This article is written by Akshada Vishnudas during her internship with LeDroit India.
KEYWORDS-Company- ROC-MOA- ultra vires- incorporation- special resolution
ABSTRACT
When several people band together as an association to pursue a common goal, a corporation is created. Typically, this goal has a commercial focus. Typically, businesses are established in order to make money through their operations. An application must be submitted to the Registrar of Companies (ROC) in order to incorporate a business. It is necessary to submit this application together with several papers. The Memorandum of Association is one of the essential documents that must be included with the incorporation application.
The limits that the company’s actions are not permitted to go beyond are outlined in the MoA. Any activity taken by the company that crosses the MoA’s boundaries would be deemed ultra vires and null and void. The corporation is founded on the terms of the Memorandum of Agreement. The MoA contains a comprehensive description of the company’s organisational structure.
INTRODUCTION
Memorandum of association is the charter of a company, a vital legal document required to incorporate a company under the Companies Act, 2013. While registering a company an application has to be filed with the Registrar of Companies (ROC). The application filed must contain along a few documents like the Memorandum of Association (MOA) and Articles of Association (AOA).
MOA is a document that primarily governs the relationship between the company and the shareholders. It is the foundation and structure upon which an entire company is built, which restricts the power and objects of the organisation providing along the scope and operations of the company. The company cannot act beyond the powers mentioned in the MOA. If anything is done beyond the said powers, such act is said to be ultra vires (beyond the powers) and is so void. However, it was observed in the case of Attorney General V. Great Eastern Railway Co. [1]where the courts held that if a particular activity is beneficial for the business, then that act won’t become Ultra Vires merely due to its absence from the objects clause of the Memorandum of association. This decision ended up reducing the significance of the aforesaid doctrine.
The case Ashbury Railway Carriage and Iron Co. Ltd. v. Riche[2] established the ultra vires rules, which meant that a company only had legal capacity to do what its objects clauses enabled it to do. In the case of Ashbury, had the transaction been included in its objects clause, the company would have had the capacity, making it valid.So, the MOA defines and confines the powers of a company.
MOA and AOA are the most essential pre-requisites for incorporating a company under the Act. It may rightly be called as the charter of the company. The very primary stage in formation of a company is preparation of MOA and AOA.
According to Palmer, “MOA is a document of great importance in relation to the proposed company”.
The need for a memorandum is expressly provided u/s 3 of the Act which provides the three modes of incorporation of a company which may be formed for lawful purpose:
- By seven or more persons, where the company to be formed is a public company;
- Two or more persons, where the company to be formed is a private company; or
- One person, where the company to be formed is a One Person Company(OPC);
By subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of its registration.
DEFINITION
According to s. 2(56) of the Act, “Memorandum means the memorandum of association of a company as originally formed or as altered from time to time in pursuance of any previous company law or this Act.” Legally memorandum as maybe originally formed by the company or as altered by the company from time to time.
CONTENTS OF MOA
s. 4 of the Act elaborates the concept of memorandum. The MOA shall include the objects which the company shall pursue. The following provisions must be included in a company’s memorandum in accordance with sub-section (1) of Section 4 of the Act:
(a) Name Clause: Company’s name must conclude with “Limited” or “Private.” Unless it’s a business registered under this Act’s Section 8—”limited,” that is. In the event of an OPC, the phrase “One Person Company” must be included in a bracket following the name in accordance with section 12 subsection (3). The name should be unique and must be approved by the ROC before the incorporation of a company. The name of the company should not be identical or similar to any existing company, and it should not be offensive or violate any copyright or trademark laws. The name clause is a crucial part of the memorandum of association as it defines the legal identity of the company and helps in identifying and differentiating it from other companies.
(b)Situation Clause: The name of the State where the Registered Office is located is specified in this clause. The jurisdiction of the Local Government, the Office of the Registrar, and the computation of stamp duty are all determined by the State of Registered Office. The company’s incorporation state must be the location of the registered office. The entire address, including the city, district, state, and PIN code, should be included in the Registered Office Clause. It’s crucial to remember that any modification to the registered office address needs to be reported to the Registrar of Companies within 30 days of the original arrangement. An essential component of the MOA is the Registered Office Clause, which provides the company’s official address and aids in establishing its legal authority.
(c) Objects Clause: Company’s incorporation objectives, as well as any matters deemed essential to achieving them. It is possible for a firm to have multiple primary objectives. The incidental or supplementary goals needed to achieve the primary goals should also be included in the memorandum of association. The shareholders must approve any modifications to the company’s objectives before they can be announced to the Registrar of Companies. An essential component of the MOA, the Objective Clause establishes the company’s activities and aids in establishing the legitimacy and legality of its business practices. It also shall be termed Registered Office Clause.
(d) Liability Clause: Members’ liability as specified in this Section, whether it is restricted or limitless. If a corporation is limited by shares, the members’ liability is restricted to the amount owing on the shares they own. In other words, the limited liability extent is determined in terms of shares or guarantee, as applicable. When referring to the sum that each member of a business limited by guarantee agrees to contribute in the event of winding up, the term “extent” is used. The memorandum of association must clearly state the nature of the company’s liability, whether it is limited or unlimited. Any misrepresentation or false statement regarding the liability clause can result in severe legal consequences.
