Memorandum of Association | Company Law - CLAT PG PDF Download

Understanding the Memorandum of Association in Company Formation

When a group of individuals comes together with a common goal, often of a commercial nature, they form a company. The primary aim of such a company is usually to generate profit through various business activities. To formally establish a company, an application must be submitted to the Registrar of Companies (ROC) along with several essential documents. One of the key documents required for this process is the Memorandum of Association.

What is the Memorandum of Association?

• The Memorandum of Association is defined in Section 2(56) of the Companies Act, 2013.
• According to this section, a "memorandum" refers to two aspects:
  • The Memorandum of Association as it was originally created.

Memorandum of Association: Overview and Significance

The Memorandum of Association (MoA) is a crucial legal document that outlines the fundamental aspects of a company, including its purpose, powers, and operational conditions. Let's delve into its significance and the process of registration.

1. What is the Memorandum of Association?

• The Memorandum of Association is a legal document that outlines the core purpose for which a company is formed.
• It delineates the powers of the company and the conditions under which it operates.
• This document contains the rules and regulations governing the company's relationships with external parties.

2. Key Features of the Memorandum of Association

• Mandatory Requirement: Every company is legally required to have a Memorandum of Association that defines the scope of its operations.
• Ultra Vires Actions: If a company acts beyond the scope defined in the MoA, such actions are considered ultra vires and are void.
• Foundation Document: The MoA serves as the foundation upon which the entire structure of the company is built.
• Public Document: The Memorandum of Association is a public document, accessible to anyone interested in entering into contracts with the company.

3. Importance of Registering a Memorandum of Association

• The Memorandum of Association governs the relationship between the company and its stakeholders.
• It is essential for the registration of a company, as outlined in Section 3 of the Companies Act, 2013.
• Different requirements for different types of companies are as follows:
• Public Company: Requires seven or more people to subscribe to the memorandum.
• Private Company: Requires two or more people to subscribe to the memorandum.
• One-Person Company: Requires only one person to subscribe to the memorandum.

4. Role of the Memorandum of Association in Company Registration

• Section 7(1)(a) of the Companies Act mandates that the Memorandum of Association and Articles of Association be duly signed by the subscribers and filed with the Registrar for company incorporation.
• The Memorandum of Association serves additional purposes such as:
• Informing Shareholders: It provides potential shareholders with information about the company before they invest, helping them determine the amount of capital to invest.
• Informing Stakeholders: It offers information to all stakeholders interested in associating with the company in any capacity.

5. Memorandum of Association: Original vs. Altered

• Memorandum as Originally Framed: This refers to the Memorandum of Association as it was at the time of the company's incorporation.
• Memorandum as Altered: This includes all alterations made to the Memorandum over time. These alterations become part of the Memorandum of Association.
• Alterations must be made in accordance with the relevant company law, whether it be a previous law or the current Companies Act.

6. Public Access to Memorandum of Association

• According to Section 399 of the Companies Act, 2013, any person has the right to inspect documents filed with the Registrar as per the provisions of the Act.
• This allows individuals dealing with the company to access information about the company through its Memorandum of Association.

Format of Memorandum of Association

• According to Section 4(5) of the Companies Act, the memorandum can be in any form as specified in Tables A, B, C, D, and E of Schedule 1, depending on the type of company.

Table A

• Applicable to a company limited by shares.

Table B

• Applicable to a company limited by guarantee and not having a share capital.

Table C

• Applicable to a company limited by guarantee and having a share capital.

Table D

• Applicable to an unlimited company not having a share capital.

Table E

• Applicable to an unlimited company having a share capital.

Additional Requirements

• The memorandum should be printed, numbered, and divided into paragraphs.
• It must be signed by the subscribers of the company.

Content of Memorandum of Association

As per Section 4 of the Companies Act, 2013, the memorandum must include specific essential information. Let's delve into the details of each component:

• Name Clause: The first clause specifies the name of the company. While any name can be chosen, there are certain conditions to be met.

Public and Private Company Names

• Public Company: If the company is public, the name must include the word ‘Limited’. For example, a public company named “Robotics” will be registered as “Robotics Limited”.
• Private Company: If the company is private, the name must include ‘Private Limited’. For instance, a private company named “Secure” will be registered as “Secure Private Limited”.

Section 8 Companies

• Section 8 companies, as per Section 8 of the Companies Act, 2013, are established to promote activities like commerce, art, sports, education, research, social welfare, religion, etc.
• These companies are similar to Trusts and Societies but enjoy better recognition and legal standing.

Prohibited Name Similarities

• The name in the memorandum must not be identical to that of another company.
• It should not be too similar to the name of an existing company.

