Memorandum of Association (MOA), Concepts, Meaning, Definition, Nature, Clauses, Alteration of Clauses and Importance

The Memorandum of Association is the most important document of a company. It lays down the fundamental conditions upon which a company is incorporated. It defines the scope of the company’s activities and determines the limits beyond which the company cannot operate. The MOA acts as a charter of the company and guides its relationship with shareholders, creditors, and the outside world.

Meaning of Memorandum of Association

The Memorandum of Association is a legal document that contains the essential details of a company such as its name, registered office, objectives, liability of members, and capital structure. It specifies the company’s powers and objectives, and any act performed beyond these objectives is considered ultra vires and void. Thus, MOA serves as the foundation of a company’s existence.

Definition of Memorandum of Association

According to 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 law or of this Act.

This definition highlights that the memorandum is a statutory document and can be altered only in accordance with legal provisions.

Nature of Memorandum of Association (MOA)

• Fundamental Charter of the Company

The Memorandum of Association is the fundamental charter of a company. It lays down the basic conditions on which the company is incorporated. The MOA defines the company’s objectives, powers, and scope of operations. All activities of the company must be carried out within the limits stated in the memorandum. Any act beyond these limits is considered ultra vires and void.

• Defines the Scope of Activities

The MOA clearly defines the scope of activities that a company can undertake. The object clause specifies the main and ancillary objectives of the company. This nature of MOA restricts the company from engaging in activities outside its stated objectives. It protects shareholders and creditors by ensuring that company funds are used only for authorized purposes.

• Binding Document

The Memorandum of Association is a binding document. It is binding on the company as well as on its members. Members are required to act in accordance with the provisions of the memorandum. The company cannot act beyond the powers granted by the MOA. This binding nature ensures discipline, legality, and uniformity in the functioning of the company.

• Public Document

The MOA is a public document available for inspection by anyone on payment of prescribed fees. Any person dealing with the company is presumed to have knowledge of its contents. This nature promotes transparency and safeguards the interests of outsiders such as creditors and investors by informing them about the company’s powers and objectives.

• Limits the Powers of the Company

The Memorandum of Association limits the powers of the company. It acts as a boundary within which the company must operate. Directors cannot exercise powers beyond what is stated in the MOA. Any transaction outside these limits is invalid. This nature prevents misuse of authority and ensures that management acts within legal boundaries.

• Basis for Incorporation

The MOA is the basis for incorporation of a company. Without a valid memorandum, a company cannot be registered under the Companies Act, 2013. It is a compulsory document submitted to the Registrar of Companies at the time of incorporation. This nature establishes the legal existence and identity of the company.

• Alterable Only as Per Law

The MOA can be altered only in accordance with the provisions of the Companies Act, 2013. Alteration requires compliance with legal procedures and approvals. This rigid nature ensures stability in the company’s structure and objectives. It prevents frequent or arbitrary changes that may adversely affect shareholders, creditors, and other stakeholders.

• Regulates Relationship with Outsiders

The MOA regulates the relationship between the company and outsiders. It informs third parties about the extent of the company’s powers. Outsiders can rely on the memorandum to assess whether a transaction is within the company’s authority. This nature protects external parties and promotes trust in corporate dealings.

Clauses of Memorandum of Association (MOA)

1. Name Clause

The Name Clause states the legal name of the company with which it is registered. The name must not be identical or similar to an existing company and must end with “Limited” or “Private Limited,” as applicable. This clause establishes the company’s identity and distinguishes it from others. It also ensures compliance with legal naming requirements under the Companies Act, 2013.

2. Registered Office Clause

The Registered Office Clause specifies the state in which the registered office of the company is situated. It determines the company’s domicile and jurisdiction of the Registrar of Companies. All official communications, notices, and legal documents are sent to this address. This clause helps in identifying the location of the company for legal and administrative purposes.

3. Object Clause

The Object Clause defines the purpose for which the company is formed. It states the main objectives and activities that the company is authorized to undertake. This clause restricts the company from carrying out activities beyond its stated objectives. Any act outside this clause is considered ultra vires and void, thereby protecting shareholders and creditors.

4. Liability Clause

The Liability Clause specifies the extent of liability of the members of the company. In a company limited by shares, liability is limited to the unpaid amount on shares. In a company limited by guarantee, liability is limited to the guaranteed amount. This clause protects members from unlimited financial risk and encourages investment.

5. Capital Clause

The Capital Clause states the authorized share capital of the company and its division into shares of fixed value. It indicates the maximum amount of capital the company can raise. This clause informs investors about the capital structure and provides a basis for issuing shares. Any issue beyond authorized capital requires alteration of the memorandum.

6. Subscription Clause

The Subscription Clause contains the names, addresses, and signatures of the initial subscribers to the memorandum. It shows the number of shares each subscriber agrees to take. Subscribers commit to forming the company and taking at least one share each. This clause signifies the intention to form the company and binds subscribers legally.

Alteration of Clauses of Memorandum of Association (MOA)

1. Alteration of Name Clause

The name clause of a company can be altered by passing a special resolution in the general meeting. Approval of the Central Government is required if the change involves removal of the word “Limited” or “Private Limited.” After approval, the change becomes effective only when the new name is registered by the Registrar of Companies and a fresh certificate of incorporation is issued.

2. Alteration of Registered Office Clause

Alteration of the registered office clause depends on the nature of change. If the office is shifted within the same city or town, a board resolution is sufficient. Shifting within the same state but to a different ROC requires a special resolution and ROC approval. Shifting from one state to another requires approval of shareholders, creditors, and the Central Government.

3. Alteration of Object Clause

The object clause can be altered by passing a special resolution in a general meeting. The alteration must be filed with the Registrar of Companies. If the company has raised money from the public and has unutilized funds, additional requirements such as publication and exit options for dissenting shareholders apply. Alteration ensures flexibility while protecting stakeholders’ interests.

4. Alteration of Liability Clause

The liability clause can be altered only to increase the liability of members, and not to reduce it. Such alteration requires the written consent of the affected members and passing of a special resolution. This clause cannot be altered without members’ approval because it directly affects their financial responsibility and risk exposure in the company.

5. Alteration of Capital Clause

The capital clause can be altered by passing an ordinary resolution in the general meeting, if permitted by the Articles of Association. Alteration may include increase, reduction, subdivision, consolidation, or conversion of share capital. Certain alterations, such as reduction of share capital, require approval of the National Company Law Tribunal (NCLT).

6. Alteration of Subscription Clause

The subscription clause cannot be altered after incorporation. It is a historical record showing the original subscribers and the number of shares taken by them. Once the company is incorporated, this clause remains permanent and unchangeable. Any change in ownership thereafter is reflected through transfer or allotment of shares, not through alteration of this clause.

Tabular Summary of Alteration of Memorandum of Association (MOA)