MEMORANDUM OF ASSOCIATION

ABSTRACT

MoA is a written legal certificate organized in the enrollment strategy of a limited liability organization to indicate its connection with investors. The MoA is obtainable to general public and portrays the organization’s name, geographical area of enlisted office, title of investors and the division of shares. The MoA acts as the framework of the organization.

This article intends to give an understanding of Memorandum of Association – its purpose and importance, contents and its forms. Also, Doctrine of Ultra Vires is briefly explained. At the end of this article, the reader will have knowledge of MoA and significance of drafting it in a generic way.

INTRODUCTION

MoA affiliates the organization with the rights of the individuals of the organization and furthermore builds up the link of the organization with the members. In accordance with Section 2(56) of the Companies Act, 2013 “memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company or of this Act.”

As stated by Lord Cairns in the famous case of Ashbury Railway Carriage Co. v. Riche[1], “The Memorandum of Association of a company is its charter and defines the limitation of the powers of a company. The Memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated.” 

The MoA includes the principal provisions of the organization’s constitution and each one of those basic conditions whereupon the organization can be incorporated. It decides the powers and restrictions of the organization and decides the scope past which organization’s activities can’t go.

PURPOSE AND IMPORTANCE OF MoA

As stated in Cotman v. Brougham[2], the purpose of MoA is “to enable the shareholders, creditors and those dealing with the company to know what the permitted range of the enterprise is”

The memorandum serves as a lawful code or constitution for an organization and directs the relationships between the organization and its investors by letting them know the reason for, which their cash will be utilized by the organization and what risks they are undertaking in making investment, and by assuring the speculators and other recipients regarding what the objects of the organization are and concerning whether the legally binding relation into which they think to enter is within the objects of the organization.

CONTENTS OF MoA

According to Section 4 of Companies Act, 2013, the MoA must comprise of the following contents:

  • NAME CLAUSE: While drafting MoA, it is necessary to specify the name of the organization. Any name can be chosen by the organization but it should not be indistinguishable from an existing organization. The Registrar conducts primer enquiries to confirm that the name permitted by him isn’t deluding or planned to mislead concerning the Objects Clause of the memorandum[3]. However, no intricate examination is to be conveyed except if the purpose of the organization has all the earmarks of being illegal[4]. The name chosen for the organization as it shows up in the MoA has to be same to the title endorsed by the Registrar of Companies. A “Public Limited Company” ends with “Limited” and a “Private Limited Company” ends with “Private Limited”. All together not to mislead the public, an organization should not choose a title that is restricted under the “Emblems and Names (Prevention of Improper Use) Act of 1950”.
  • SITUATION CLAUSE: The state where the organization works must be mentioned in the MoA. An organization must include the registered office within 15 working days. Also, the verification of the registered office should be completed in 30 days. This is mainly done to secure the domicile of the organization i.e. possibly where it is functioning.
  • OBJECT CLAUSE: The purpose for which the organization is shaped must be mentioned in the MoA. Any action that isn’t determined in the object clause, an organization is legitimately prohibited to do it. The objects must be mentioned distinctly and must be certain in nature. The objects must not additionally be unlawful or against the public policy of the nation.
  • LIABILITY CLAUSE: MoA must contain all the liabilities of the individuals belonging to the organization. When an organization is limited by shares, the liability of the individuals is constrained to the sum not paid for shares owned by them. When it is limited by guarantee, the members are liable to pay the amount mentioned in the memorandum at the time of insolvency of the organization. In case of unlimited companies, the liability of the members is unlimited, which includes sole assets of members as well.
  • CAPITAL CLAUSE: MoA must indicate the maximum authorized capital that can be produced by individuals of organization. Once the company has been incorporated, it cannot increase the authorized share capital.
  • SUBSCRIPTION CLAUSE: The MoA must contain the authorized capital and the quantity of shares that each individual of the organization claims. The subscribers of the memorandum should claim minimum one share each. Every subscriber must write the quantity of shares claimed by him and sign the memorandum in presence of one witness who is required to attest the signature.

FORMS OF MoA

Section 4(6) of the Companies Act, 2013 gives that the MoA must be as per Forms indicated in Tables A, B, C, D or E of Schedule I to the Act, as might be appropriate comparable to the sort of organization suggested to be consolidated or in a Form as close thereto as the conditions admit.

Form inPertinent to
Table AOrganizations “limited by shares”
Table BOrganizations “limited by guarantee not having share capital”
Table COrganizations “limited by guarantee having share capital”
Table DUnlimited companies “not having share capital”
Table EUnlimited companies “having share capital”

An organization can acquire any of the model Forms of the MoA referenced above, as might be pertinent to it.

DOCTRINE OF ULTRA VIRES

Any action that is not mentioned in the MoA as scope of the organization is precluded by “doctrine of ultra vires”. Accordingly, an act which is ultra vires is void, and doesn’t cohere the organization. Likewise, the organization can’t make it valid, regardless of whether each member consents to it. It was held in the case of Rajendra Nath Dutta v. Shailendra Nath Mukherjee [5], “An act which is ultra vires is incapable of ratification is the general rule. An act which is intra vires the organization yet outside the authority of the executives might be sanctioned by the organization in appropriate form.”

This principle is intended to ensure investors and claimant of the organization. The investors can sanction the act if it is ultra vires the executives only. Also, the article can be modified by the organization in the best possible manner, if it is ultra vires the AoA.

CONCLUSION

MoA is of utmost significance in the incorporation of an organization. Every social obligation and scope of other similar activities ought to likewise be expressed in the MoA to give adaptability to take up new ventures as and whenever events arise. Thus, it is prudent to introduce the organization’s gamut of activities in a comprehensive way instead of referencing a specific zone of core interest.

REFERENCES


[1] Ashbury Railway Carriage Co. v. Riche, (1875) LR 7 HL 653

[2] Cotman v. Brougham, [1918] AC 514

[3] Methodist Church vs. Union of India, (1985) 57 Comp. Cas. 443 (Bom.)

[4] T.V Krishna v. Andhra Prabha (P) Ltd., AIR 1960 AP 123

[5] Rajendra Nath Dutta v. Shailendra Nath Mukherjee, (1982) 52 Com Cases 293 (Cal.)

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