Section 2(56) of the Companies Act, 2013 defines Memorandum of Association. It states that a “memorandum” means two things:
- Memorandum of Association as originally framed;
Memorandum as originally framed refers to the memorandum as it was during the incorporation of the company.
- Memorandum as altered from time to time;
This means that all the alterations that are made in the memorandum from time to time will also be a part of Memorandum of Association.
The section also states that the alterations must be made in pursuance of any previous company law or the present Act.
In addition to this, according to Section 399 of the Companies Act, 2013, any person can inspect any document filed with the Registrar in pursuance of the provisions of the Act. Hence, any person who wants to deal with the company can know about the company through the Memorandum of Association.
Meaning of Memorandum of Association
Memorandum of Association 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 relations with the outside world.
It is mandatory for every company to have a Memorandum of Association which defines the scope of its operations. Once prepared, the company cannot operate beyond the scope of the document. If the company goes beyond the scope, then the action will be considered ultra vires and hence will be void.
It is a foundation on which the company is made. The entire structure of the company is detailed in the Memorandum of Association.
The memorandum is a public document. Thus, if a person wants to enter into any contracts with the company, all he has to do is pay the required fees to the Registrar of Companies and obtain the Memorandum of Association. Through the Memorandum of Association he will get all the details of the company. It is the duty of the person who indulges in any transactions with the company to know about its memorandum.
Object of registering a Memorandum of Association or MOA
Memorandum of Association is an essential document that contains all the details of the company. It governs the relationship between the company and its stakeholders. Section 3 of the Companies Act, 2013 describes the importance of memorandum by stating that, for registering a company,
- In case of a public company, seven or more people are required;
- In case of a private company, two or more people are required;
- In case of a one person company, only one person is required.
In all the above cases, the concerned people should first subscribe to a memorandum before registering the company with Registrar.
Thus, Memorandum of Association is essential for registration of a company. Section 7(1)(a) of the Act states that for incorporation of a company, Memorandum of Association and Articles of Association of the company should be duly signed by the subscribers and filed with the Registrar. In addition to this, a memorandum has other objects as well. These are,
- It allows the shareholders to know about the company before buying it shares. This helps the shareholders determine how much capital will they invest in the company.
- It provides information to all the stakeholders who are willing to associate with the company in any way.
Format of Memorandum of Association
Section 4(5) of the Companies Act states that a memorandum should be in any form as given in Tables A, B, C, D, and E of Schedule 1. The Tables are of different kinds because of different kinds of companies.
Table A – It is applicable to a company limited by shares.
Table B – It is applicable to a company limited by guarantee and not having a share capital.
Table C – It is applicable to a company limited by guarantee and having a share capital.
Table D – It is applicable to an unlimited company not having a share capital.
Table E – It is applicable to an unlimited company having a share capital.
The memorandum should be printed, numbered and divided into paragraphs. It should also be signed by the subscribers of the company.
Sample of Memorandum of a Company Limited by Shares
XYZ Private Limited, a company, situated in Punjab, is engaged in the business of manufacturing security devices. It wants to register with the Registrar of Companies. For registration, the company has to first subscribe to a memorandum.
The Memorandum of Association of XYZ Private Limited will look like this:
(Since XYZ Private Limited is a company limited by shares, the form given in Table A will be applicable to it.)
The Companies Act, 2013
Company Limited by Shares
Memorandum of Association
XYZ Private Limited
- The name of the company is XYZ Private Limited. (Name Clause)
- The registered office of the company will be situated in the state of Punjab. (Registered Office Clause)
3. The object for which the company is established are (Object Clause):
(a) The objects to be pursued by the company on its incorporation are:
- To carry on business of manufacturing, converting, altering, designing, producing security systems.
- To trade, buy, sell or act as agents to import or export all security related devices.
- To carry on the business and act as buyers, sellers, traders, agents and dealers for obtaining the above objects.
(b) Matters which are necessary for the furtherance of the objects specified in clause 3A are:
- To manufacture and deal in packaging materials, boxes, grading, branding, weighting, and marketing for all kinds of security devices and other electronic components associated with it.
- To draw, make, accept, endorse, discount, execute, issue, negotiate, assign and otherwise deal with cheques, drafts, bills of exchange, promissory notes, hundies, debentures, bonds, bills of lading, railway receipts, warrants and all other negotiable or transferable instruments.
- To amalgamate with any other company or companies.
- To acquire or merge with any other company.
- To start a joint venture with any other company.
- To distribute any of the property of the Company amongst the members in specie or kind subject to the provisions of the Companies Act in the event of winding up.
