Memorandum of Association is simply the constitution or charter of a company.
According to the companies Act, 2013, “memorandum” means “memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.”
The memorandum of association contains the fundamental provisions of the company’s constitution and all those essential conditions upon which the company can be incorporated. It determines the powers and limitations of the company and determines the scope beyond which company`s operations cannot go.
It consists of the following:
- Name of the company
- Address of Registered Head Office
- Capital structure of the company
- Objects of the company
- Scope of its Operations
- Liability of its members
Purpose/Importance of Memorandum of Association –
- The memorandum enables all those who deal with the company be it shareholder or creditors to know the purpose of company and its range of activities.
- The document of memorandum limits the company`s capacity to contract, thereby restricting it to the activities mentioned in the memorandum of association at the time of its formation.
Form of Memorandum –
Memorandum of a company should is prepared according to the respective forms specified in Tables A,B,C,D and E of the Schedule 1, Section 4 of the Companies Act.
- Form in Table A is applicable to companies limited by shares
- Form in Table B is applicable to companies limited by guarantee and not having a share capital
- Form in Table C is applicable to the companies limited by guarantee and having a share capital
- Form in Table D is applicable to unlimited companies, not having a share capital
- Form in Table E is applicable to unlimited companies
Printing and Signing of Memorandum of Association
The memorandum of association must be printed and signed by each member (7 members in case of Public Company and 2 in case of Private Company and 1 in case of One Person Company). The memorandum should be signed in the presence of at least one witness who will attest the signatures of the subscribers of memorandum.
In case of one person company (OPC), the name of the nominee must be mentioned in the Memorandum of Association. In case of death or incapability the nominee shall become the member of the company.
The address, occupation and the No. of shares held by each subscriber must also be mentioned in the Memorandum of Association.
Contents of Memorandum of Association –
Section 4 of the Companies Act states that the memorandum of association of every company must contain the following clauses –
1. Name Clause – According to the first clause the memorandum must state the name of the company by which it wants to be known subjected to the following restrictions:
- The name of the company must not be identical with an existing company.
- No company will have the name which is undesirable in the opinion of the government.
- The name must not mislead the public. For example, a company will not be allowed to use a name, which is prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950.
- The company must not use any names which suggest any connection with the government or state Patronage without the prior approval of the government.
- The name of a private company limited by shares, must end with ‘Private Limited’
2. Situation or Registered Office Clause – This clause requires the memorandum to mention the name of the state in which the registered office of the company is to be situated. A company must have its registered office ready within 15 days from its incorporation and within 30 days of its incorporation, the verification of its registered office should be done. This is done in order to fix the domicile of the company. It must be noted that the domicile is the place of registration of the company and may or may not be the residence of the company. Residence of the company will be the place from where the management and control of the business is carried out.
3. Objects Clause – The object clause determines the purpose for which the company has been set up and it determines the capacity of the company. A company is not legally entitled to conduct any business activity that is not specifically mentioned in its object clause. The objects are classified into three categories: main object, ancillary object, and other objects that will be pursued to accomplish the main object. However the following points must be noted while preparing Objects clause:
- The objects of the company must be stated specifically and must not be ambiguous statements.
- The objects of the company must not be illegal
- They must not be against the provisions of the companies act
- They must not be against the public policy of the country
4. Liability Clause – The fourth clause of memorandum of every company states the liability of its members, i.e. whether the liability of its members is limited by shares, or limited by guarantee or is unlimited.
- In case of company limited by shares, members cannot be called upon to pay more than what remains unpaid. If his shares are fully paid, the liability of shareholders is nil.
- In case of company limited by guarantee, the liability clause must state the amount each member has to pay at the time of the liquidation of the company.
- In case of unlimited company, the liability of members is unlimited and personal assets of the members can be used.
5. Capital Clause (only in case of a company having share capital)- This clause requires all companies limited by liability to mention the amount of capital with which the company is formed. The capital of the company must be divided into smaller fixed value units which are known as shares. There is no legal limit on the amount of share capital. A company cannot issue share capital exceeding the amount mentioned in the capital clause.
6. Association and Subscription Clause – According to this clause the memorandum must mention the amount of authorised share capital and the amount of shares taken by each subscriber/member. The following are the statutory requirements regarding subscription-
- The memorandum must be signed by each subscriber in the presence of at least one witness who attest the signatures.
- Each subscriber must take at least one share; and
- Each subscriber must write the number of shares held by him
7. Succession Clause (only in the case of OPC) – According to this clause the memorandum must state the name of the person who shall become the member of the company in the event of death of the subscriber.
The above clauses are compulsory and are designated by companies Act as ‘conditions”, on the basis of which alone a company can be incorporated.