Memorandum of Association: Definition, Features, Purpose, Importance

What is the Memorandum of Association?

The Memorandum of Association of a company is its charter, which contains the fundamental conditions upon which alone the company can be incorporated. It tells us the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go.

If anything is done beyond the powers that will be ultra-vires (beyond powers of) of the company and so void. It enables shareholders, creditors, and all those who deal with the company to know what its powers are and what is the range of its activities.

Features of the Memorandum of Association

The memorandum of association contains the objectives and areas of operation to be covered in the long run. It also works as a constitution and last resort for resolution of internal managerial complexity in the company.

And this why the memorandum of association has the following features:

  1. The memorandum of association is the basic charter on which the company is based and is mandatory for a company.
  2. The memorandum of association is the constitution of the company because it defines its limitations and the sphere of its activities.
  3. The memorandum cannot be altered by the company, except by fulfilling the conditions laid down in the Companies Act for specific activities and situations.
  4. It defines the scope of the company’s activity, and all acts beyond the scope are deemed to be ultra-vire (beyond powers).
  5. It’s a public document and is open to inspection by those who deal with the company.
  6. It defines the company’s relations with outside individuals and its activities about them,

Purpose of Memorandum of Association

The main purpose of the memorandum is to explain the scope of activities of the company. The prospective shareholders know the areas where the company will invest their money and the risk they are taking in investing the money.

The outsiders will understand the limits of the working of the company, and their dealings with it should remain within the prescribed scope.

Importance of Memorandum

Memorandum is the fundamental document of a company which contains conditions upon which the company is incorporated.

This document is important for the following reasons.

  1. The memorandum defines the limitations on the powers of the company established under the Act.
  2. The whole structure of the company is built upon memorandum.
  3. It explains the scope of activities of the company. The investment knows where their money will be spent, and outsiders also know the nature of activities the company is authorized to take up.
  4. It is a basic document of the company about its constitution.
  5. It is a charter of the company which sets out its written goals.

Form and Contents of Memorandum

Shall be in such one of the Forms in Tables B, C, D, and E in Schedule I to the Companies Act as may be applicable in the case of the company, or Forms as near to it as circumstances admit.

Memorandum of a limited company to contain;

Let’s look at the clause;

  1. The Name Clause

The last word in the name of the company, if limited, by shares or guarantee is ‘limited’ unless the company is registered as an “association, not for profit”.

  1. The Registered Office Clause

This clause states the name of the State in which the registered office of the company will be situated.

Every company must have a registered office which establishes its domicile, and it is also the address at which the company’s statutory books must normally be kept and to which notices, and all other communication can be sent.

  1. The Objects Clause

The objects clause defines the objects of the company and indicates the sphere of its activities A company cannot do anything beyond or outside its objects and any act did beyond them will be ultra vires and void, and cannot be ratified even by the assent of the whole body of shareholders.

Read along with Tables “B’, ‘C,’ ‘D’ and E,’ requires the company to divide its objects clause into two parts:

    1. Main objects of the company to be pursued by the company on its incorporation and object incidental or ancillary to the attainment of the main objects; and
    2. Other objects of the company not included in (a) above.
  1. The Liability Clause

This clause states the nature of the liability of the members. In the case of a company with limited liability, it must state that liability of members is limited, whether it is ‘By ‘shares or by guarantee.

In the case of companies limited by guarantee, this clause will state the amount which every member undertakes to contribute to the assets of the company in the event of its winding-up.

The absence of this clause in the memorandum means that the liability of its members is unlimited.

  1. The Capital Clause

This clause states the amount of share capital with which the company is registered and the mode of Its division into shares of fixed value, i.e., the number of shares into which the capital is divided and the amount of each share.

  1. The Association Clause

The names, addresses, descriptions, occupations of the subscribers, and the number of shares each subscriber have taken and his signature attested by a witness.

Alteration of Memorandum

A company cannot alter the conditions contained in memorandum except in the cases, and in the mode, and to the extent, express provision has been made in the Act.

  1. Change of Name

The name of a company may be changed at any time by passing a special resolution at a general meeting of the company and with the written approval of the central Government.

  1. Change of Registered Office

  1. Change of registered office from one premise to other premises in the same city town or village. A resolution passed by the Board of directors shall be sufficient.
  2. Change of registered office from one town or city or village to another town or city or village in the same State Procedure.
    1. Special Resolution.
    2. Confirmation of Regional Director.
    3. Copy of Special Resolution and Confirmation by Regional Directors to be filed with RoC.
    4. Notice of a New Location. Within 30 days, the notice of the new location has to be given to the Registrar who shall record the same, page of Registered Office from one State to another State.
  1. Alteration of Objects Clause

Empowers a company to change the place of its Registered Office from one State to another or to alter its objects by passing a special resolution if alteration is sought on any of the following grounds:

  1. To carry on its business more economically and more efficiently
  2. To attain its main purpose by new or improved means
  3. To enlarge or change the local area of its operation
  4. To carry on some business which under existing circumstances may be conveniently or advantageously combined with the business of the company.
  5. To restrict or abandon any of the objects specified in the memorandum.
  6. To sell or dispose of the whole or any part of the undertaking.
  7. To amalgamate with any other company or body of persons.
  1. Alteration of Liability Clause

The liability of a member of a company cannot be increased unless the member agrees in writing.

An increase in liability may be by way of subscribing for more shares than the number held by him at the date on which the alteration is made or in any other manner.

  1. Alteration of Capital Clause

provides that, if the articles authorize, “a company limited by share capital may, by an ordinary resolution passed in general meeting, alter the conditions of its memorandum regarding capital so as;

  1. To increase its authorized share capital;
  2. To consolidate and divide all or any of its share capital into shares of larger amount than its existing shares.
  3. To convert all or any of its fully paid-up shares into stock, and reconvert the stock into fully paid-up shares of any denomination;
  4. To sub-divide its shares, or any of them, into shares of a smaller amount.
  5. To cancel shares which have not been taken or agreed to be taken by any person.

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