- To apply for, tender, purchase, or otherwise acquire any contracts, subcontracts licences and concessions for or in relation to the objects or business herein mentioned or any of them, and to undertake, execute, carry out, dispose of or otherwise turn to account the same.
- The liability of the member(s) is limited and this liability is limited to the amount unpaid, if any, on the shares held by them. (Liability Clause)
- The share capital of the company is 70,00,000 rupees, divided into 2000 shares of 3500 rupees each. (Capital Clause)
- We, the several persons, whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of this memorandum of association, and we respectively agree to take the number of shares in the capital of the company set against our respective names:
|Names, addresses, descriptions and occupations of subscribers||No. of shares taken by each subscriber||Signature of subscriber||Signature, names, addresses, descriptions and occupations of witnesses|
|A.B. of…Merchant||…………..||Signed before me: Signature………………….|
|C.D. of…Merchant||…………..||Signed before me: Signature………………….|
|E.F. of. ..Merchant||…………..||Signed before me: Signature………………….|
|G.H. of…Merchant||…………..||Signed before me: Signature………………….|
|I.J. of…Merchant||…………..||Signed before me: Signature………………….|
|K.L. of…Merchant||…………..||Signed before me: Signature………………….|
|M.N. of…Merchant||…………..||Signed before me: Signature………………….|
Total shares taken: 1400
- I, whose name and address are given below, am desirous of forming a company in pursuance of this memorandum of association and agree to take all the shares in the capital of the company (Applicable in case of one person company):
|Name, address, description and occupation of subscriber||Signature of subscriber||Signature, name, address, description and occupation of witness|
|A.B. ……..Merchant||Signed before me: Signature………………….|
8. Shri/Smt_____________, son/daughter of ____________, resident of_____________ aged____________ years shall be the nominee in the event of death of the sole member (Applicable in case of one person company)
Dated____________ the day of________________
Content of Memorandum of Association
Section 4 of the Companies Act, 2013 states the contents of the memorandum. It details all the essential information that the memorandum should contain.
The first clause states the name of the company. Any name can be chosen for the company. But there are certain conditions that need to be complied with.
Section 4(1)(a) states:
- If a company is a public company, then the word ‘Limited’ should be there in the name. Example, “Robotics”, a public company, its registered name will be “Robotics Limited”.
- If a company is a private company, then ‘Private Limited’ should be there in the name. “Secure”a private company, its registered name will be “Secure Private Limited”.
- This condition is not applicable to Section 8 companies.
What kind of names are not allowed?
The name stated in the memorandum shall not be,
- Identical to the name of another company;
- Too nearly resembling the name of an existing company.
According to Rule 8 of the Company (Incorporation) Rules,2014.
- If a company adds ‘Limited’, ‘Private Limited’, ‘LLP’, ‘Company’, ‘Corporation’, ‘Corp’, ‘inc’ and any other kind of designation to its name to differentiate it from the name of the other company, the name would still not be accepted.
Undesirable names are those names which in the opinion of the Central Government are:
- Prohibited under the Provisions of Section 3 of Emblems and Names (Prevention and Improper Use) Act, 1950.
- Names which resemble each other, which are chosen to deceive.
- The name includes a registered trademark.
- The name includes any word or words which are offensive to a section of people.
- Name which is identical to or too nearly resembles the name of an existing Limited Liability Partnership.
Furthermore, statutory names such as the UN, Red Cross, World Bank, Amnesty International etc. are also not allowed to be chosen.
Names which in any way indicate that the company is working for the government are also not allowed.
Reservation of a Name
Section 4(5)(i) of the Act states that for formation of the Company, the Registrar on receiving the required documents can reserve a name for 20 days. If the application is made by an existing company, then once the application is accepted, the name will be reserved for 60 days from the date of application. The company should get incorporated with the reserved name in these 60 days.
If after making the reservation of a name, it is found that some wrong information is given. Then two cases arise.
- In case the company has not been incorporated. In this case, the Registrar can cancel the reservation of the name and impose a fine of Rupees 1,00,000.
- In case the company has been incorporated. In this case, after hearing the reasons of the company, the Registrar has 3 options. These are,
- On being satisfied, he can give 3 months time to the company to change the name by passing an ordinary resolution.
- He can strike off the name from the Register of Companies.
- He can file a petition of winding up of the company.
Rule 8 and 9 of the Company (Incorporation) Rules, 2014 state that the application for reservation of name under section 4(4) should be filed on Form INC – 1.
Registered Office Clause
The Registered Office of a company determines its nationality and jurisdiction of courts. It is a place of residence and is used for the purpose of all communications with the company.
Section 12 of the Companies Act, 2013 talks about Registered Office of the company.
