Memorandum of Association (MOA): A Fundamental Guide
Memorandum of Association (MOA): A Fundamental Guide
The term “MOA” stands for Memorandum of Association; it represents the charter of the company. It is a legal document prepared during a company’s registration process. It defines the company’s relationship with shareholders and specifies its goals, operational scope, and internal rules for which the company has been formed. The company can undertake only those activities mentioned in the Memorandum of Association. In this article, we will delve into the definition of the memorandum of association, its objectives, significance, and more.
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What is meant by MOA?
In 2013, Section 399 of the Companies Act was introduced to create a MOA, which is a public document. All employees of an organization need to be aware of this MOA.
This document outlines all the powers and rights within a company and ensures that everyone follows the agreed rules and regulations. Anyone who goes against these rules can be considered “ultra vires” by the company, and their actions can be canceled.
In simple words, the MOA defines a company’s scope and legal boundaries.
The Memorandum of Association of a company covers various aspects of that specific organization, including its operations, delegation of duties, policies, and principles.
Significance of a Memorandum of Association (MoA)
A company is formed when individuals unite with a shared objective. Typically, the primary goal of establishing a company is to generate profits, making it fundamentally business-oriented. As mentioned above, an application must be submitted to the Registrar of Companies (ROC) to register a company, accompanied by specific documentation. The company’s Memorandum of Association (MoA) holds great significance among the essential documents needed for registration.
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Defining the Company’s Foundation
A Memorandum of Association (MoA) is a company’s official guidebook. It’s a legal paper put together while a company is starting up and getting registered. This paper explains how the company works with its owners and outlines its primary goals. The company is only allowed to do what the MoA talks about.
Setting Limits for Company Actions
Think of the MoA as a border for what the company is allowed to do. Anything the company does outside of this border doesn’t count and isn’t allowed. The MoA is like the base on which the company stands. It describes the whole plan for how the company is built.
The Crucial Role of MoA in Company Registration
As mentioned above, The Memorandum of Association (MoA) is a vital document encompassing essential information about the company. According to Section 3 of the Act, a company can come into existence when the following individuals show their agreement to the MoA:
- Seven or more members of a public company
- Two or more members of a private company
- A single member for a One Person Company (OPC)
Company registration hinges on preparing the MoA and its endorsement by the minimum number of subscribers as specified above. Therefore, the MoA is a mandatory requirement for the registration of all companies.
Revealing Company Information
The Memorandum of Association is a paper that anyone can read. By paying a fee to the ROC, you can access it. This paper helps owners, people who lend money, and anyone who works with the company. They can learn about what the company can do before they decide to get involved. People considering investing in the company can read the MoA to determine if it’s a good idea.
Memorandum of Association Format According to Companies Act, 2013
According to Section 4(6) of the Companies Act, 2013, the format of a Memorandum of Association (MoA) is specified in Table A to Table E of Schedule 1 of the Act. Each company is required to choose the suitable format from Table A to E based on its type of business. The various forms outlined in the Act are as follows:
- Table A: This format applies to companies with a share capital.
- Table B: This format is intended for companies limited by guarantee but without a share capital.
- Table C: This format is designed for companies limited by guarantee that also have a share capital.
- Table D: This format is meant for unlimited companies that do not possess a share capital.
- Table E: This format applies to unlimited companies with a share capital.
The MoA must be appropriately numbered, printed, and organized into paragraphs. The individuals who subscribe to the company’s formation must sign the MoA.
Benefits of MOA for Shareholders
The availability of the MoA offers several advantages to shareholders:
- It enables potential shareholders to understand the company’s operations before investing in its shares. This helps them gauge the capital they may want to put into the company.
- The MoA provides comprehensive information about the company, facilitating stakeholders who wish to collaborate with it or engage in its affairs.
The MoA’s contents are crucial in informing and guiding prospective and existing shareholders and stakeholders.
Contents of the Memorandum of Association
The Memorandum of Association comprises the following clauses:
Name Clause: Rule for naming companies
In the Name Clause of the MOA, a specific rule is set for naming companies. Private limited companies’ names should conclude with ‘Private Limited.’ Conversely, for government companies, the term ‘Limited’ is used at the end of their names.
However, companies under Section 8 of the act have different naming rules. These companies can be recognized by specific terms such as:
- Electoral trust.
Registered Office Clause: Defining Company Location
The Registered Office Clause pinpoints the precise state where the organization’s registered office is situated. It holds significant importance in clearly identifying the branch of the registered office where the organization completed its registration process. This clause ensures transparency about the company’s official location.
Object Clause: Defining Purpose and Activities
The Object Clause within the Memorandum of Association clarifies the organization’s mission and intended activities. If there’s a change in activities and operations after a certain period, the organization’s leader must alter the company’s name within six months. Please do so to avoid a violation of regulations. This clause ensures that the company’s activities align with its stated purpose and reflect any changes that might occur over time.
Capital Clause: Detailing Shareholders’ Investments
The Capital Clause of the Memorandum of Association focuses on the capital contributed by multiple shareholders within a company. This clause requires information about the share amounts held by individual shareholders and outlining how they established their regulations. It’s a section that sheds light on the financial investments made by shareholders and the company’s ownership structure.
Liability Clause: Clarifying Member Responsibilities
The liability Clause is another crucial part of the Memorandum of Association. It requires explaining the extent of liability held by members within the firm, which can be limited or unlimited.
If the company operates with limited liability by shares, the MOA must specify the share amounts held by shareholders and whether these shares have been paid for or remain unpaid. These details are to be clearly stated in the MOA.
The MOA specifies that all contributors share equal rights for companies limited by guarantees. This clause also holds significance during the winding-up process of a company. It ensures that both assets and liabilities, including expenses incurred during the dissolution of the firm, are distributed equally among contributors.
Association Clause: Expressing the Company Owner’s Vision
The Association Clause is the final, yet not less important, section of the Memorandum of Association. Within this clause, the exact vision and objectives of the company’s owner should be articulated. This clause encapsulates the core ideals and aspirations that the owner envisions for the company’s journey and impact. It serves as a reflection of the owner’s guiding principles and ultimate goals for the organization.
Difference Between Articles of Association (AoA) and Memorandum of Association (MoA)
A Memorandum of Association (MoA) outlines the company’s main goals and external relationships, and Articles of Association (AoA) govern internal rules, like meetings and management.
|Memorandum of Association (MoA)||
Articles of Association (AoA)
|Nature||The MoA is the company’s foundational document.||AoA are the company’s internal rules and regulations|
|Alteration||Altering the MoA is complex and requires shareholder approval and legal compliance.||Altering AoA is more straightforward, requiring approval from the board and shareholders.|
|Scope||It outlines the company’s main objectives and limits.||It governs the company’s internal management and operations.|
|Contents||It includes the company’s name, registered office, objectives, liability, and capital clauses.||It covers meeting rules, director appointments, powers, share transfers, etc.|
|Purpose:||It defines the company’s external relationships and fundamental structure.||It guides the company’s internal operations and procedures.|
Amendment of MOA
Amending the Memorandum of Association (MOA) becomes necessary when any of the following changes occur:
- A modification in the business name
- Alterations in the registered office location
- Changes to the object clause of the business
- Adjustments in the authorized capital of the business
- Alterations in the legal liabilities of business members
The procedures for making these amendments are outlined in the 13th clause of The Companies Act, 2013. Modifying a company’s Memorandum of Association (MOA) requires stakeholders’ approval through a special resolution. To facilitate MOA amendments, IndiaFilings offers guidance and support. Talk to our experts today.Get Started Now!