MEMORANDUM OF ASSOCIATION: A COMPANY’S CHARTER

ABSTRACT

Memorandum of Association is the backbone of a company, which is also addressed as the company’s charter. Without Memorandum of Association, a company cannot run with a certain aim, speed and principles by corelating with the outside world. Hence, MOA is the most necessary part to formulate a company and its basis. The article intends to define the Memorandum of Association, and it describes why the contents of MOA is called the Charter of a Company. Moreover, it also focuses on the contents of MOA and states the purposes of them to be called as overall charter of company.

Keywords- Company Charter, Clauses of MOA, Limited, Memorandum of Association.

INTRODUCTION

Memorandum of Association of any company is a significant corporate document of a particular company and it is referred to as the constitution of the company. Owing to the fact that MOA states the objects, rights, privileges, limitations, future possibilities and powers of a company; for this reason, Memorandum of Association is also considered as the charter of the company.

According to section 2(56) of the Companies Act 2013, ‘memorandum’ implies the memorandum of association of a company as initially outlined or as changed now and again in compatibility of any past company law or of this Act.

MOA prompts the correlation between the company and the outsiders. A Company cannot take any new activities or business which are not mentioned in the MOA of a company, and it enables the investors, leasers and individuals who has managed the company in some structure to know the scope of the activities[1].Basically, Memorandum of Association is the fundamental archive of a company.

A COMPANY’s CHARTER

Memorandum of Association is the company’s charter, because the contents of the MOA defines the powers of a company.

Cain T.E said, “The Memorandum of Association is the registered company’s charter and defines its power.”

Contents of memorandum of the company may be limited by shares or guarantee. The contents altogether are following- name of the company, designation of its registered company, liability of the members, objects and goals of a company, number of shares, association and subscription clause. All the contents of Memorandum of Association define the company’s strength, also the future possibilities of the company.

According to Section 4 of the Companies Act 2013, the MOA of a company must carry the clauses mentioned below-

  1. Name Clause– The company can choose any name it may like and the name gets stated in this clause. But the company is not allowed to use names as such- King, Queen, Emperor, Government bodies, also the names of global organizations like U.N.O., W.H.O., World Bank etc. The company cannot take any name which is similar or same name of a previously registered company. The company name must end with ‘Limited’, if it is a Public Limited Company; in case of Private Limited Company, the name shall end with ‘Private Limited’.
  2. Objects Clause– It is the most prominent clause of the memorandum, as it states the objects for which the company was established. The company cannot go against the guidelines and do anything as such, which isn’t consistent with the objects of the company.
  3. Registered Office Clause- This clause states that designation of the registered office of the company. In the registered office, all the communications, notices, common seal and statutory books of the company are kept. The permanent address of the company is enrolled at the Register Office.
  4. Liability Clause-The liability clause states the nature of the liability, if it is limited or unlimited. The liability can be limited by shares or guarantee. The liability of the members is limited, according to the face value of the shares, when the company is limited by shares. In case of unlimited liability, company carries on business for a period more than six months along with a minimum number of shareholders[2].  However, in case of a guarantee limited company, the company’s memorandum shall describe the amount attempted by every part will be added to the assets of the organization in the occasions of its being wound up.
  5. Capital Clause-This clause dictates the maximum amount of shares a company can raise. The company cannot undertake more capital than mentioned under this clause.
  6. Subscription Clause-The clause contains the addresses and names of the first subscribers. Each subscriber must take at least one share, no subscriber is allowed to withdraw his name after registration.

Hence, it is quite clear that the Memorandum of Association is the base of any company and the contents of MOA are the charter of the company.

CASELAW

In the case, the directors of the company went into a concurrence with Riches for financing a railroad line, later the company didn’t play out the agreement and the offended party sued the litigants for unfulfillment of agreement. One thing to be noted here, is that the individuals from the company sanctioned the agreement before its non-performance. House of Lords was of the view that the company incorporated inside the company’s act is bound to do the acts according to the object clause in the memorandum. Subsequently, in the above case financing of the railroad line was outside the object clause of the company; and in this manner it was ultra vires.

“The is the zone past which the action of the company can’t go; here, the investors may make such rules for their own company,as they might seem fit[3].”

CONCLUSION

In current world, to demonstrate the company’s functions and limitations and on the purpose of keeping investors, creators and shareholders rights safe, the memorandum of association which is the charter of the company, plays an essential role. So, it is necessary to make a company’s memorandum of association as much as thoughtfully it is possible, as various privileges and future opportunities depends on it; and at certain points, MOA may not be altered. As the company’s functions and powersare defined by the MOA and limitations of the MOA is demonstrated on it, undoubtedly it is considered as the foundation of a company. Moreover, the contents of Memorandum of Association are the Charter of a Company.

References

  1. Anonymous, Memorandum of Association | Meaning | Contents of MOA, https://accountlearning.com/memorandum-of-association-meaning-contents-of-moa/(last visited Dec. 4, 2020 10am) 
  2. AI Khan, Fundamentals of Company Law 96 [Md. Nurar Rahman at eds., 9th ed. 2019]
  3. Ashbury Railway Carriage & Co. vs. Riche., (1875) I.R. 7H. 2. 653. 671.

[1]Anonymous, Memorandum of Association | Meaning | Contents of MOA, https://accountlearning.com/memorandum-of-association-meaning-contents-of-moa/ (last visited Dec. 4, 2020 10am) 

[2]AI Khan, Fundamentals of Company Law 96 [Md. Nurar Rahman at eds., 9th ed. 2019]

[3]Ashbury Railway Carriage & Co. vs. Riche., (1875) I.R. 7H. 2. 653. 671.

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