What is Memorandum of Association? What are its contents?
The Memorandum of Association of a company is its main or principal document. No company can be registered without it. It is regarded as a life-giving document or the charter of the company, as it regulates the relationship of the company with the outside world. According to Section 2 (56) of the Companies Act, Memorandum means “Memorandum of Association as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act.” This definition does not throw any light on the scope and importance of the Memorandum.
According to Justice MacMillian: “The purpose of Memorandum is to enable the shareholders, creditors and those who deal with the company to know its permitted range of enterprise”. According to Justice Cairns: “The Memorandum, of Association of a company is its charter and defines the limitations and the powers of the company established under the Act.”
Purposes Served by the Memorandum:
A Memorandum serves two important purposes:
The Memorandum of Association contains fundamental conditions upon which the company is allowed to come into existence. It lays down the powers and limits of the company beyond which the company cannot go. Any act of the company outside the scope of the Memorandum of Association is regarded as void. In other words, anything done beyond the scope of Memorandum is ultra vires and devoid of any legal effect.
The Memorandum of Association is a public document and is open for inspection by any one. All those dealing with the company are presumed to have gone through it and to have knowledge of its contents. It is through the Memorandum of Association that all those dealing with the company are enabled to know what the permitted range of the company is
Clauses (contents) of the Memorandum of Association:
The Memorandum of Association of every company must have the following clauses:
The Name Clause:
The name of the company is given in this clause. The name must have the word ‘Limited’ as the last word of the name in the case of a Public Limited Company and ‘Private ,Limited` as the last words of the name in the case of a Private Limited. A company may choose any name but it must not be undesirable in the opinion of the Central Government. The proposed name should not be identical with or too closely resemble the name of an already existing company.
The Registered Office Clause:
Every company must have a registered office. This clause states the name of the state in which the registered office of the company will be situated. The exact address may be communicated later on to the Registrar of Companies, but not later than 15 days from the date of incorporation of the company. The importance of the registered office is that it is the address of the company where all communications and notices are to be sent and where register of members / debenture-holders / charges, minutes books of general meeting etc., are kept.
It is the most important clause of the Memorandum because it sets out the objects of the company. A company cannot do anything beyond or outside the obejcts clause and any act done beyond them shall be void. According to Section 4 (1) (c), the Memorandum of Association of a company must state the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. The objects of the company must not be illegal, immoral or opposed to public policy or against the provisions of the Companies Act.
The Liability Clause:
This clause contains the nature of liability of the members of the company. In case the company is limited by shares, the liability clause must state that the liability of the members shall be limited to the nominal value of shares held by them. In case of a company limited by guarantee, the liability shall be limited to the amount which a member has agreed to contribute in the event of its liquidation. A company registered with unlimited liability shall state in this clause that the liability of the members is unlimited.
The Capital Clause:
This clause must indicate the amount of capital with which the company is registered, and is known as authorized or nominal capital. This clause shall also state the number and value of shares into which the capital is divided. The company may. issue equity shares and preference shares. The number of shares in each category and their value should be given.
The Subscription or Association Clause:
This clause contains the names of signatories to the Memorandum and reads as follows : “We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance of the Memorandum and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.” The Memorandum of Association should be signed by at least seven persons in the case of a public company and by at least two persons in the case of a private company. The signatures should also be duly witnessed.