What does the Memorandum of a Company include?

Introduction

A Memorandum or a Memorandum of Association (MoA) serves as the company’s charter. It is a legal document created during a company’s establishment and registration procedure that outlines the goals for the organisation’s formation, its connection with shareholders, and how the two will work together. The company may carry out only the activities listed in the Memorandum of Association. The MoA establishes the limit that the company’s actions are not allowed to cross as a result.

A memorandum has been defined in section 2(56) of the Act to mean “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.”

The MoA enables shareholders, creditors, and anyone else interacting with the company to understand its fundamental rights and powers. Additionally, the information in the MoA aids potential shareholders in making the best choice when considering an investment in the business. A public limited company requires the signatures of at least seven members and at least two subscribers for an MoA.

Contents of a Memorandum

Section 4 of the Companies Act, 2013 gives a rather exhaustive list and guidelines for a memorandum. According to that section, the Memorandum of a company includes the following-

(i) Name Clause: The company’s initial distinctive identity is its name. As a result, the Memorandum’s name clause includes the company’s real, legitimate, and authorised name. Company names should not be similar to those of firms already registered under the same name, as these companies frequently employ trademark registration to protect the names of their businesses. The name of the company should be included, with “limited” or “private limited” as the final words, depending on whether it is a public or private limited company. However, in the case of businesses registered under Section 25 of the Act, these clauses may be omitted.

(ii) Registered Office Clause: The State or Union Territory where the company’s registered office will be located has been to be included. The Memorandum does not have to provide the full address of the company’s registered office. Only the name of the State where the company’s registered office will be located needs to be stated. The Registrar of Companies must receive notification of the registered office’s full and accurate address within 30 days of incorporation. The company is free to set up its registered office anywhere in the State after the State has been stated in the Memorandum.

(iii) Other States/ UTs where the company’s objectives extend: If the company’s objectives, other than those of trading companies, are not limited to a single State, then the States to whose territory those objectives extend have to be mentioned.

(iv) Objective Clause: The objectives of the company in the case of a firm that existed before the Companies (Amendment) Act of 1965 have to be mentioned. This provision outlines the boundaries of the company’s restrictions. It limits the scope of the company’s operations. A firm lacks the capacity to behave as a legal person and cannot exercise any of the rights which are not set forth in the objects clause. According to Narendra Nath Chakravarty v. Corporation of Calcutta, this clause states “affirmatively the ambit and extent of vitality and power which by law are given to the corporation and it states, if it is necessary so to state, negatively, that nothing shall be done beyond that ambit and that no attempt shall be made to use the corporate life for any purpose other than that which is so specified.”

It was held in Sivashanmugam v. Butterfly Marketing (P.) Ltd., that when a company’s object clause said that the company might form any partnership for any purpose that may be beneficial to the company, this allowed the company to form partnerships for manufacturing garments.

(v) Object Clause: In the case of a company formed after the Companies (Amendment) Act, 1965 took effect, then the following should be included:

(a) The principal objects of the company to be pursued by the company upon its incorporation

(b) The principal objects incidental or ancillary to the attainment of the principal objects; and

(c) Other principal objects of the company not included in (a) above

The object clause states the purpose of the company’s establishment. Companies can only conduct the types of business that are expressly permitted under this clause and nothing else. An object clause must include:

  • Nothing unlawful.
  • Nothing that is detrimental to the people’s welfare.
  • Nothing that violates the nation’s rule of law.

(vi) Liability Clause: The members’ liability is unlimited in the case of an unlimited company, but it is limited in the case of a company limited by shares by the amount still owed on each member’s share. This specific clause will not be included in the MoA if the company is unlimited.

The members’ threshold of liability:

(a) A company limited by shares or by guarantee must specify that the member’s liability is limited;

(b) The Memorandum of Association of a Guarantee company shall also state that each member undertakes to contribute to the assets of the company in the event of its being wound up while he is a member or within one year of his ceasing to be a member for payment of debts and liabilities of the company as may have been contracted before he ceases to be a member, as well as of the costs, charges, and expenses of winding up, and for adjustment of contributory rights among contributors.

The members of the company cannot be asked to make contributions that are greater than those specified in their liability in the Memorandum of association.

(vii) Capital Clause: The whole amount of the company’s share capital divided into fixed-amount shares has to be mentioned clearly. The capital clause should also specify the number of each type of share as well as the types of shares (whether equity shares or preference shares) and their respective face values. Depending on a variety of factors, private corporations and public companies not meant for stock exchange listing may assume any face value; nevertheless, public companies intended for stock exchange listing will have prescribed share face values. In the case of companies registered under Section 25 of the Act, this clause may be omitted. In Napur Mitra (Smt.) v. Basubani Pvt. Ltd., it was held that no inference of capital issue in excess of authorised capital could be drawn and that the question of an act ultra vires the Memorandum should not arise.

(viii) Association/ Subscription Clause: The association clause states why anyone signing the bottom of the MOA wishes to be a part of the association formed by the Memorandum. Subscribers to a company’s Memorandum of Association must also subscribe to the capital clause. A public company must have at least seven subscribers, while a private company must have at least two. Each subscriber to the Memorandum of Association must purchase at least one share. Witnesses must also attest to the signatures. One witness may be present for every signature, but none of the subscribers may be present for the signatures of the other subscribers. Each subscriber must indicate how many shares they are purchasing next to their name. His name, father’s or husband’s name, residence, and occupation must also be written in his own hand along with this information.

Conclusion

The Memorandum of Association is a very crucial document, and without an MoA, a company cannot be incorporated or registered. It is an important document outlining the boundaries and limits of a company’s business.

References

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