Memorandum of Association and its Clauses under Company Law

Introduction

A company is formed when a number of people come together for achieving a specific purpose. This purpose is usually commercial in nature. Companies are generally formed to earn profit from business activities. To incorporate a company, an application has to be filed with the Registrar of Companies (ROC). This application is required to be submitted with a number of documents. One of the fundamental documents that are required to be submitted with the application for incorporation is the Memorandum of Association.

Definition of Memorandum of Association

Section 2(56) of the Companies Act, 2013 defines Memorandum of Association. It states that a “memorandum” means two things:

• Memorandum of Association as originally framed;

Memorandum as originally framed refers to the memorandum as it was during the incorporation of the company. 

• Memorandum as altered from time to time;

This means that all the alterations that are made in the memorandum from time to time will also be a part of Memorandum of Association. 

The section also states that the alterations must be made in pursuance of any previous company law or the present Act. 

In addition to this, according to Section 399 of the Companies Act, 2013, any person can inspect any document filed with the Registrar in pursuance of the provisions of the Act. Hence, any person who wants to deal with the company can know about the company through the Memorandum of Association.

Meaning of Memorandum of Association

Memorandum of Association is a legal document which describes the purpose for which the company is formed. It defines the powers of the company and the conditions under which it operates. It is a document that contains all the rules and regulations that govern a company’s relations with the outside world. 

It is mandatory for every company to have a Memorandum of Association which defines the scope of its operations. Once prepared, the company cannot operate beyond the scope of the document. If the company goes beyond the scope, then the action will be considered ultra vires and hence will be void. 

It is a foundation on which the company is made. The entire structure of the company is detailed in the Memorandum of Association. 

The memorandum is a public document. Thus,   if a person wants to enter into any contracts with the company, all he has to do is pay the required fees to the Registrar of Companies and obtain the Memorandum of Association. Through the Memorandum of Association he will get all the details of the company. It is the duty of the person who indulges in any transactions with the company to know about its memorandum. 

Object of registering a Memorandum of Association or MOA

Memorandum of Association is an essential document that contains all the details of the company. It governs the relationship between the company and its stakeholders. Section 3 of the Companies Act, 2013 describes the importance of memorandum by stating that, for registering a company, 

1. In case of a public company, seven or more people are required;
2. In case of a private company, two or more people are required;
3. In case of a one person company, only one person is required.

In all the above cases, the concerned people should first subscribe to a memorandum before registering the company with Registrar. 

Thus, Memorandum of Association is essential for registration of a company. Section 7(1)(a) of the Act states that for incorporation of a company, Memorandum of Association and Articles of Association of the company should be duly signed by the subscribers and filed with the Registrar. In addition to this, a memorandum has other objects as well. These are,

1. It allows the shareholders to know about the company before buying it shares. This helps the shareholders determine how much capital will they invest in the company. 
2. It provides information to all the stakeholders who are willing to associate with the company in any way. 

Format of Memorandum of Association

Section 4(5) of the Companies Act states that a memorandum should be in any form as given in Tables A, B, C, D, and E of Schedule 1. The Tables are of different kinds because of different kinds of companies. 

Table A – It is applicable to a company limited by shares.

Table B – It is applicable to a company limited by guarantee and not having a share capital.

Table C – It is applicable to a company limited by guarantee and having a share capital.

Table D – It is applicable to an unlimited company not having a share capital.

Table E – It is applicable to an unlimited company having a share capital. 

The memorandum should be printed, numbered and divided into paragraphs. It should also be signed by the subscribers of the company.

CLAUSES OF MEMORANDUM OF ASSOCIATION

Following fundamental clauses which have often been described as the conditions of the company’s incorporation is contained in memorandum of association :

1. Name clause;

2. Registered office clause;

3. Objects clause;

4. Liability clause; and

5. Capital clause.

Name Clause :

The first clause of the memorandum is required to state the name of the proposed company. A company, being a legal person, must have a name to establish its identity. “The name of a corporation is the symbol of its personal existence.” Any suitable name may be selected subject, however, to the following. The name should not be such as, in the opinion of the Central Government, is undesirable. [S. 4(2)]. In the name clause there are following conditions as per section 4 of companies act which must be complied with:

1. Resembling names not allowed [S. 4].- In the first place, no company can be registered with a name which, in the opinion of the Central Government, is undesirable.The Trade Marks Act, 1999 introduced a change into the provisions of the section. Without prejudice to the generality of the provision in sub-section (1), sub-section (2) provides:

• a name is undesirable if there is a previously registered company bearing that name;
• a name is undesirable if it is identical with or too nearly resembles a registered trade mark or the trade mark which is the subject of an application for registration of another person under the Trade Marks Act, 1999.

