Memorandum of associationLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

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Definition

• Memorandum ofassociation is thedocument whichcontains the rulesregarding constitutionand activities orobjects of thecompany.

Definition

• Company is governedby MOA. Its relationtowards the membersand outsiders aredetermined by thisimportant document.The company isallowed to functionwithin the frameworkof MOA.

Form of Memorandum of association

• Memorandum should be inone of the forms in tableB,C,D and E in schedule I ofthe companies Act.

• According to section 15 ofthe Act, the memorandummust be printed, divided intoparagraphs, numberedconsecutively and signed byseven subscribers in the caseof public companies and towin the case of privatecompany.

Purpose of Memorandum of association

• The intending shareholdercan find out from theMemorandum the purposefor which his money is goingto be used by the companyand what risk he is taking inmaking the investment.

• Memorandum enables allthose who deal with thecompany to know what itspowers are and what therange of its activities are.

Clauses in the Memorandum of association

• Name clause.

• Registered office clause.

• Object Clause.

• Liability clause.

• Capital clause.

• Subscription Clause.

Name clause

• The first clause of theMemorandum requires to statethe name of the proposedcompany. A company being alegal person must have a nameto establish its identity. Thename of a corporation is thesymbol of its personalexistence. The memorandumshould state the name of thecompany with ‘limited’ as thelast word of the name in case ofpublic limited company andwith ‘private limited’ in case ofprivate limited company.

Registered office clause

• The memorandum must specifythe state in which the registeredoffice of the company is to besituated. Within thirty days ofits incorporation, the exactplace where the registeredoffice is to be located must bedecided and notice of thesituation be given to theRegistrar who is to record thesame. All communication to thecompany must be addressed toits registered office.

Object Clause

• This is the most importantclause of memorandum ofassociation. It defines theobject of the company andthe extent of its powers andthe sphere of its activities.The purpose of requiring thecompany to state its objectsis to inform (i) the membersin what kind of businesstheir capital may be usedand (ii) persons dealing withthe company, what itspowers are.

Object Clause

• Object clause is usually dividedinto three sub clause.– Main objects – This sub clauseshould state the main objects ofthe company.

– Other objects – This clauseshould state other objects whichare not included in main object.

• States to which objects extend –This sub clause has to mentionthe states to whose territoriesthe objects are extended.

Liability clause

• This clause has to state thenature of liability that themembers incur. (Limited orunlimited). If the company isto be incorporated withlimited liability, the clausemust state that the liabilityof the members shall belimited by shares. Theliability clause is omittedfrom memorandum ofassociation of unlimitedcompanies.

Subscription Clause

• The memorandum concludeswith the subscription clause.The memorandum has to besubscribed by at least sevenpersons in the case of a publiclimited company and by at leasttwo in the case of a privatelimited company. Eachsubscriber must sign thedocument and must writeopposite to his name thenumber of shares taken by him.After incorporation, nosubscriber can withdraw hisname on any groundwhatsoever.

Capital clause

• This clause contains theamount of capital with whichthe company is registeredand the number and value ofthe shares into which it isdivided. The capital isdetermined as nominal,authorized or registered. Anunlimited company having ashare capital is not requiredto include the capital clausein its memorandum.