Ayushi Budholi
Published on: 06 August 2022 at 21:46 IST
Introduction
A company is established when a group of people band together to accomplish a common goal. This is frequently for a business purpose.
Companies are typically created to benefit from their operations. A corporation must be incorporated by filing an application with the Registrar of Companies (ROC). This application must be accompanied by a number of papers.
The Memorandum of Association is one of the most important documents that must be provided with the incorporation application.
In India, a company’s memorandum of association is a vital business document. The memoranda is the most common name for it.
It is required to be filed with the Registrar of Companies in India throughout the incorporation process. It is the document that governs the company’s exterior affairs and works in conjunction with the articles of association, which govern the company’s internal structure.
It outlines the basic terms under which the company is permitted to function. It had to include the “objective clause” until recently, which told shareholders, creditors, and others dealing with the business what the company’s permissible spectrum of activity was, albeit this was frequently framed quite broadly.
It also displays the authorized capital of the company. Take a look at some of the most crucial components of the same.
According to Section 2(56) of the Companies Act of 2013, memorandum refers to a company’s memorandum of association as originally established or as amended from time to time in accordance with this Act.
The Memorandum of Association is a legal document that contains precise information about the company’s operations and defines the scope of the company’s activities.
The Memorandum of Association, often known as the business’s charter, outlines the members’ rights and responsibilities, as well as their relationship with the firm.
Meaning and Objective
The Memorandum of Association is a legal document that explains why the firm was created. It establishes the company’s authority and the conditions under which it works.
It is a document that comprises all of a company’s laws and regulations regarding its interactions with the outside world.
Every business must have a Memorandum of Association that specifies the scope of its operations.
The company cannot operate outside the limits of the document after it has been written. If the firm goes beyond its authority, the action will be deemed ultra vires and so null.
It is the basis upon which the business is built. The Memorandum of Association lays out the company’s full structure.
The memorandum is open to the public. Thus, all that is necessary of a person who wishes to enter into contracts with the business is to pay the required fees to the Registrar of Companies and get the Memorandum of Association.
He will learn all of the company’s details from the Memorandum of Association. It is the responsibility of anybody who conducts business with the company to be aware of its memorandum.
It is the basis upon which the business is built. The Memorandum of Association lays out the company’s full structure.
The memorandum is open to the public. Thus, all that is necessary of a person who wishes to enter into contracts with the business is to pay the required fees to the Registrar of Companies and get the Memorandum of Association.
He will learn all of the company’s details from the Memorandum of Association. It is the responsibility of anybody who conducts business with the company to be aware of its memorandum.
The Memorandum of Association is a crucial document that contains all of the company’s information. It governs the company’s relationship with its stakeholders.
Section 3 of the Companies Act, 2013 states that for registering a business, seven or more persons are required in the case of a public company; two or more people are required in the case of a private company; and only one person is required in the event of a one-person company.
Before registering the company with the Registrar, the involved parties need first subscribe to a memorandum.
Contents of Memorandum of Association
The following major contents are required for a memorandum of association, according to Section 4 of the Companies Act, 2013, namely:
Name Clause
Every memorandum, according to the first sentence, must include the company’s name; nevertheless, there are several limitations, such as:
- The company’s name must not be confusingly similar to that of another business.
- The company’s name must be acceptable to the government, which implies it must be desirable in the government’s perspective.
- The Emblem and Names (Prevention of Improper Use Act), 1950, prohibits the use of names that are prohibited under the Act.
- Similarly, a corporation may not utilize any name associated with the government or state favoritism without the government’s prior approval.
- Private limited should be added to the end of the name of a private corporation with limited shares.
Office Clause
According to this clause, every corporation must indicate the state in which the office is registered in the memorandum.
A firm must have a registered office within 15 days of its incorporation, and the registered office must be verified within 30 days.
The purpose of registration is to establish the company’s domicile; however, some people misunderstand the terms domicile and habitation.
One significant distinction between the two is that a company’s domicile may or may not be its residence; a company’s residence is the location from where the company’s management and business are conducted.
Objects Clause
The objects clause establishes the aim of the company for which it was formed, making it one of the most important provisions in the memorandum of association.
If a corporation’s activities are not covered by the object clause, the company is not legally obligated to engage in those activities.
The company primarily has three objectives: the first is the major objective, for which the company was founded; the second is an auxiliary objective; and the third is additional objectives.
The second and third objectives are used to persuade the main objective.
There are a few things to keep in mind, including:
- The company’s goal should be expressed clearly and without ambiguity.
- Illegal objects are not permitted.
- The objectives must not be in violation of the Companies Act.
- The items must not be in violation of public policy.