The Central Government may consult the Registrar of Trade Marks before declaring a name to be undesirable. Further undesired names are

1. Prohibited under the Provisions of Section 3 of Emblems and Names (Prevention and Improper Use) Act, 1950.
2. Names which resemble each other, which are chosen to deceive. 
3. The name includes a registered trademark. 
4. The name includes any word or words which are offensive to a section of people. 
5. Name which is identical to or too nearly resembles the name of an existing Limited Liability Partnership. 
6. Furthermore, statutory names such as the UN, Red Cross, World Bank, Amnesty International etc. are also not allowed to be chosen.
7. The name of the company should not be identical with or should not too nearly resemble, the name of another registered company, for such a name may be declared undesirable by the Central Government. (S. 4(2)

It is also to be noted that resemblance between two names must be such as to be “calculated to deceive” . A name is said to be calculated to be deceive when it suggests that the corporation adopting it is in some way connected or associated with the existing corporation as held in the case of Society of Motor Manufacturers and Traders Ltd vs Motor Manufacturers and Traders Mutual Insurance Co Ltd 1925.

Advance reservation of name.

A person may make an application in a prescribed form and manner and on payment of prescribed fee for reserving name for the proposed company or for changing the name of an existing company. [S. 4(4)] Such name may be reserved for 60 days from the date of application. If no such company is formed, the reservation is to be cancelled and the applicant is to be punished with fine extending up to one lakh rupees. If the company is formed but particulars were wrong or incor-rect, the company may be directed to change its name within three months after passing an ordinary resolution, or the Government may take action for removing the company’s name from the Register of Companies or for winding up of the company. [S. 4(5)].

Other Conidtions :

1. If a company is a public company, then the word ‘Limited’ should be there in the name. Example, “Robotics”, a public company, its registered name will be “Robotics Limited”.
2. If a company is a private company, then ‘Private Limited’ should be there in the name. “Secure”a private company, its registered name will be “Secure Private Limited”.
3. This condition is not applicable to Section 8 companies.

Section 8 of companies :

As per the section 8 of the Company (incorporation) Rules 2014. Section 8 Company is named after Section 8 of the Companies Act,2013. It describes companies which are established to promote commerce, art, sports, education, research, social welfare, religion etc. Section 8 companies are similar to Trust and Societies but they have a better recognition and legal standing than Trust and Societies. 

Names not allowed :

The name stated in the memorandum shall not be, 

• Too nearly resembling the name of an existing company. 
• Identical to the name of another company;
• According to Rule 8 of the Company (Incorporation) Rules,2014.
  • If a company adds ‘Limited’, ‘Private Limited’, ‘LLP’, ‘Company’, ‘Corporation’, ‘Corp’, ‘inc’ and any other kind of designation to its name to differentiate it from the name of the other company, the name would still not be accepted. 

Illustration: Precious Technology Limited is same as Precious Technology Company. 

• If plural or singular forms are added to differentiate between names.

Illustrations: Greentech Solution is same as GreenTech Solutions.

Colors Technology is same as Color Technology. 

• If type, and case of letters, or punctuation marks are added. 
  • Illustration: Wework is same as We.work. 
  • Different tenses are used in names.

Illustration: Ascend Solution is same as Ascended Solutions. 

• If there is an intentional spelling mistake in the name or phonetic changes in the name.
  • Illustrations: Greentech is same as Greentek. 

DQ is same as DeeQew. 

• Internet related designations are used like .org, .com, etc.

Illustration: Greentech Solution Ltd. is same as Greentech Solutions.com Ltd.

• Exception: The name will not be disregarded if the existing company by a board of resolution allows it.
  • Change in order of combination of words. 

Illustration: Shah Builders and Contractors is same as Shah Contractors and Builders. 

Change of name [S. 13(2-3)]

A company may change its name by passing a special resolution and with the approval of the Central Government: signified in writing.Any change in the name of company will be subject to the provisions of Section 4) and (3) which have been stated in the requirements of name clause of the memorandum. Approval of the Central Government is not necessary where the only change in the name is deletion or addition of the word “Private” consequent upon conversion of the company from one class to another in accordance with the provisions of the Act. Alteration of name does not affect the rights and obligations of the company. Alteration becomes effective when it is registered with the Registrar and a new certificate of incorporation with the new name has been issued.Thereafter the company should use its new name. Use of the old name would be improper.