Before incorporation of the company, it is sufficient to mention only the name of the state where the company is located. But after incorporation, the company has to specify the exact location of the registered office. The company has to then get the location verified as well, within 30 days of incorporation.
It is mandatory for every company to fix its name and address of its registered office on the outside of every office in which the business of the company takes place. If the company is a one-person company, then “One-person Company” should be written in brackets below the affixed name of the company.
Change in place of Registered Office should be notified to the Registrar within the prescribed time period.
Section 4(c) of the Act, details the object clause.The Object Clause is the most important clause of Memorandum of Association. It states the purpose for which the company is formed. The object clause contains both, the main objects and matters which are necessary for achieving the stated objects also known as incidental or ancillary objects. The stated objects must be well defined and lawful according to Section 6(b) of the Companies Act, 2013.
By limiting the scope of powers of the company. The object clause provides protection to:
Shareholders – The object clause clearly states what operations will the company perform. This helps the shareholders know their investment in the company will be used for what purpose.
Creditors – It ensures the creditors that capital is not at risk and the company is working within the limits as stated in the clause.
Public Interest – The object clause limits the number of matters the company can deal with thus, prohibiting diversification of activities of the company.
Doctrine of Ultra Vires
If the company operates beyond the scope of the powers stated in the object clause, then the action of the company will be ultra vires and thus void.
Consequences of Ultra Vires
- Liability of Directors: The directors of the company have a duty to ensure that company’s capital is used for the right purpose only. If the capital is diverted for another purpose not stated in the memorandum, then the directors will be held personally liable.
- Ultra Vires Borrowing by the Company: If a bank lends to the company for the purpose not stated in the object clause, then the borrowing would be Ultra Vires and the bank will not be able to recover the amount.
- Ultra Vires Lending by the Company: If the company lends money for an ultra vires purpose, then the lending would be ultra vires.
- Void ab initio – Ultra Vires acts of the company are considered void from the beginning.
- Injunction – Any member of the company can use the remedy of injunction to prevent the company from doing ultra vires acts.
The Liability Clause provides legal protection to the shareholders by protecting them from being held personally liable for the loss of the company.
There are two kinds of limited liabilities:
Limited By Shares – Section 2(22) of the Companies Act, 2013 defines a company limited by shares. In a company limited by shares, the shareholders only have to pay the price of the shares they have subscribed to. If for some reason they have not paid the full amount for the shares and the company winds up then their liability will only be limited to the unpaid amount.
Limited By Guarantee – It is defined in Section 2(21) of the Companies Act, 2013.A company limited by guarantee has members instead of shareholders. These members undertake to contribute to the assets of the company at the time of winding up. The members give guarantee of a fixed amount that they will be liable for.
Non-profit Organizations and other charities usually have a structure of companies limited by guarantee.
It states the total amount of share capital in the company and how it is divided into shares. The way the amount of capital is divided into what kind of shares. The shares can be equity shares or preference shares.
Illustration: The share capital of the company is 80,00,000 rupees, divided into 3000 shares of 4000 rupees each.
The Subscription Clause states who are signing the memorandum. Each subscriber must state the number of shares he is subscribing to. The subscribers have to sign the memorandum in the presence of two witnesses. Each subscriber must subscribe to at least one share.
In this clause, the subscribers to the memorandum make a declaration that they want to associate themselves to the company and form an association.
Memorandum of Association for One-Person-Company
A one-person company is called so because it can be formed by one person. The minimum capital required to form a one-person company is 1,00,000 Rupees.
It is a new concept which has been introduced to promote entrepreneurship. All the laws which are applicable on private companies will be applicable on one-person company.
Section 2(62) of the Companies Act, 2013 defines one-person company.
A one-person company is a separate legal entity from its owner. It is mandatory for the company to be converted into a private limited company in case its annual turnover crosses the 2 Crore mark.
In case of one-person-company, in addition to all the other clauses, the Memorandum of Association contains a clause called the Nomination Clause. This clause mentions the name of an individual who will become the member in case the subscriber dies or becomes incapacitated. The nominee must be an Indian citizen and resident of India i. e. he must have been living in India for at least 182 days in the preceding year. A minor cannot be a nominee.
The individual whose name is mentioned should give his consent in written form and it is required to be filed with the Registrar of Companies at the time of incorporation.
If the nominee wants to withdraw, he shall give it in writing and the owner of the company will have to nominate a new person within 15 days.
What’s the use of Memorandum of Association?
- It defines the scope & powers of a company, beyond which the company cannot operate.
- It regulates company’s relation with the outside world.
- It is used in the registration process, without it the company cannot be incorporated.
