Understanding Memorandum of Association

A Memorandum of Association (MoA) is a legal document that defines the scope and objectives of a company. It is one of the essential documents required for the incorporation and registration of a company in India. It also lays down the rights and liabilities of the shareholders and the company.

The MoA must be prepared in accordance with the provisions of the Companies Act, 2013 and the rules made thereunder. The format and contents of the MoA vary depending on the type and nature of the company. The Companies Act, 2013 provides different tables for different types of companies in Schedule I.

In this blog post, we will discuss some important aspects of drafting a MoA for a company in India, such as:

The clauses of the MoA
The procedure for altering the MoA
The case laws related to the MoA
The legal terms and concepts related to the MoA
The clauses of the MoA
The MoA consists of six clauses, namely: NaSiObLiCa नासिओबलिका

Name clause
Situation clause
Object clause
Liability clause
Capital clause
Subscription clause
Name clause
The name clause specifies the name of the company. The name should be unique and not identical or similar to any existing company or trademark. The name should also end with "Limited" or "Private Limited" depending on the type of the company. The name should not contain any words that are prohibited or offensive under any law.

The name clause can be altered by passing a special resolution and obtaining the approval of the Central Government or the Registrar of Companies (ROC).

Situation clause
The situation clause specifies the state in which the registered office of the company is situated. The registered office is the place where all the official communications and notices are sent and received by the company. The registered office can be changed within the same state by passing a board resolution and notifying the ROC. The registered office can be changed from one state to another by passing a special resolution and obtaining the approval of the Central Government and the ROC.

Object clause
The object clause specifies the main objects and ancillary objects of the company. The main objects are those for which the company is formed and which are essential for its existence. The ancillary objects are those that are incidental or conducive to the attainment of the main objects.

The object clause defines the scope and limits of the activities that the company can undertake. The company cannot act beyond its object clause, otherwise it will be ultra vires (beyond its powers) and void.

The object clause can be altered by passing a special resolution and obtaining the approval of the shareholders, creditors, Central Government, Tribunal, or any other authority as required by law.

Liability clause
The liability clause specifies the nature and extent of liability of the members (shareholders) of the company. The liability can be limited or unlimited depending on the type of company.

In a limited liability company, the liability of members is limited to their share capital or guarantee amount. In an unlimited liability company, there is no limit on their liability and they can be personally liable for all debts and obligations of their company.

The liability clause can be altered by passing a special resolution and obtaining consent from all members.

Capital clause
The capital clause specifies the amount and division of share capital or guarantee amount of the company. Share capital is divided into shares of fixed value which represent ownership interest in a company. Guarantee amount is an undertaking by members to contribute a certain sum to meet liabilities in case of winding up.

The capital clause also specifies different classes and rights attached to shares such as equity shares, preference shares, voting rights, dividend rights etc.

The capital clause can be altered by passing an ordinary resolution or a special resolution depending on whether it involves increase, decrease, consolidation, sub-division, cancellation or variation of share capital or rights.

Subscription clause
The subscription clause specifies details such as names, addresses, occupations and signatures of subscribers (first shareholders) who agree to take up shares in a company. It also specifies the number and value of shares taken by each subscriber.

The subscription clause cannot be altered after incorporation except by rectification of errors or omissions.

The procedure for altering MoA
As discussed above, different clauses of MoA can be altered by following different procedures depending on their nature and impact. However, some common steps involved in altering MoA are:

Passing a board resolution to initiate alteration process
Issuing notice for general meeting to pass resolution for alteration
Passing resolution for alteration by requisite majority
Obtaining approval or consent from relevant authorities or persons
Filing necessary forms and documents with ROC
Obtaining certificate of incorporation or confirmation of alteration from ROC
The case laws related to MoA
There are several case laws that have interpreted and applied the provisions and principles related to MoA. Some of the important ones are:

Ashbury Railway Carriage and Iron Co. Ltd. v. Riche [(1875) LR 7 HL 653]: This case established the doctrine of ultra vires, which means that a company cannot act beyond its object clause. In this case, the company entered into a contract to finance the construction of a railway line, which was not within its object clause. The House of Lords held that the contract was ultra vires and void.

Attorney General v. Great Eastern Railway Co. [(1880) 5 App Cas 473]: This case modified the doctrine of ultra vires and held that a company can do anything that is reasonably incidental or conducive to its main objects. In this case, the company acquired land for railway purposes, which was not expressly mentioned in its object clause. The court held that the acquisition was valid as it was incidental to its main objects.

LIC of India v. Escorts Ltd. [AIR 1986 SC 1370]: This case dealt with the power of the Central Government to approve or reject alteration of object clause under Section 17 of the Companies Act, 1956 (corresponding to Section 13 of the Companies Act, 2013). In this case, the company sought to alter its object clause to diversify its business activities. The Central Government rejected the alteration on the ground that it was against public interest. The Supreme Court held that the Central Government can only reject alteration if it is illegal, fraudulent, oppressive or against public policy.