(e) Capital Clause: If a business has a share capital, this includes the authorised share capital, its allocation in terms of both number and amount, and the total number of shares that subscribers to the memorandum opposite their name have agreed to subscribe for. According to the changes made by Section 2 of the Companies (Amendment) Act, 2015, there is no need for a minimum paid-up capital in clauses (68) and (71), which define “Private Company” and “Public Company,” respectively, in Section 2.
(f)Subscription Clause: This clause details the subscriber’s name, address, profession, and the quantity of shares they consent to take. This clause only contains the person’s name, address, and occupation in the case of a business limited by guarantee. Either natural or legal individuals may be subscribers. The Memorandum may be subscribed to jointly by the subscribers. There must be witnesses when someone signs. The last section goes into great detail about signing protocol. This is the only provision in the Memorandum that is static—that is, it refers exclusively to the subscription date and cannot be changed.
(g) Nominee Clause: In case the company is am OPC there shall be a single subscriber and nominee which is further clarified in the Rule 3(1).
(h) Association Clause: As per the Companies Act 2013 in India, the Association Clause is an essential clause that needs to be present in the Memorandum of Association of a company. It includes the company name, the state where the registered office is located, and the purposes for the formation of the company. The names, addresses, vocations, and signatures of the subscribers—those who have consented to join the firm and become its members—should also be included in the Association Clause. For a private business without share capital, the memorandum of association must be signed by one subscriber, two subscribers for private companies with share capital, and at least seven subscribers for public companies.
FORM OF MEMORANDUM OF ASSOCIATION
The s. 4(6) of the Act provides that memorandum of association must be in any one of the forms prescribed as Tables A, B, C, D or E of the Schedule I. A company’s MOA should be printed, separated into paragraphs, and numbered sequentially.
- Table A is applicable to companies that are limited by shares.
- Table B is applicable to companies that are limited by guarantee and do not have authorised share capital.
- Table C is applicable to companies limited by guarantee and has authorised share capital.
- Table D is applicable to unlimited companies that do not have authorised share capital.
- Table E is applicable to unlimited companies that have authorised share capital.
ALTERATION OF MOA
Alteration of memorandum maybe as provided under s. 13(1) of the Act by passing a special resolution and after complying with certain procedures:
- The company must hold a board meeting to approve the alterations to MOA.
- A general meeting to be conducted to obtain the approval of shareholders for such alterations.
- On passing a special resolution to alter MOA should be filed with ROC within 30 days.
- The special resolution shall be scrutinized and approve the MOA alteration by the ROC.
Alterations may be made in the following respects:
- Alteration in the name clause
Name of the company can be altered by a special resolution and with the approval of the Central government in writing. Such approval in case name change relates to addition or deletion of the word ‘private’ to the name of the company consequent to the conversion of the a company to a public company and vice-versa. An application for name change shall be filed in Form INC-24 with ROC along with the prescribed fees.
The change in name however, shall not affect any rights and obligations of the company. Basic framework also shall not change.
- Alteration in the Registered Office clause
If the company is changing its Registered Office from one place to another, the approval of the Central Government is necessary. The Central Government is required to dispose off the matter within 60 days and should ensure that the change of place has been consented by all the stakeholders of the company. The changes may be relating to (a) Change within local limits of same town; (b) Change outside the local limits of any city town or village; (c) Change within the same state from the jurisdiction of one ROC to jurisdiction of another ROC; (d) Change of Registered office from one state to another.
- Alteration in the Object clause
A special resolution is required to be passed to alter the object clause. The special resolution passed shall be filed with the ROC u/s 13(1). 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 in the Capital clause
An alteration in the capital clause can be made by passing an ordinary resolution in the general meeting of the company. Such an alteration must be notified and a copu of the resolution must be submitted to the ROC within 30 days of passing of resolution along with the altered memorandum. Different kinds of alteration to the capital has been enumerated in s. 61(1) of the Act.
- Alteration in the Liability clause
As per s. 13(1) memorandum maybe altered by passing a special resolution in the general meeting. Any amendments to the liability clause an e-form, MGT 14 shall be filed with the registrar with prescribed fees and special resolution.
Any alteration made under s. 13 of the Act shall not have effect until it has been registered according to the provisions. Every alterations made so, as per s. 15(1), shall be noted in copy of MOA as the case maybe.
LEGALITY OF MOA
Like any other document memorandum must be construed according to accepted principles applicable to the interpretation of all legal documents. No rigid rules may be applied for such a document. It must be justly fairly and simply read to derive a reasonable interpretation of the terms used. When the company is registered, the MOA binds the company and its members to the same extent as if they have been signed by the company and by each member and be bound by all provisions of MOA. Every member is thus bound to the company.
MOA is like a contract binding the company to its members in their capacity. Company can take action against the shareholders for infringement of any clauses and vice-versa. For instance, a member may sue the company for any deceit practices in dividend payment, as held in Hoole v. Great Western Railway[3].
CONCLUSION
MOA is a document that primarily governs the relationship between the company and the shareholders. MOA and AOA are the most essential pre-requisites for incorporating a company under the Act. The very primary stage in formation of a company is preparation of MOA and AOA. Both the documents together govern the framework of the company. MOA is an essential article that keeps in check the rights and obligations of members. It defines and confines the power of a company.
[1] (1880) 5 App Cas 473 HL
[2] (1875) LR 7 HL 653
[3] (1867) 3 Ch. D. 262