Updated : August 24, 2024What is the Memorandum of Association(MOA) and Its Clauses?
Overview :The blog discusses six key clauses of memorandum of association in detail. From basic information like name and address to detailed information like subscribers and subscriptions, MOA & its clauses collectively contain every bit of information you need to know about a company. Moreover, since it is publicly accessible, every piece of information here is credible, verifiable, and transparent. Read thoroughly to understand the meaning, content, and structure of memorandum of association (MOA) and all its clauses in detail.
A Memorandum of Association (MOA) in company law is considered the Constitution or Charter of an incorporated company, as it contains all its basic legal details like name, registered address, business objective, liability, and subscription. The entire document is drafted in a specific format on a stamp paper of appropriate value, later stamped and notarised by a public notary.
Similar to other legal documents, adhering to the format of MOA is extremely crucial to maintain its legal validity and ensure successful registration with the Registrar of Companies (ROC). Let’s explore the memorandum of association and its clauses forming the core of its format in detail.
What is MoA?
An MoA or Memorandum of Association in company law is one of the most significant legal draftings of an incorporated company. It is popularly known as its “Constitution” or “Charter” as it contains all its legal and foundational details recorded with the ROC during the company registration process . Primarily these details include the name, registered office address, objective of establishment, liability of the owners, capital of the company, and name of the nominee, if applicable.
The Memorandum of Association (MoA) draft is typically drafted by authorized directors of the company on stamp paper and requires the signature of all shareholders for validity. It’s crucial to note that individuals who do not sign the MoA won’t be recognized as shareholders under any circumstances. To ensure legal acceptance, the document must undergo a stamping and notarization process.
This involves all shareholders signing the MoA in the presence of a public notary and two witnesses. The notary then affixes a stamp, making the document legally valid. Additionally, a stamp duty, which is determined by the State Government, must be paid to complete the process.
Legal Framework & Key Provisions of MOA under the Companies Act
The Memorandum of Association (MOA) forms the foundational document for companies incorporated in India. Its legal framework is primarily governed by the Companies Act of 2013. The Act contains crucial provisions for regulating a company’s establishment, and governance through its MOA. Adherence to these provisions is imperative to operate within the bounds of the law and ensure compliance. Let’s explore some of the key provisions in detail.
| Key Sections | Detailed Provisions |
|---|---|
| Section 3 | A company may be formed for any lawful purpose by the requisite number of shareholders after subscribing their name/s to the Memorandum of Association. |
| Section 4 | MOA of a company must include crucial information such as the company’s name, the registered office address, the company’s objectives, the liability clause, and details about its capital structure. |
| Section 7 | Outlines the process of drafting, submitting, and registering the MOA with the ROC during the Company Incorporation process |
| Section 13 | Section 13 of the Companies Act mentions the process for altering the MOA. Companies may need to amend their MOA due to changes in name, business objectives, alterations in the capital structure, or shifts in the registered office. The section provides a legal framework and processes for such modifications, |
Significance of MOA in Company Registration & Governance
The relevance of the Memorandum of Association (MoA) lies in its multifaceted utility, serving pivotal roles during company registration and business operations. This foundational document not only ensures the legal standing of a company but also acts as the most credible and transparent source of information about it.
The MoA thus becomes a publicly accessible document that continues to shape and define the company’s identity and objectives beyond its initial establishment. Let’s delve into the distinctive purposes that make the MoA an indispensable document for any incorporated company.
- Company Registration: The registration of a company is not possible without a valid and accurately drafted Memorandum of Association. The MOA is one of the documents that is submitted with the application for company registration. When the application reaches the Registrar of Companies, he not only registers the name of the company but also its Memorandum of Association.
- Company Changes: You cannot alter or change any foundational detail of the company without appropriately altering the MOA. For instance, if you are looking forward to changing the registered office address of the company, the application filed for the same to the ROC will be supported by an altered or modified copy of the MOA consisting of the new registered address. Upon receiving the application, the ROC will not only change the address but also update the MOA registered with it.
- Enhances Credibility: The MOA of a company registered with the ROC, is a document that can be publicly viewed and inspected. This enhances the credibility of a company, especially for its investors and creditors, as every detail with which the company is operating on the ground can be easily and accurately verified.