Registered Office Clause

The Registered Office of a company determines its nationality and jurisdiction of courts. It is a place of residence and is used for the purpose of all communications with the company. 

Section 12 of the Companies Act, 2013 talks about Registered Office of the company. 

Before incorporation of the company, it is sufficient to mention only the name of the state where the company is located. But after incorporation, the company has to specify the exact location of the registered office. The company has to then get the location verified as well, within 30 days of incorporation. 

It is mandatory for every company to fix its name and address of its registered office on the outside of every office in which the business of the company takes place. If the company is a one-person company, then “One-person Company” should be written in brackets below the affixed name of the company. 

Change in place of Registered Office should be notified to the Registrar within the prescribed time period. 

Change of registered office situation [S. 13(4-6)]

Alteration of registered office clause IS. 13(4)

Shifting of registered office from one State to another and alteration of objects may affect not only the company’s shareholders, but also its creditors, dealers and employees.” That is why the objects can be altered by a special resolution and the registered office can be removed from one State to another by a special resolution and sanction of the Central Government. [S. 13(4)]. The Central Government has to dispose of the application within 60 days.

Before passing its order it has to satisfy itself that the alteration has the consent of creditors, debenture-holders and other persons concerned with the company. Alternatively the Central Government has to be satisfied that sufficient provision has been made by the company for due discharge of all its debts and obligations or that adequate security has been provided for such discharge. [S. 13(5)] A certified copy of the order of the Central Government approving the alteration has to be filed with the Registrar of each of the States within the prescribed time.The registrar has to registered the same. The registrar of the state to which the registered office is being shifted has to issue a fresh certificate of incorporation indicating the alteration. [S. 13(7)].

A company can shift its registered office from one place to another within the same city, town or village. But if it is proposed to carry the registered office from one city to another within the same State, a special resolution to that effect must be passed. A notice of any such change must be given to the Registrar within 30 days of the change. If the shifting of the registered office has the effect of taking the office from the jurisdiction of one Registrar of Companies to that of another within the same State, permission of the Regional Director must be taken. The regional directors are required to confirm the company’s application and inform it accordingly within a period of four weeks. After getting the confirmation of the Regional Director, the company must file a copy of the same with the Registrar of Companies within two months from the date of confirmation.

In the case of Mackinnon Mackenzie and Co. Re 1967:
In this case a company desired to shift its registered office from the State of West Bengal to Bombay. The company’s petition was resisted by the State on the ground of loss of revenue. The court refused to sustain the contention of the State and allowed the transfer.
“There is no statutory right of the State, as a State, to intervene in an application for alteration of the place of the registered office of a company.
To hold that the possibility of the loss of revenue is not only relevant, but of persuasive force in regard to the change is to rob the company of the statutory power conferred on it by the Act. The question of loss of revenue to one State would have to be considered in the total conspectus of revenue for the Republic of India and no parochial considerations should be allowed to turn the scale in regard to change of registered office from one State to another within India.”
This decision was indorsed by a Division Bench of the Calcutta High Court in Rank Film Distributors of India Ltd vs. Registrar of Companies 1969.

Object Clause

Section 4(c) of the Act, details the object clause. The Object Clause is the most important clause of Memorandum of Association. It states the purpose for which the company is formed. The object clause contains both, the main objects and matters which are necessary for achieving the stated objects also known as incidental or ancillary objects. The stated objects must be well defined and lawful according to Section 6(b) of the Companies Act, 2013. 

Why Objects :

By limiting the scope of powers of the company. The object clause provides protection to or Objects :

• Shareholders – The object clause clearly states what operations will the company perform. This helps the shareholders know their investment in the company will be used for what purpose. 
• Creditors – It ensures the creditors that capital is not at risk and the company is working within the limits as stated in the clause. 
• Public Interest – The object clause limits the number of matters the company can deal with thus, prohibiting diversification of activities of the company. 

Liability Clause

The Liability Clause provides legal protection to the shareholders by protecting them from being held personally liable for the loss of the company. Fourth clause in the memorandum of association is liability clause which has to state the nature of liability that the members incur.

There are two kinds of limited liabilities:

• Limited By Shares – Section 2(22) of the Companies Act, 2013 defines a company limited by shares. In a company limited by shares, the shareholders only have to pay the price of the shares they have subscribed to. If for some reason they have not paid the full amount for the shares and the company winds up then their liability will only be limited to the unpaid amount.

• Limited By Guarantee – It is defined in Section 2(21) of the Companies Act, 2013.A company limited by guarantee has members instead of shareholders. These members undertake to contribute to the assets of the company at the time of winding up. The members give guarantee of a fixed amount that they will be liable for.

