The Various Clauses of a Memorandum of Association
Introduction
A Memorandum of Association (MOA) is a fundamental document that states it’s purposes, powers, as well as the scope of a company. It serves as a contract between the company and its shareholders, as well as between the company and the outside world. It’s vital to draft a MOA for private limited company registration. The MOA is divided into several clauses, each with its own significance in shaping the company’s identity and operations. In this article, we will explore the different clauses of an MOA as well as delve deeper into the importance of the object clause.
Name Clause
The first clause of an MOA is the name clause. It states the official name under which the company will conduct its business. The name chosen must be unique and not identical or too similar to that of an existing company. This clause ensures that the company has a unique identity and also helps to avoid confusion in the market.
Registered Office Clause
The registered office clause states the location of the company’s registered office, which then serves as its official address. This clause helps to determine the jurisdiction of the Registrar of Companies. It also ensures that all legal notices and communications are sent to the correct address. The company must inform the Registrar of Companies about the registered office address within 30 days of formation or commencement of business.
Object Clause
The object clause is one of the most crucial clauses in an MOA. It defines the company’s purpose and the scope of its activities. It specifies the objectives for which the company was formed and the business activities it intends to take up. The object clause of the memorandum of association further divides into three sub-clauses.
- Main Objects: This sub-clause outlines the primary business activities of the company.
- Ancillary Objects: This sub-clause lists the secondary business activities that are necessary to fulfill the main objects.
- Other Objects: This sub-clause includes any other miscellaneous business activities that the company may engage in. That is, services which are not directly related to its primary or secondary objectives.
The object clause serves several important purposes:
- It protects the interests of shareholders by ensuring that funds raised for one undertaking are not used for another.
- It limits the scope of the company’s activities to the objectives mentioned in the MOA.
- It helps to determine whether a particular act or transaction falls within the company’s powers or is ultra vires (beyond its powers).
Liability Clause
The liability clause specifies the nature of liability of the company’s members in case of any loss or debts incurred by the company. There are three types of liability:
- Limited by Shares: Every shareholder’s liability is limited to the unpaid amount of their individual subscribed capital.
- Limited by Guarantee: When a company is being wound up, every Promoter’s liability is limited to the amount they have agreed to contribute.
- Unlimited: The liability of the shareholders is unlimited, hence their personal assets may be at risk in case of winding up or debt recovery.
Capital Clause
The capital clause details the maximum capital that the company can raise, known as the authorized or nominal capital.
The company’s articles of association actively specify how to divide its capital into fixed-amount shares. Also identify the types of shares it is authorized to issue. Such as equity shares, preference shares, and debentures.
Declaration Clause
The subscribers to the Memorandum of Association (MOA) actively declare their willingness to take shares in the company. They commit to being bound by the provisions of the MOA and Articles of Association through the declaration clause.
Nominee Clause
One Person Company (OPC) have an additional clause called the nominee clause. This clause names a nominee who will become the member of the company upon the death or incapacity of the sole member.
Alteration of the MOA
If there are any changes in the clauses of the MOA, then the document must be altered or amended to include these changes. The most common reasons for altering an MOA include:
- Change in the company name
- Change in the registered office address
- Change in the company’s business objectives
- Change in the capital structure
- Change in the nature of liability
The process of altering the MOA involves various things, such as, proposing the changes, obtaining shareholder approval through a special resolution, seeking approval from regulatory authorities (if necessary) or even submitting the revised MOA to the Registrar of Companies.
Conclusion
The Memorandum of Association is a crucial document that defines the identity, purpose, and scope of a company. Its clauses, particularly the object clause of memorandum of association, serve as a guiding light for the company’s operations. It further helps to protect the interests of stakeholders. By understanding the significance of each clause in an MOA, entrepreneurs can equip their company to navigate the complexities of the business world and achieve its objectives.