Summary: The Memorandum of Association (MoA) is a foundational document required for incorporating a company under Section 2(56) of the Companies Act 2013. It is essential for registering a company in India and outlines key aspects, including the company’s name, registered office address, nature of business, share structure, and objectives. The MoA defines the legal identity of the company, separating it from its owners and allowing it to engage in transactions. It specifies the company’s objectives, ensuring operations stay within defined limits, and protects shareholders’ interests by outlining their rights and obligations. Additionally, the MoA facilitates capital raising by detailing the authorized capital, which helps attract potential investors. The document includes critical clauses: the name clause, registered office clause, object clause, liability clause, capital clause, and subscription clause, each playing a vital role in the company’s governance and operational scope. The clarity provided by a well-structured MoA reduces disputes and enhances decision-making processes within the company.
The Memorandum of Association under [1]Section 2(56) of the Companies Act 2013 is [2]a single document made by the interested parties to initiate the formation of a company; it is both the primary and essential document for registering a company in India and most other countries.
It contains:
1) Name of the organization
2) Registered office address
3) Nature of business
4) Number and class of shares
5) Names and signatures of the first subscribers
6) It formulates the organization’s aim, powers, and limits in the memorandum.
The memorandum contains the arena where the company may operate and gives channels for any appropriate action in the interest of the company’s shareholders. Amendment of the memorandum must be agreed upon by shareholders, and in every case, the competent tribunal or the government in every government fills the final word.
“MOA” refers to that document that throws more light on the entirety of the MOA that interests TechGiant Solutions Private Limited, which confines itself to offering superior software solutions such as customized software development, mobile app development, and cloud computing. Thus, it enjoys an authorized capital of about ₹10,00,000 divided into 1,00,000 shares of ₹ 10 each and proves exceptionally motivating to venture into its expansion much further. The larger corporate philosophy seeks to lead in technology solutions correlated with business management, with the acumen to solve a high degree of complexity while delivering value to a distinguished client against which the technology business can gain an irrevocable advantage.
OBJECTIVES
- Providing Legal Status: A company is a legal entity formed through incorporation. The Company Memorandum of Association, having once laid out the contours for its activities, makes it into a clearly defined legal personality separate from its owners or shareholders. Solely, such identifiable characteristics of existence as a company furnish the company with the leverage to engage in significant transactions and obligations. For instance, Reliance Industries Limited is registered under the Companies Act of 2013, and the MoA creates RIL as a legal entity. The MoA allows RIL to enter into agreements in its own right and become the property owner distinct from that of its owners and shareholders, who are liable for their actions.
- Defining the Company’s Purpose: The compass describes the company’s objectives and allowed activities. It confines a broader meaning to ensure that the company doesn’t exceed the limits prescribed by its purposes and the applicable laws. E.g., Tata Consultancy Services (TCS) has its [3]objectives and authorized activities clearly outlined in its MoA. This definition ensures that TCS operates within its specified boundaries, focusing on IT services and consulting, and adheres to the relevant laws and regulations governing such activities in India and abroad.
- Protecting the Interests of Shareholders: Ensuring the rights and interests of shareholders is an essential aim of the MoA. This part of the MoA contains provisions that determine the [4]rights and obligations of the shareholders to change the chances of any pernicious activities or decisions that might adversely affect shareholders. Furthermore, this kind of safeguard helps further such objectives as transparency and fairness in corporate affairs. The MoA of Infosys will protect the shareholders’ rights and interests while defining their voting rights, dividend rights, and rights in case of a liquidation.
- Facilitating Capital Raising: The MoA is pivotal in facilitating capital raising for the company. Specifying the amount of authorized capital a stockholder can issue enables potential investors to estimate the company’s possible size and how the capital can be used in business conduct. Such an explanation will thus augment the concerned stocks that would assist the company in targeting investments. For instance, Adani Enterprises laid out the authorized share capital in the Memorandum of Association, which has cast wonders in allowing the crowdfund. By illustrating the possible dimensions and capital needs in detail relative to this period’s time in Adani Enterprises, it successfully attracted investments through public offerings and the issuing of shares that support business ventures ranging from infrastructure to energy.
- Facilitating Decision-Making: It defines the functions and limits of the corporation, besides providing management and directors with specific guidance on matters on which it shall focus. It offers a clearer view for decision-makers to ascertain the need-to-do aspects of a company’s logic that will vest them with the liberty of making sound and strategic decisions consistent with its objectives. Such considered Akash Mehta (2020) provides that the headings in the Memorandum of Mahindra & Mahindra Ltd. comprise particular clauses in which the powers and limitations of the company are mentioned. This structure gives management and directors ample scope to focus on their strategic decisions. For instance, if the company wants to diversify into new fields of business, such as electric vehicles or renewable energy, it shall be bound by these provisions.
[5]Section 4 of the Companies Act 2013 prescribes the content of the Memorandum of Association and the clauses it contains, which are as follows:
I. NAME CLAUSE – [6]Section 4(1)(a) of the Companies Act 2013 defines the name clause. The company’s promoters have to apply to the Registrar of Companies (ROC) to determine the availability of the name. The company’s name can be adopted only when it is not identical to any other company or if no other company has a similar name. Secondly, the name selected should not be undesirable and not be forbidden or prohibited by the Central Government. Once approved, the company’s name shall be registered with the [7]company’s registrar (ROC) outside the business premises. The company, whether public or pvt limited, should have it next to the name of the company. Lastly, the name, along with the address of the registered office, should be mentioned in letterheads, business letters, and notices and with a common seal.