Rule 8 of the Company (Incorporation) Rules, 2014

• When a company adds terms like ‘Limited’, ‘Private Limited’, ‘LLP’, ‘Company’, ‘Corporation’, ‘Corp’, ‘inc’, or similar designations to its name to distinguish it from another company, the name may still be rejected.
• For example,‘Precious Technology Limited’ and ‘Precious Technology Company’ are considered the same.
• If only the plural or singular forms are changed to differentiate between names, the names are still considered similar.
• For example, ‘Greentech Solution’ is the same as ‘GreenTech Solutions’.
• If only the type, case of letters, or punctuation marks are changed, the names are still considered identical.
• For example,‘Wework’ and ‘We.work’ are the same.
• If different tenses are used in names, they are still considered the same.
• For example,‘Ascend Solution’ is the same as ‘Ascended Solutions’.
• If there is an intentional spelling mistake or phonetic change in the name, the names are still considered similar.
• For example,‘Greentech’ and ‘Greentek’ are the same.
• If internet-related designations such as ‘.org’, ‘.com’, etc. are used, the names are still considered identical.
• For example,‘Greentech Solution Ltd.’ and ‘Greentech Solutions.com Ltd.’ are the same.
• Exception: The name will not be disregarded if the existing company permits it through a board resolution.
• If the order of the combination of words is changed, the names are still considered the same.
• For example,‘Shah Builders and Contractors’ is the same as ‘Shah Contractors and Builders’.
• Exception: The name will not be disregarded if the existing company allows it through a board resolution.
• If a definite or indefinite article is added to the name, the names are still considered identical.
• For example,‘Greentech Solutions Ltd’ is the same as ‘The Greentech Solutions Ltd’.
• Exception: The name will not be disregarded if the existing company permits it by a board resolution.
• If there is a slight variation in spelling or a grammatical variation between two names, they are still considered the same.
• For example,‘Colours TV Channel’ is the same as ‘Colors TV Channel’.
• If a name is translated from one language to another, the names are still considered identical.
• For example,‘Om Electricity Corporation’ is the same as ‘Om Vidyut Nigam’.
• If the name of a place is added to the name, the names are still considered the same.
• For example,‘Greentech Solutions Ltd.’ is the same as ‘Greentech Mumbai Solutions Ltd.’
• Exception: The name will not be disregarded if the existing company allows it through a board resolution.
• If numericals are added, deleted, or modified in the name, the names are still considered identical.
• For example,‘Greentech Solutions Ltd.’ is the same as ‘5 Greentech Solutions Ltd.’
• Exception: The name will not be disregarded if the existing company permits it by a board resolution.
• Additionally, an undesirable name will also be rejected.

Undesirable Names

Undesirable names are those names that, in the opinion of the Central Government, are:

• Prohibited under the provisions of Section 3 of the Emblems and Names (Prevention and Improper Use) Act, 1950.
• Names that resemble each other and are chosen to deceive.
• Names that include a registered trademark.
• Names that include any word or words offensive to a section of people.
• Names identical to or too similar to the name of an existing Limited Liability Partnership.

Furthermore, statutory names such as the UN, Red Cross, World Bank, Amnesty International, etc., are also not allowed to be chosen. Names that indicate the company is working for the government are also prohibited.

Reservation of a Name

Section 4(5)(i) of the Act allows the Registrar to reserve a name for 20 days upon receiving the required documents for company formation. If the application is made by an existing company, the name will be reserved for 60 days from the date of application. The company must get incorporated with the reserved name within these 60 days.

Cancellation of Name Reservation

• If the company has not been incorporated: The Registrar can cancel the name reservation and impose a fine of Rupees 1,00,000.
• If the company has been incorporated: After hearing the company's reasons, the Registrar has three options:
• Grant 3 months' time for the company to change the name by passing an ordinary resolution.
• Strike off the name from the Register of Companies.
• File a petition for winding up the company.

Application for Name Reservation

Rule 8 and 9 of the Company (Incorporation) Rules, 2014 state that the application for name reservation under section 4(4) should be filed in Form INC-1.

Registered Office Clause

The Registered Office of a company determines its nationality and jurisdiction of courts. It serves as a place of residence and is used for all communications with the company.

Registered Office Requirements

• Before incorporation: It is sufficient to mention only the name of the state where the company is located.
• After incorporation: The company must specify the exact location of the registered office and get it verified within 30 days of incorporation.
• Display requirements: Every office where the company conducts business must display the name and address of its registered office. For a one-person company, “One-person Company” should be written in brackets below the company name.
• Change notification: Any change in the location of the registered office must be notified to the Registrar within the prescribed time period.

Object Clause

The Object Clause is a crucial part of the Memorandum of Association, as outlined in Section 4(c) of the Companies Act, 2013. It specifies the purpose for which the company is formed and includes both the main objects and matters necessary for achieving these objects, known as incidental or ancillary objects. The stated objects must be well-defined and lawful according to Section 6(b) of the Companies Act, 2013.

Protection Provided by the Object Clause

• For Shareholders: The object clause protects shareholders by clearly stating the operations the company will perform. This ensures that shareholders know their investment will be used for specific purposes.
• For Creditors: The object clause assures creditors that the company's capital is not at risk and that it will operate within the limits set by the clause.
• For Public Interest: By limiting the number of matters the company can deal with, the object clause prevents the company from diversifying its activities excessively, thus serving the public interest.