Non-profit Organizations and other charities usually have a structure of companies limited by guarantee.

Capital Clause

It states the total amount of share capital in the company and how it is divided into shares. The way the amount of capital is divided into what kind of shares. The shares can be equity shares or preference shares.

Illustration: The share capital of the company is 80,00,000 rupees, divided into 3000 shares of 4000 rupees each.

The Companies (Amendment) Act, 2000 has, by amending Section 3, prescribed the requirement that a public company must have a minimum paid-up capital of five lakh rupees or such higher amount as may be prescribed.!

A private company is required to have a minimum paid-up capital of one lakh rupees or such higher amount as may be prescribed by its articles. The Amendment of 2015 has dropped the requirement of any amount whatsoever both for public and private companies.

One person company [S. 4(1)(f)].- In the case of one person company, this clause has to state the name of the person who, in the event of death of the subscriber, is to become the member of the company.

Subscription Clause

The Subscription Clause states who are signing the memorandum. Each subscriber must state the number of shares he is subscribing to. The subscribers have to sign the memorandum in the presence of two witnesses.

The memorandum concludes with the subscribers’ declaration.

The subscribers declare:

“We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company, in pursuance of this memorandum of association, and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.”

The memorandum has to be subscribed by at least seven persons in the case of Public company and and by at least two persons in the case of a private company. [S. 3] Each subscriber must sign the document and must write opposite his name the number of shares he takes. But no subscriber shall take less than one share. [S. 4(d)].

Alteration, Amendment & Change in Memorandum of Association under Companies Act, 2013.

The term “alter” or “alteration” is defined in Section 2(3) of the Act, as any additions, omissions or substitutions. A company can alter the memorandum only to the extent as permitted by the Act. According to Section 13, the company can alter the clauses in the memorandum by passing a special resolution.

A resolution is a formal decision taken in a meeting. There are two kinds of resolutions,

• Ordinary and
• Special : A special resolution is one which requires at least 2/3rd majority to be effective. The alteration to the clauses also requires the approval of the Central Government in writing. 

The alteration of memorandum can happen for a variety of reasons. The alteration can be made if, 

• Enables the company to carry its business more effectively;
• Helps to achieve the objectives;
• Helps the company to amalgamate with another company;
• Helps the company dispose off any undertaking.  

Alteration of Memorandum 

The alteration of various clauses of the memorandum have different procedures:

1. Alteration to the Name Clause: To alter the name of the company, a special resolution is required. After the resolution is passed, the copy is sent to the registrar. For changing the name, the application needs to be filed in Form INC- 24 with the prescribed fees. After the name is changed, a new certificate of incorporation is issued. 
2. Alteration to the Registered Office Clause: The application for changing the place for Registered Office of the company shall be filed with the Central Government in Form INC- 23 with the prescribed fees.

If the company is changing its Registered Office from one to another, then the approval of the Central Government is required. The Central Government is required to dispose off the matter within 60 days and should ensure that the change of place has the consent of all the stakeholders of the company. 

• Alteration to the Object Clause: To alter the object clause, a special resolution is required to be passed. The changes must be confirmed by the authority. The document which confirms the changes by authority with a printed copy of the altered memorandum should be filed with the Registrar. 

If the company is a public company, then the alteration should be published in the newspaper where the Registered Office of the company is located. The changes to the object clause must also mentioned on the company’s website. 

• Alteration to the Liability Clause: The Liability clause of the memorandum cannot be altered except with the written consent of all the members of the company. By altering the liability clause, the liability of the directors of the company can be made unlimited. In any case, the liability of the shareholders cannot be made unlimited. Changes in the liability clause can be made by passing a special a special resolution and sending a copy of the resolution to the Registrar of Companies. 
• Alteration to the Capital Clause: The capital clause of a company can be altered by an ordinary resolution. 

The company can, 

• Increase its authorised share capital;
• Convert the shares into stock;
• Consolidate and divide all of its shares;
• Cancel the shares which have not been subscribed to;
• Diminish the share capital of the shares cancelled. 

The altered Memorandum of Association should be submitted to the Registrar within 30 days of passing the resolution.

Copies of memorandum, etc to be given to members [S. 17]

If a member asks on payment of prescribed fee for a copy of the memorandum, articles and every agreement and every resolution referred to in Section 117(1) insofar as not embodied in memorandum and articles, the company has to do so within seven days. Default in this respect is punishable for the company and defaulting officer with Rs 1000 for each default and days for which it continues extending up to Rs 1,00,000.

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