Memorandum of Association or MOA

Memorandum of Association or MOA

What is Memorandum of Association or MOA?

A company is an association of persons. It is constituted based on the memorandum of association. So, a memorandum of association is the fundamental charter of the company. It defines the scope and object of a company. It defines the relationship of the company with outsiders. A memorandum of association is divided into five clauses and it should be printed on foolscap paper.

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.

Commission received journal entry

Contents of Memorandum of Association

The Memorandum of Association contains the following clauses:

(1) Name Clause:

The name of the proposed company will be stated in the name clause of the memorandum of association. I it is a public company the name of the company will be followed with the word Limited. In the case of a private company, the name of the company will be followed by Private Limited. The name of the company should not be undesirable in the opinion of the Central Government. If a public company is a Limited liability, the last word of the name should be Limited. And in the case of a private company, it should be Private Limited. It means the liability of the members of the company is unlimited.

However, the Central Government may permit a company to dispense with the word Limited, if the company is formed for the promotion of commerce, art, religion, science, charity and so on and the company utilises its income in promoting its objects and prohibit payment of dividends to its members. However, Section 12 of the Companies Act, 2013 creates personal liability in the case of mis-description of name.

(2) Situation Clause:

Under Section 12 of the Companies Act, every company shall have a registered office on and from the fifteenth day of its incorporation. Every proposed company should give notice of the situation of the registered office to the registrar within 30 days after the date of incorporation of the company. However, the name of the State in which the registered office of the company shall be situated should be mentioned in the memorandum of association. According to Section 12 of the Act, this is to be done when the company commences business or within 30 days of its incorporation whichever is earlier

Also read: List of current assets and current liabilities

(3) Objects Clause:

The object clause is the most important one in the memorandum. The objects are divided into two sub-clauses.

(a) Main objects and

(b) Other objects

(a) Main Objects:

These are the objects to be pursued by the company on its incorporation. It includes the objects incidental or ancillary to the main objects.

(b) Other Objects:

Any other objects means objects which are not included in the first sub-clause.

No company can travel beyond its object clause, and no company can readily change its object clause so as to have a totally different object. If the object of the company fails, the company itself fails. However, the object clause can be altered under Section 13 of the 2013 Act. This clause gives information to the investors to keep them informed that for what purpose the money will be utilised.

(4) Liability Clause:

The liability clause states the liability of the members of the company. If it is a company limited by shares or guarantee, it shall be stated that the liability of the members is limited. It means the members of the company cannot be called upon to pay anything more than the normal value of the shard held by them or so much thereof as remains unpaid by them.

(5) Capital Clause:

The authorized capital of the company shall be mentioned in this clause. The division shall give the total number of shares and the nominal value of each share.

Alteration of Objects:

Section 13 of the 2013 Act permits alteration of objects within certain limits. But no alteration of objects will be permitted when such alteration goes against the interests of creditors and of shareholders. It means the limits imposed against the alteration of objects are to safeguard the interest of creditors and shareholders. The limits imposed may be discussed under two heads, namely

(i) substantive limits and

(ii) procedural limits.

The substantive limits define the physical limits of operation whereas the procedural limits define the procedure by which it can be affected.

Substantive Limits: Section 13 of the 2013 Act allows an alteration of objects only in the following cases:

(1) an alteration of objects is allowed to enable the company to carry on its business more economically or more efficiently;

(2) an alteration in the objects can be made with a view to attain the main purpose of the company by new or improved means;

Example: with a view to taking advantage of new scientific methods or discoveries.

(3) to enlarge or change the local area of the company’s operation;

(4) to carry on some business which under existing circumstances may conveniently or advantageously be combined to the business of company;

(5) to restrict or abandon any of the objects specified in the memorandum;

(6) to sell or dispose of the whole or any part of the undertaking of the company;

(7) to amalgamate the company any other company or body of persons.

Section 13(2) of the 2013 Act provides as follows: Any change in the name of a company shall be subject to the provisions of sub-sections (2) and (3) of section 4 and shall not have effect except with the approval of the Central Government in writing.

Procedural Alteration:

When objects of a company are altered, the specified procedure should strictly be observed. The alteration must be passed in the general body meeting of the company with a special resolution. It should be confirmed by the Company Law Board (now Tribunal). The Company Law Board must be satisfied that prior intimation has been served o all debenture holders and interested persons. A creditor has right to come forward with his objections for the alteration of the objects. In such a case, his consent must be procured or his claim must be satisfied.

Further, the registrar of companies is also entitled to state his objections and make suggestions with respect to confirmation of the alteration. The Company Law Board must cause a notice of the alteration to be served on the Registrar. The Company Law Board has the discretion to refuse or accept the alteration or to confirm it either wholly or partially or subject to certain conditions which be imposed.

Any alteration comes into force when it is registered. If an application for registration is not made with the registrar within three months from the order of the board, the whole proceedings of alteration will lapse. However, the board has the power to extend time for registering an alteration, if there is sufficient reason to excuse the delay in making the application for registration. A certified copy of the order of the board and a printed copy of the altered memorandum must be filed with the registrar.

Also read: Different types of Companies

Also read: Issue of debentures

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