Liability Clause
The liability section in the memorandum of association specifies the extent to which each member’s liability is restricted by shares, limited by guarantee, or unlimited.
If the business is restricted by shares, the members cannot be forced to pay more than the amount owed.
If the company is limited by guarantee, the provision must state the amount that each member is responsible for in the event of liquidation.
If the responsibility of the corporation is infinite, then the liability of the members is also unlimited, and the members’ personal assets can be utilised to discharge the liability.
Subscription Clause
The Memorandum must include the amount of capital and the shares taken by each member or subscriber, according to this clause.
The following are some of the statutory provisions that apply to this clause:
- The subscriber must sign the memorandum in the presence of at least one witness.
- At least one share must be taken by each subscriber.
- The number of shares that the member has purchased must be specified.
Succession Clause
In order to comply with this section, the memorandum must include the name of the person who will take over as a subscriber if the prior subscriber dies.
Alterations in Memorandum of Association
Section 13 of the Companies Act of 2013 outlines the procedures for changing a memorandum of association.
If the company’s name is to be changed, it must first comply with subsections 2 and 3 of Section 4 of the Act, and then it must be approved in writing by the government, according to Section 13(2).
When a business changes its name, the registrar must register the new name in place of the old name in the registrar of companies and issue a new certificate of incorporation, according to Section 13(3). The new name would take effect on the certificate’s issue date.
According to Section 13(7), if a corporation has received money from the public through a prospectus but has yet to use that money, it is not permitted to modify the company’s object until a specific resolution has been issued to that effect.
According to Section 13(11), if a business limited by guarantee or without a share capital allows anybody who is not a member to share in the company’s divisible earnings, any changes to the memorandum are null and void.
The corporation that wants to change its memorandum must file with the registrar, according to Section 13(6).
When is it permissible to make an alteration?
- To enable a company to run its operations more cost-effectively or efficiently.
- To allow the organization to achieve its goals through new and improved methods.
- To expand the business’s operations. If a company’s name is limited to India’s territorial bounds, it can add or delete terms from it.
- To allow the corporation to limit or eliminate any of the objects listed in the memorandum. To join forces with another company or group of people.
Features of Memorandum of Association
The nature of the company’s commercial activity is stated in the memorandum of association.
It is made by the company’s promoters.
A public company’s memorandum of association must be signed by at least 7 people, while a private company’s memorandum of association must be signed by at least 2 people.
It is filed for registration to the registrar of companies in order to get a certificate of incorporation.
It is an unchangeable charter, as any amendments are extremely impossible to achieve.
It is a public document that may be inspected by anyone whenever they want.
Any action taken outside the scope of the memorandum of association is considered ultra vires.
Importance of Memorandum of Association
A memorandum of association is a legally binding document that must be signed before a company may be registered.
A memorandum of association also serves as a guide for all members of the company, including the directors; it contains the firm’s objectives as well as limitations that limit the company’s power.
Because there is always a risk when a person invests money in a company, the memorandum of association protects all investors.
It informs outsiders about a company’s ability to conduct business or accept transactions.
Memorandum of Association for One-Person-Company
A one-person corporation gets its name from the fact that it can be founded by just one person. A one-person corporation requires a minimum capital of 1,00,000 Rupees to be formed.
It is a brand-new concept designed to encourage entrepreneurship. All regulations that apply to private organisations will also apply to one-person businesses.
The Companies Act of 2013 defines a one-person corporation under Section 2(62).
A one-person business is a legal entity distinct from its owner. If the firm’s annual turnover exceeds 2 crores, it must be converted into a private limited company.
In the case of a one-person company, the Memorandum of Association has a clause called the Nomination Clause in addition to all the other clauses.
This clause specifies the name of a person who will take over as a member if the subscriber passes away or becomes incompetent.
The nominee must be an Indian citizen and a resident of India, meaning he must have spent at least 182 days in India in the previous year. A minor is ineligible to be a nominee.
The person whose name is included must provide written consent, which must be lodged with the Registrar of Companies at the time of incorporation.
If a nominee wishes to withdraw, he must do so in writing, and the company’s owner must nominate a new individual within 15 days.
Conclusion
Today, in such a highly industrialized society, it is necessary to define the roles and functions of a company, because a company not only incorporates the interests of its members, but also serves the interests of its investors, shareholders, and creditors, making it necessary for a company to move toward its goal in a more professional and ethical manner.
It is also critical to safeguard the interests of everyone who is directly or indirectly connected to the organization, which is why the notion of supra vires is so crucial in dealing with mismanagement and preventing power abuse.
Thus, the Memorandum of Association is a crucial document in the creation of a business. It is the company’s charter. A company cannot be incorporated without a memorandum. The company’s constitution is made up of the memorandum and the articles of association.
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