II. REGISTERED OFFICE CLAUSE – [8]Section 4(1)(b) of the Companies Act 2013 defines the Registered Office clause. The MOA must state where [9]the registered office is situated to fix the company’s domicile. However, any change in the state of the registered office should be filed with the Registrar of Companies (ROC) within 15 days from the date of the incorporation or 15 days after the change.
III. OBJECT CLAUSE – [10]Section 4(1)(c) of the Companies Act 2013 defines the object clause. It states that it is one of the most important clauses for the company as it lays down the [11]objects for which the company is formed and the power it can exercise to achieve its main and ancillary objectives. The object clause contains specific measures during its drafting that are as follows: It should not be illegal and must not be against the provisions of the Companies Act; it should be within the public interest of the people and must be clearly and stated. Lastly, it should not be based on charitable trust and not-for-profit organizations.
IV. IABILITY CLAUSE – [12]Section 4(1)(d) of the Companies Act 2013 defines the liability clause. The company has the liability it can issue in two ways: firstly, limited by shares, and second limited by guarantee. The liability of a company limited by shares states that since the [13]company has limited liability, the shareholder cannot be called upon to pay the share amount not held by him. However, on the other hand, the company’s liability is limited by guarantee states that the promised amount each member is to contribute to the company’s assets in case of winding up. A member, within one year, would also be liable to the debts and liabilities of the company as well as the costs and expenses of winding up. The alteration of the MOA to compel a member to take more company shares would be considered NULL & VOID.
V. CAPITAL CLAUSE – [14]Section 4 (1)(e) of the Companies Act 2013 defines the capital clause. It states that if a company has a share capital unless it is an unlimited liability, its MOA must have [15]the amount of share capital and should be divided into fixed-value shares. This share value type is the company’s authorized share capital. It is required to achieve the main purpose of the company. Every person signing the MOA must have at least one share and must write down how they are taking it.
VI. SUBSCRIPTION CLAUSE – The subscription clause is the sixth and final clause of a company’s Memorandum of Association (MOA), [16]detailing the initial subscribers’ commitment to establish the business. It includes essential information such as the names, addresses, and signatures of the subscribers, along with the number of shares each agrees to take. It is crucial as it legally binds the subscribers as the company’s first shareholders, and it cannot be altered once established. The subscription sheet, which accompanies the MOA, must also include a witness’s signature for authenticity.
CONCLUSION
If we see having strong subscription clauses in contracts provides clarity and protection for all parties involved. They help ensure that obligations are clearly defined, reduce the risk of disputes, and facilitate smoother transactions by outlining the terms of subscription, payment schedules, and termination conditions. If we see While drafting subscription clauses, we can be specific about the duration of the subscription, payment terms, renewal processes, and any conditions for termination to avoid ambiguity and potential conflicts in the future.
[1] Companies Act 2013, s 2(56)
[2] Kotak, ‘Memorandum of Association’ (Kotak, 2024) https://www.kotak.com/en/stories-in-focus/accounts-deposits/current-account/memorandum-of-association.html
[3] SetIndiaBiz, ‘Memorandum of Association and Its Clauses’ (SetIndiaBiz, 2024) https://www.setindiabiz.com/learning/memorandum-of-association-and-its-clauses
[4] Securities and Exchange Board of India, ‘Infosys Public Announcement’ (SEBI, December 2022) https://www.sebi.gov.in/sebi_data/commondocs/dec-2022/Infosys_PA_p.pdf
[5] Companies Act 2013, s 4
[6] Companies Act 2013, s 4(1)(a)
[7] ClearTax, ‘ROC – Registrar of Companies India’ (ClearTax, 2024) https://cleartax.in/s/roc-registrar-of-companies-india
[8] Companies Act 2013, s 4(1)(b)
[9] IndiaFilings, ‘Registered Office of a Company’ (IndiaFilings, 2024) https://www.indiafilings.com/learn/registered-office-company/
[10] Companies Act 2013, s 4(1)(c)
[11] Groww, ‘Memorandum of Association (MOA)’ (Groww, 2024) https://groww.in/p/tax/memorandum-of-association-moa
[12] Companies Act 2013, s 4(1)(d)
[13] Kanakkupillai, ‘MOA: Understanding the Liability Clause’ (Kanakkupillai, 2024) https://www.kanakkupillai.com/learn/moa-understanding-the-liability-clause/
[14] Companies Act 2013, s 4(1)(e)
[15] ClearTax, ‘Memorandum of Association (MOA)’ (ClearTax, 16 September 2021) https://cleartax.in/s/memorandum-of-association-moa
[16] LegalWiz, ‘Subscription Clause: Clauses of Memorandum of Association’ (LegalWiz, 23 January 2020) https://www.legalwiz.in/blog/subscription-clause-clauses-of-memorandum-of-association