- It helps anyone who wants to enter into a contractual relationship with the company to gain knowledge about the company.
- It is also called the charter of the Company, as it contains all the details of the company, its members and their liabilities.
Subscription of Memorandum of Association
Subscribers are the first shareholders of the company. They are the people who agreed to come together and form the company. The name of each subscriber along with their particulars are mentioned in the memorandum.
Different kinds of companies require different number of subscribers for incorporation.
- Private Company: In case of a private company, the minimum number of subscribers required are 2.
- Public Company: In case of a public company, 7 or more subscribers are required.
- One-Person-Company: In case of one-person-company, only one person is required.
Who can Subscribe?
Rule 13 of the Companies (Incorporation) Rules, 2014 describes the provisions of subscribing to the memorandum.
There are specific kinds of persons (natural or artificial) who can subscribe to the memorandum. These are:
- Individuals – An individual or a group of individuals can subscribe to the memorandum.
- Foreign citizens and Non Resident Indians – Rule 13(5) of the Companies (Incorporation) Rules, states that for a foreign citizen to subscribe to a company in India, his signature, address and proof of identity will need to be notarized.
The foreign national must have visited India and should have a Business Visa.
For a Non Resident Indian, the photograph, address and identity proof should be attested at the Embassy with a certified copy of a passport. There is no requirement of Business Visa.
- Minor – A minor can only be a subscriber through his guardian.
- Company incorporated under the Companies Act – The company can be a subscriber to the memorandum. The Director, officer or employee of the company or any other person authorized by the board of resolution.
- Company incorporated outside India – Foreign Company is defined in Section 2(42) of the act, it states that a foreign company is a company incorporated outside India. A company registered outside India can also subscribe to the memorandum by fulfilling the additional formalities.
- Society registered under the Societies Registration Act, 1860.
- Limited Liability Partnership – A partner of a limited liability partnership can sign the memorandum with the agreement of all the other partners.
- Body corporate incorporated under an Act of Parliament or State Legislature can also be a subscriber to the memorandum.
Subscription to Memorandum of Association
Every subscriber should sign the memorandum in presence of at least one witness. The following particulars of the witness should also be mentioned.
- Name of the witness
If the signature is in any other language then, then an affidavit is required that declares that the signature is the actual signature of the person.
According to Circular No. 8/15/8, dated 1-9-1958. The subscriber can also authorize another person to affix the signature by granting a power of attorney to the person. Department Circular No. 1/95, dated 16th February 1995 states that only one power of attorney is required.
The person who is granted the power of attorney may be known as an agent.
He should also state the following particulars in the memorandum:
- Name of the agent
Particulars to be Mentioned in Memorandum of Association
Rule 16 of the Companies (Incorporation) Rules, 2014 details the particulars that are to be mentioned in the memorandum.
Every Subscriber’s following details should be mentioned.
- Name (includes last name and family name), a photograph should be affixed and scanned with the memorandum.
- Father’s Name and Mother’s Name
- Date of Birth
- Place of Birth
- Permanent Account Number
- Permanent and Current Address
- Contact Number
- Fax Number (Optional)
- 2 Identity Proofs in which Permanent Account Number is mandatory.
- Residential Proof (not older than 2 months)
- Proof of nationality, if subscriber is a foreign national
- If the subscriber is a current director or promoter, then his designation along with Name and Company Identity Number
If a body corporate is subscribing to the memorandum then the following particulars should be mentioned.
- Corporate identity number of the company or registration number of the body corporate.
- Global location number, which is used to identify the location of the legal entity. (Optional)
- The name of the body corporate.
- The registered address of the business.
- Email address.
In case the body corporate is a company, then a certified copy of Board resolution which authorizes the subscription to the memorandum. The particulars required in this case are,
- Number of shares to be subscribed by a body corporate.
- Name, designation and address of the authorized person.
In case the body corporate is a limited liability partnership. The particulars required are,
- A certified copy of the resolution.
- The number of shares that the firm is subscribing to.
- The name of the authorized partner.
In case the body corporate is registered outside the country. The particulars required are,
- The copy of certificate of incorporation.
- The address of the registered office.
Printing and Signing of Memorandum of Association
Section 7(1)(a) states that the memorandum should be duly signed by all the subscribers and should be in a manner prescribed by the Act.
Rule 13 of the Company (Incorporation) Rules, 2014 describes the manner in which the memorandum should be signed.