- Reliable Source of Information: The MOA, kept at the company’s registered office, serves as a key reference point for insiders and external visitors. It ensures easy access to information for executives and employees, fostering a clear understanding of the company’s mission. Additionally, external stakeholders, including investors and regulatory authorities, benefit from transparent insights into the company’s structure and objectives. By maintaining the MOA at the registered office, the company upholds regulatory compliance and builds trust through transparency.
- Supremacy in Compliance: The MOA defines the powers of a company. Any act done by the company or any of its stakeholders that contradicts the provisions of the MOA shall be deemed null and void. Even the Articles of Association of the company, which contains the rules, regulations, and procedures of its internal management, should be drafted in complete adherence to the provisions and clauses of the MOA.
Also Read: Difference between MOA and AOA
Clauses Of Memorandum of Association (MOA)
The Memorandum of Association (MOA) comprises six crucial clauses, each serving a distinct purpose in shaping the legal framework of a company. These clauses, namely the Name Clause, Registered Office Clause, Object Clause, Liability Clause, Capital Clause, and Declaration Clause, collectively form the backbone of a company’s constitution. The table below lists all the memorandum of association clauses in their chronological order, giving an insight into its detailed format. Further, we have also explained the purpose of each clause for a clearer understanding.
| S.No. | Clause of MOA |
|---|---|
| 1 | Name Clause |
| 2 | Registered Office Clause |
| 3 | Object Clause |
| 4 | Liability Clause |
| 5 | Capital Clause |
| 6 | Declaration Clause |
| 7 | Nominee Clause (in case of one person company only) |
Name Clause
The name clause is the first among the clauses of memorandum of association. It mentions the name of the company already approved by the ROC for use. A company’s name must be unique and in adherence to the legal principles highlighted in the Companies Act of 2013. Read our detailed blog on MCA guidelines for naming a company to understand these guidelines in depth.
Also, the name mustn’t be similar to any trademark already applied or registered, to avoid infringement and legal issues. After the name gets ROC approval, it must be drafted into the “Name Clause” of the MOA and submitted to the ROC during Company Registration.
Registered Clause
Also called the “Domicile” or “Situation” clause, the Registered Office clause is second among the clauses of MOA. It mentions the state and jurisdiction in which the registered office of the company is situated. A Registered Office is the most relevant address of correspondence in the company’s records. All the official communications are addressed, records are maintained, and inspections are conducted here.
Every company must have one registered address located in India, and the state of location must be mentioned in the “Registered Office” clause of the MOA. Note here that there is no need to mention the full address of the registered office, although crucial documents regarding the same must be submitted during the company registration process.
Object Clause
Business Objectives and activities are the core matter of a company’s MOA. Hence, this information must be mentioned in its “Object” clause. This is the third and most significant of the Memorandum of Association clauses. You can mention the objects under three heads:
- Main object which contains the primary business activities
- Ancillary object which contains the secondary business activities carried out to fulfill the main object
- Other objects which contain any other miscellaneous business activities carried out by the company which is not its primary or secondary activity.
Remember that the company cannot carry any business activity for the fulfillment of an object not mentioned in the MOA. If such an activity is carried out, it will be deemed ultra vires. So, in other words, we can say that the object clause defines the purpose of establishment and the scope of a company’s business.
Liability Clause
Fourth among the Memorandum of Association clauses is the “Liability Clause”. This clause mentions the kind of liability that the owners have towards the company. A company can either offer limited or unlimited liability to its owners. Further, if the liabilities are limited, they may be limited either by shares or guarantees. Clear information about the nature of liability must be clarified in the “Liability” clause of the MOA. Let’s understand what each of these liabilities means.
- Limited by Shares: The liability of each shareholder is limited to the unpaid amount of their individual subscribed capital, which is worth the amount of shares bought by them from the company.
- Limited by Guarantee: The liability is limited by guarantee of the promoters. Each promoter guarantees an amount they will pay in the event of the company being wound while he is a member, or a year after he ceases to be a member. This amount will be used to pay off the debts and liabilities of the company that were accumulated while the promoter was a member, in addition to the charges and expenses of winding up.
- Unlimited: Unlimited Liability indicates that the shareholder’s liability is unrestricted by any fixed amount. Additionally, their personal assets are at risk of loss during unprecedented circumstances like winding up or debt recovery.
