The formation of a company takes place when a number of people come together for achieving a specific purpose. This purpose is usually commercial in nature. To incorporate a company, an application has to be filed. This application is required to be submitted with a number of documents to CRC (Central Registration Centre). One of the mandatory and important documents required to be submitted for incorporation is Memorandum of Association.
|1.||What is Memorandum of Association (MOA)?||MOA is a legal document which describes the purpose for which the company is formed. It defines the powers of the company and the conditions under which it operates. It is a document that contains all the rules and regulations that govern a company’s relation with the outside world.
Section 2(56) of the Companies Act, 2013 defines Memorandum of Association.
“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.
|2.||Why does your company need Memorandum of Association?||Every company formed in India under Companies Act is required to have MOA, without which a company cannot legally be formed. This requirement applies to all types of Companies|
|3.||Features of Memorandum of Association||
1. It defines the scope & powers of a company, beyond which the company cannot operate.
2. It is used in the registration process, without it the company cannot be incorporated.
3. It helps anyone who wants to enter into a contractual relationship with the company to gain knowledge about the company.
4. It is also called the charter of the Company, as it contains all the details of the company, its members and their liabilities.
|4.||Does Memorandum of Association override the Companies Act?||Section 6 of the Companies Act 2013 states that the Companies Act overrides the Memorandum and Articles.
Any provision contained in Memorandum of Association is inconsistent with the Companies Act; the requirements of the Companies Act will override and shall be void.
(Each of the clause is explained in detail below)
|·||Name Clause||The name of the Company should be mentioned in the MOA. It has to be applied separately and approved by Central Registration Centre or it can be applied along with incorporation.
The name can be chosen or proposed as per rule 8 of the Incorporation rules.
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The name should not be identical or similar to that of a Company/LLP already registered or a registered trademark.
The name should also not be similar in terms of phonetic sounds.
|·||Situation (Registered Office) Clause||The name of the State in which the registered office of the company will be situated shall be specified.
It is place from which the business shall operate and where the Common Seal, Statutory books of the Company are kept.
The registered office location details are to be mentioned at the time of incorporation or within thirty days from the date of incorporation
|·||Object Clause||The objects for which the company is being incorporated/ or main activities of business which will be carried out by the Company should be specified. It defines the limit of operations to be carried on by the company.
However, all the objects as mentioned in the document are not mandatory to be pursued immediately after incorporation. Therefore, it becomes difficult to define objects being presently pursued by the company and those which the company may pursue or had no intention of pursuing. In view of the above, it is required to state separately the main objects, which the company will basically undertake on incorporation and the incidental or ancillary objects for the attainment of the main objects.
The Memorandum should be stated in the following manner:
(a) the main objects of the company to be pursued by the company on its incorporation;
(b) objects incidental or ancillary to the attainment of the main objects.
|·||Liability Clause||For a company limited by shares – it should specify if the liability of its members is limited to any unpaid amount on the shares that they hold.
For a company limited by guarantee – it should specify the amount undertaken by each member to contribute to:
|This is valid only for companies having share capital. These companies must specify the amount of Authorized capital divided into shares of fixed amounts. Further, it the names of each member and the number of shares against their names should be mentioned.
1] Authorized Share Capital (Nominal or Registered Share Capital)
It is the sum of money stated in the Memorandum of Association as the share capital of the company. It is the maximum amount of capital the company can raise by issuing shares
2] Issued Capital
This is the portion of the Authorized/nominal capital which the company has issued for a subscription. This amount of capital is either less than or equal to the nominal capital, it can never be more.
3] Subscribed Capital
This is the part of the issued capital that has been subscribed by the shareholders. It’s not necessary that the whole of the issued capital will receive subscriptions, but at least 90% of issued capital should be subscribed generally.
4] Called-up Capital
The company may not always call up the full amount of the nominal value of shares. The amount of the subscribed capital called up from the shareholders is the called up capital, which is less or equal to the subscribed capital.
5] Paid-up Capital
This is the amount paid for the shares subscribed. If the shareholder does not pay on call, it will fall under “calls of arrears”. When all shareholders pay their full amounts paid up capital and subscribed capital will be equal.
|·||Association Clause / Subscription Clause||The last clause in the Memorandum is ‘Declaration of Association or the Association Clause. This is a very important clause in the Memorandum of Association, which details the particulars of the promoters/ shareholders of the company
According to section 12, there should be at least two persons subscribing to Memorandum of Association in case of private company and seven in case of public company.
|7. \||Where do you find Memorandum of Association?||The Memorandum of Association of a Company is available under Public documents section on Ministry of Corporate Affairs portal.|
|8.||Signing of MOA||The MOA is required to be signed by all subscribers using their Digital Signature Certificates (DSC), who are further required to add their names, addresses and occupation, in the presence of at least one witness, who must attest the signatures with his own signature and details.|
Conclusion: Memorandum of Association is a fundamental document for the formation of a company. It is a charter of the company. Without memorandum, a company cannot be incorporated. The memorandum together with Articles of Association forms the constitution of the company.
This article is co-authored by Mrs. Asha Diwakar (Practicing Company Secretary, Bangalore) who is Co-founder and Designated Partner of M/s CLAAT Corporate Advisors LLP (Chhota CFO).
Chhota CFO (www.chhotacfo.com) offers a range of services and integrated solutions in the areas of India corporate regulations, compliance, accounting and taxation for Start-ups, SMEs and Corporates – right from incorporating new companies, statutory registrations, secretarial compliance, bookkeeping and accounting, tax consulting & filing, audit & assurance and other associated professional services to start, maintain and grow your business.
Utmost care has been taken to prepare the article. However, inadvertently if any error occurs, please note that the authors shall not be held responsible for any such cause. The content published is only for educational purpose and shall not be construed as rendering of any professional advice in any manner whatsoever. The readers must exercise their own judgement and refer the original source before any implementation. The content is an original work of the authors and may be used only after prior written permission.