, startups planning to register as companies under the Companies Act of2013, must prepare an MoA before applying for registration.
Does an LLP need MoA?
No, LLPs are registered under the Limited Liability Partnership Act, 2008, and are not required to prepare an MoA.
Do all companies require MoA?
Yes, every company, regardless of type, must have an MoA as it defines the company's operations and structure.
What is the use of an MoA?
The MoA defines a company's scope and powers, regulating its relationship with the outside world. It is a mandatory document for company registration and provides comprehensive details about the company.
What is the main function of the Memorandum of Association?
The MoA represents the charter of the company, serving as a legal document prepared during the company's formation and registration process. It outlines the company's relationship with shareholders and specifies its objectives.
What are the 6 clauses of the Memorandum of Association?
The six clauses of the Memorandum of Association include:
- Name Clause.
- Registered Office Clause.
- Object Clause.
- Liability Clause.
- Capital Clause.
- Declaration Clause.
How do you write a Memorandum?
To write a Memorandum, follow these steps:
- Include a heading.
- Write an introduction.
- Provide background on the issue.
- Outline action items and timeline (Optional).
- Include a closing statement.
- Review and proofread before sending.