Capital / Subscription Clause
The Capital or Subscription Clause is fifth among the Memorandum of Association clauses. It contains crucial financial information about the company including the current value of its authorized and subscribed capital. It mentions the distribution of the subscribed capital among the shareholders with the details of the shares allocated to them. Essentially, the clause contains details of the company’s ownership structure, giving insights into its resources, and overall investment since its incorporation.
Declaration Clause
The sixth and final among the Memorandum of Association clauses is the “Declaration of Association” This clause mentions the names of all the members/shareholders/promoters of a company along with their designations and shareholding in the company. The clause will be signed by all the shareholders in the presence of witnesses.
The names, addresses, and occupations of all such witnesses must also be mentioned adjacent to the signatures of the shareholders. Finally, the shareholders declare their desire to form a company as per the provisions of the MOA and agree to subscribe to the number of shares mentioned adjacent to their names. Owing to their signatures in this clause, the document is legally binding on the shareholders.
Nominee Clause
The Nominee Clause applies only to One-person companies in India. It is supposed to mention the name of the nominee chosen by its shareholder. Nominees are chosen to succeed the shareholder in the event of his demise or permanent departure due to incapacity in holding office. They are the major reason for an OPC’s continued or perpetual existence despite the change in ownership. Note that this clause need not be a part of Memorandum of Association clauses for any other type of company except an OPC.
Memorandum of Association Clauses Changes
While the MOA serves as a foundational framework for a company’s incorporation, it is not static and can be subject to modifications under specific circumstances. The legal provisions regarding alterations in the clauses of Memorandum of Association are primarily governed by the Companies Act, 2013. We have explained each of these provisions in detail below.
Section 13 of the Companies Act, 2013: This section delineates the process and conditions for altering the clauses of Memorandum of Association. It stipulates that alterations must be in adherence to the provisions of the Companies Act and the Articles of Association (AOA). It emphasizes the following key aspects:
- Adherence to MOA & AOA: Any alteration in the clauses of MoA must confirm to the provisions outlined in both the Companies Act and AOA. The AOA specifies the internal rules and regulations governing the company, including the specific procedures for changing the MOA clauses.
- Special Resolution & Shareholder’s Approval: Changes in the Memorandum of Association clauses necessitate the passing of a special resolution by shareholders during a general meeting. This resolution, approved by a two-thirds majority, lays the foundation for proposed alterations.
- Approval by Other Regulatory Authorities: Certain substantial changes may require additional approval by other relevant regulatory authorities like the NCLT, Regional Directors, State Governments, and Central Governments. The process of approval mentioned in the AOA must be followed diligently.
- Notice to Registrar: Following the approval of alterations of MOA clauses by shareholders and applicable regulatory authorities, the company must promptly file the revised MOA with the Registrar of Companies (ROC), ensuring the updation of public records.
What Can Be Altered in an MOA?: Companies can consider alterations in the following Memorandum of Association Clauses:
- Change in Name: The company name can be altered, subject to regulatory approval and adherence to guidelines laid out in the Companies Act.
- Change in Registered Office Address: Companies might need to alter their registered office address due to relocation or other operational reasons. The change requires adherence to legal procedures.
- Change in Business Objectives: If there is a shift in the company’s focus or diversification of business activities, alterations in the object clause of the MOA become pertinent.
- Change in Capital Structure: Alterations related to the authorized and subscribed capital, share classes, or other capital-related details can be made with due compliance.
- Change in Liability: Companies can consider altering the liability clause in the MOA. The liability clause specifies the nature of liability that owners have towards the company, whether it’s limited by shares, limited by guarantee, or unlimited. Changes in the liability structure should align with legal provisions and may require shareholder consensus.
Process of MOA Clauses Alterations: The alteration process for Memorandum of Association clauses typically involves proposing the changes, obtaining shareholder approval through a special resolution, and subsequently seeking approval from regulatory authorities whenever and wherever necessary. The revised MOA, reflecting the approved alterations, must be submitted to the Registrar of Companies (ROC) for updating company records. Additionally, the resolution approving the changes by the shareholders must also be submitted with the altered MOA as well.
Conclusion
The Memorandum of Association (MOA) is a legal document that encapsulates every crucial detail necessary for a company's establishment, operation, and governance. Each clause of MOA plays a pivotal role. The publicly accessible nature of MOA ensures transparency and credibility and also reinforces the legal standing and identity of the company. The above explanation of MOA & its clauses clarifies that drafting MOA in the correct format is crucial!
