Memorandum of Association:
Memorandum of Association is a document that contains the objects for which the company is formed, and therefore, identifies the possible scopes its operations beyond which its actions cannot go.
The memorandum of association sets out the constitution of the company. It is, so to speak, the charter of the company and provides the foundation on which the structure of the company is built.
In other words, The memorandum of association of a company contains fundamental conditions upon which alone the company is allowed to be incorporated.
Clauses of Memorandum of Association:
The Memorandum of Association contains the following clauses:
1. Name clause:
Under this clause, the name of the company is stated. Any suitable name may be chosen subject to the following restrictions:
(a) The word ‘Limited’ or ‘Private Limited’ must be the last word in the name of every public limited company or private limited company.
(b) The proposed name should not be identical or similar to the name of another existing company.
(c) The proposed name should not convey any connection or link with a government department or local authority.
(d) The name should not include the word ‘Cooperative.‘
(e) The name of the company should be prominently affixed outside the premises of the company.
(f) The name must be engraved on the common seal.
(g) The government may permit a company to be registered with limited liability without the addition of the word ‘limited’ to its name.
2. Domicile or Situation clause:
This clause contains the name of the state in which the registered office Of the company is to be situated.
This is required in order to fix the domicile Of the company, i.e., the place of registration.
Further, every company must have a registered office from the day it begins to carry on its business or within 30 days of its incorporation, whichever is earlier, to which all communication and notices may be addressed.
3. Objects clause:
This clause can be considered as the core of the Memorandum of Association. It sets out the objects with which a company is formed.
It defines and confines the scope Of activities of the company. It shows the members the range of activities of the company for which the capital will be employed.
A company can exercise only such powers that are expressly stated therein or as may be implied therefrom including matters incidental to the powers so conferred.
The objects of the company must be legal and very clearly defined. They should not be contrary to the provisions Of any law.
They must not be immortal, as opposed to public policy or fraudulent or offending against the provisions of the Act.
According to the current provisions of the Companies Act, the object clause of the memorandum of association should be stated as follows:
(a) The main object to be pursued by the company on its incorporation.
(b) Objects incidental or ancillary to the attainment of the main object.
(c) Other objects of the company not included in the above objects which it is likely to take up subsequently.
4. Liability clause:
Under this clause, the memorandum must state the nature and extent of liability of its members.
In the case of a company limited by shares, the liability clause shall state that the liability of members is limited.
In such a case, a member can be called upon to pay more than the unpaid amount on the shares held by him.
In the case of a company limited by guarantee, this clause will state the amount which every member undertakes to contribute to the asset of the company in the event of its being wound up.
5. Capital clause:
Under this clause, the memorandum states the amount of share capital with which the company is to be registered. It should also state the number and face value of the shares.
If the capital is divided into preference and equity shares, the number and value of both the types of shares are to be shown in the clause.
The capital is known as the ‘Registered’, ‘Authorised’ or ‘Nominal’ Capital of the company.
A company cannot issue shares beyond the amount of registered capital without altering the capital clause as provided by Section 94.
6. The Association or Subscription clause:
In this clause, the subscribers declare that they desire to be formed into a company and agree to fulfill the following requirements:
(a) Each subscriber states his name, address, description, and occupation.
(b) Each subscriber shall sign the memorandum in the presence of a witness and who shall attest the signature, the witness cannot be any one of the other subscribers.
(c) Each subscriber shall take not less than one share if the company has a share capital.
d) Each subscriber shall write to his name the number of shares he takes.
It is also pertinent to note that no subscriber can withdraw his name on any ground after registration of the memorandum, i.e., the company.
Importance of Memorandum of Association:
It is important not only for the company but also for the shareholders, creditors, and those who deal with the company as well.
The importance of memorandum is discussed below:
1. Basic for the Company: A company cannot be registered without this document.
2. Determines the scope of the company: It lays down the scope of activities of the company beyond which the company cannot go.
3. Source of the company’s power: It defines the powers of the company and also confines them.
4. Guide to the directors: It guides the directors to work for achieving the objects of the company and restrains them from doing anything beyond the scope of the memorandum.
5. Protection to investors: Every investor before investing his money in a company can know and evaluate the risk involved in the company with the help of the memorandum.
6. Protection to creditors: The creditors can go through the memorandum and analyze the risk of granting credit to the company.
7. Facilitates other parties: They can easily know the permitted range of the company’s activities and decide the contracts which may or may not be entered with the company. They can also evaluate the risk involved in the company.
Difference Between Memorandum of Association and Articles of Association:
|Memorandum Of Association||Articles of Association|
|The M/A is the charter of a company that defines the fundamental conditions upon which alone the company is allowed to be incorporated.||A/A is a document that contains the rules and regulations for the management of the internal affairs of a company.|
|2. Scope The M/A is a sort of constitution of the company. The company works in the framework given in the memorandum.||The articles contain bye-laws for day to day working of the company. Articles are framed in the orbit of the M/A.|
|3. Contents M/A contains the objects of a company beyond which the company cannot go. Besides, it contains name, place, capital and liability clauses.||It contains rules and regulations for the management of the internal affairs of the company.|
|4. Necessity Every company is required to frame an original M/A for its registration.||A company limited by shares need not frame articles for its registration. If A/A is not registered, Table A applies to it.|
|5. Dominant & Subordinate The WA is a dominant document that cannot be controlled by the articles.||A/A is subordinate to the M/A. It can be controlled and modified by provisions of M/A.|
|6. Alteration M/A can be altered only under certain circumstances and sometimes with the permission of the Central Government or Company Law Board.||Generally, articles can be altered by a special resolution passed in the general meeting of the company|
|7. Compliance of Provisions M/A is prepared by complying with the provisions of the Companies Act. No provision of it can be contrary to the provisions.||A/A is framed by complying with provisions of both the memorandum and the Companies Act.|