- The Memorandum of Association should be signed by each subscriber to the memorandum. The subscriber shall mention his name, address, occupation and the number of shares he is subscribing to. The documents should be signed in the presence of at least one witness. The witness would also mention his name, address, and occupation. By signing the memorandum, the witness states that, “I witness to subscriber/subscriber(s)who has/have subscribed and signed in my presence (date and place to be given); further I have verified his or their Identity Details (ID) for their identification and satisfied myself of his/her/their identification particulars as filled in.”
- If the person subscribing to the document is illiterate, he can either authorize an agent to sign the document through Power of Attorney or he can put his thumb impression on the column for signatures. The person’s name, address, occupation and the number of shares he is subscribing to should be written by a person who has been allowed to write for him. The person who is writing for the illiterate person should read and explain the contents of the document to an illiterate person.
- Where the person subscribing to the memorandum is an artificial person i. e. a body corporate the memorandum shall be signed by the employee, officer or any person authorized by the Board of Resolution.
- Where the person subscribing to the memorandum is a foreign national who does not reside in India but in a country,
- in any part of the Commonwealth, his signatures and address on the memorandum and proof of identity shall be notarized by a Notary (Public) in that part of the Commonwealth.
- in a country which is a signatory to the Hague Apostille Convention, 1961, his signature and proof of identity and address on the memorandum shall be notarized before the Notary (Public) of the country of his origin and be duly approved in accordance with the said Hague Convention.
- in a country outside the Commonwealth and which is not a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and proof of identity, shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer empowered in this behalf under section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948 (40 of 1948).
Section 3 of the Diplomatic and Consular Officers states that, every Diplomat or any officer in a foreign country can perform the functions of a notary public.
- Where there is no Diplomatic or Consular officer by any of the officials mentioned in section 6 of the Commissioners of Oaths Act, 1889.
- If the foreign national visited India and intended to incorporate a company, in such a case the incorporation shall be allowed if, he is having a valid Business Visa.
Section 15 of the Companies Act, 2013 states that the memorandum should be in printed form.
The Ministry of Corporate Affairs has clarified that a document printed in form laser printers will be considered valid provided it is legible and fulfills other requirements as well.
The submission of xerox copies is not allowed. The xerox copies can be submitted to the members of the company.
Alteration, Amendment & Change in Memorandum of Association under Companies Act, 2013.
The term “alter” or “alteration” is defined in Section 2(3) of the Act, as any additions, omissions or substitutions. A company can alter the memorandum only to the extent as permitted by the Act. According to Section 13, the company can alter the clauses in the memorandum by passing a special resolution.
A resolution is a formal decision taken in a meeting. There are two kinds of resolutions, ordinary and special. A special resolution is one which requires at least 2/3rd majority to be effective. The alteration to the clauses also require the approval of the Central Government in writing.
The alteration of memorandum can happen for a variety of reasons. The alteration can be made if,
- Enables the company to carry its business more effectively;
- Helps to achieve the objectives;
- Helps the company to amalgamate with another company;
- Helps the company dispose off any undertaking.
Alteration of Memorandum
The alterations of various clauses of the memorandum have different procedures:
- Alteration to the Name Clause: To alter the name of the company, a special resolution is required. After the resolution is passed, the copy is sent to the registrar. For changing the name, the application needs to be filed in Form INC- 24 with the prescribed fees. After the name is changed, a new certificate of incorporation is issued.
- Alteration to the Registered Office Clause: The application for changing the place for Registered Office of the company shall be filed with the Central Government in Form INC- 23 with the prescribed fees.
If the company is changing its Registered Office from one to another, then the approval of the Central Government is required. The Central Government is required to dispose off the matter within 60 days and should ensure that the change of place has the consent of all the stakeholders of the company.
- Alteration to the Object Clause: To alter the object clause, a special resolution is required to be passed. The changes must be confirmed by the authority. The document which confirms the changes by authority with a printed copy of the altered memorandum should be filed with the Registrar.
If the company is a public company, then the alteration should be published in the newspaper where the Registered Office of the company is located. The changes to the object clause must also mentioned on the company’s website.
- Alteration to the Liability Clause: The Liability clause of the memorandum cannot be altered except with the written consent of all the members of the company. By altering the liability clause, the liability of the directors of the company can be made unlimited. In any case, the liability of the shareholders cannot be made unlimited. Changes in the liability clause can be made by passing a special a special resolution and sending a copy of the resolution to the Registrar of Companies.
Alteration to the Capital Clause: The capital clause of a company can be altered by an ordinary resolution.
The company can,
- Increase its authorised share capital;
- Convert the shares into stock;
- Consolidate and divide all of its shares;
- Cancel the shares which have not been subscribed to;
- Diminish the share capital of the shares cancelled.
The altered Memorandum of Association should be submitted to the Registrar within 30 days of passing the resolution.