A Memorandum of Association serves as a charter document of companies falling under the Companies Act 2013. It comprises six fundamental clauses, namely- Name Clause, Domicile Clause, Objects Clause, Liability Clause, Capital Clause, and Subscription Clause, that govern the organization to its entirety. Here’s everything you need to know about MoA.
The significance of MoA in the Corporate Landscape
Devising a Memorandum of Association is the first step towards the company incorporation process. No organizations can perform their undertakings beyond the scope underlined in MOA. It also clarifies the interplay between shareholders and the company.
Memorandum of Association acts as a primary source of interaction for new investors intending to put their funds into the company. There is another important document that is equally important as the MOA called the Article of Association. It paves the roadmap for the day-to-day managerial affairs of the company.
How MOA (Memorandum of Association) and AOA are different?
Devising a Memorandum of Association as per the governing act is an important part of the company incorporation process. In most nations, filing a Memorandum of Association is a part of ROC compliance. The Ministry of Corporate Affairs has introduced the SPICe+ form that eases the company incorporation process. The SPICe+ is an e-form that contains two important parts, namely- Part A and Part B.
The submission of this e-form is followed by the furnishing of e-MoA (INC-33) and e-AoA (INC-34). The non-submission of these important forms prevents the applicant from completing the incorporation formalities.
The Memorandum of Association specifies the organization’s interplay with the shareholders. Apart from that, it also embodies the object of the company and the power within which it can act. The Article of Association is much more elaborate than the Memorandum of Association as it renders an array of information such as:
- Methods of issuing shares
- Dividend Payouts
- Audit fiscal records
- Voting rights
Without AoA, the governing authority cannot legalize the autonomous identity of the company that separates it from its stakeholders.
Prescribed forms of Memorandum of Association
|A firm limited by shares
|An organization limited by guarantee & lacking share capital
|An organization limited by guarantee & have a share capital
|An unlimited company
|An unlimited company with a share capital
Casting Light on the Role of Memorandum of Association
Here’s what the Memorandum of Association specifies in general:
Identify the area of operation
A Memorandum of Association specifies undertakings that a company can perform. It does not permit companies to serve any function or task that falls outside its ambit.
Specifies interplay between the company and stakeholders
The ultimate objective of the Memorandum of Association is to facilitate details about creditors, shareholders, and other stakeholders.
Fixed the company’s charter
The Memorandum of Association serves as a fixed charter for the organization in accordance with section 16 of the Companies Act.
Basis of incorporation
Applicants seeking an incorporation certificate is required to file a Memorandum of Association with the RoC i.e, Registrar of Companies. To get incorporated, the MoA must enclose the signature of a minimum of seven persons in case of a public ltd. co. and 2 authorized people in the case of a private limited company.
Key Facts about the Memorandum of Association
- The Memorandum of Association underpins the scope and extent of the undertakings that an organization is limited to. The company can engage in affairs that fall under the ambit of the Memorandum of Association.
- If a company wishes to augment its presence in other business domains, the same must be reflected in the Memorandum.
- The drafting of the Memorandum of Association as per the governing act is compulsory for companies fenced by limited liability. Such companies include a Limited Liability Partnership (LLP) and Private Limited Companies (Pvt Ltd).
- MOA draws a line of distinction between the company and shareholder by defining their relationship explicitly.
- The Memorandum of Association is publicly accessible and hence anyone can use it to their advantage, particularly in case of investment. Right to Information (RTI) Act grants exclusive rights to an Indian citizen to access government-related documents without hassle.
- Memorandum of Association also pens down the company’s name, address, shareholders’ details, and distribution of shares. Sometimes, MoA entails exemptions for a particular organization.
- The MoA and AoA, in conjunction, pave the foundation of the company’s constitution. The Memorandum of Association has no legal significance in a nation like the United States. However, it is a mandate for LLCs operating in European nations such as France, the United Kingdom, and the Netherlands.
A Detailed Overview of Clauses of Memorandum of Association
A Memorandum of Association contains six fundamental clauses that as described below:
As the name suggests, the name clause is all about the name of the company. While drafting the MoA, make sure the selected company name is unique and non-conflict to its entirety. Any similarity in this context can lead to a legal dispute.
The domicile clause entails the details about the company’s registered office address. Also, it contains the name of the enrolled registrars.
The objects clause is one of the important clauses in MoA as it entails detailed information about the company’s operation and goal. Once the MOA comes into effect, no registered companies can engage in affairs that are beyond this clause. The statement of objects confers the following benefits to the people associated with the company.
- Ensure protection for the subscribers by instilling clarity on the invested funds.
- Allows shareholders to respond cautiously during disputes by ensuring clarity on the extent of the firm’s powers.
- Prevent BODs from using the company’s funds for purposes other than those mentioned in MOA.
The liability Clause reflects the member’s liability in the company. It confirms that each member adheres to a limited liability. Also, it encloses the amount to be paid by each member in case of mishaps like closing or winding up. Simply put, the clause limits the amount of contribution to be made by members to their shareholding threshold.
This clause illustrates the share capital with which the firm is incorporated. Additionally, this clause also mentions the following
- Types of Shares
- The no. of each type of share
- Face value of each share
The subscription clause is the last in the Memorandum of Association. It pens down the shareholder’s motive behind the company’s incorporation and also illustrates that the subscribers confirm to buy the company’s shares as per the MoA subscriber sheet.
The Memorandum of Association is more than a mandate for any company since it serves various purposes. Drafting of MoA is not difficult anymore, thanks to the e-filing procedure introduced by the Ministry of Corporate Affairs. The founders and the members of the company must pay undue attention to the details to be incorporated in MoA to avert any legal complications or disputes in the future.