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Memorandum of Association

It is mandatory for every company to have a Memorandum of

Association which defines the scope of its operations. Once
prepared, the company cannot operate beyond the scope of
the document.

The memorandum is a public document. Thus, if a person

wants to enter into any contracts with the company, all he has
to do is pay the required fees to the Registrar of Companies
and obtain the Memorandum of Association. Through the
Memorandum of Association he will get all the details of the
company. It is the duty of the person who indulges in any
transactions with the company to know about its
memorandum. 

Definition of Memorandum of Association

Section 2(56) of the Companies Act, 2013 defines Memorandum of

Association. It states that a “memorandum” means two things:
• Memorandum of Association as originally framed.
Memorandum as originally framed refers to the memorandum as it was
during the incorporation of the company.
• Memorandum as altered from time to time.
This means that all the alterations that are made in the memorandum from
time to time will also be a part of Memorandum of Association.
The Memorandum of Association is a document of great importance in
relation to the proposed company1. It is the charter of the Company. It
defines its Constitution and the scope of the power with which it has been
established under the Companies Act. It is the foundation on which there
comes into existence, a covenant between the Company on the one side
and the members on the other. This creates a Solemn obligation. It must be
divided into paragraphs, numbered consecutively and printed or presented
to Registrar for purposes of Registration. It can be made in the forms as in
Schedule to Companies Act.
Lord Cairn 2defined the memorandum of association as the charter of a
company which defines the limitations of the power of the company. Lord
Cairn observes that it contains both affirmative and negative limitations –
such as affirmatively stating the ambit and extent of the powers legally given
to the company and it states negatively, if necessary, that nothing will be
done beyond that ambit.

Its importance lies in the fact that, it contains the fundamental

clauses which have often been described as the conditions of
the company’s incorporation—

1. Name clause
2. Registered office clause
3. Object clause
4. Liability Clause
5. Capital Clause
6. The Association or Subscription clause

1 definition by Palmer
2 Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) L.R. 7 H.L. 653.
Name Clause:

The first clause states the name of the company. Any name can be chosen
for the company. But there are certain conditions that need to be complied
with.
Section 4(1)(a) states:
• If a company is a public company, then the word ‘Limited’ should be
there in the name. Example, “Robotics”, a public company, its
registered name will be “Robotics Limited”.

• If a company is a private company, then ‘Private Limited’ should be

there in the name. “Secure “a private company, its registered name
will be “Secure Private Limited”.

• This condition is not applicable to Section 83 companies.

In addition to this, an undesirable name will also not be allowed to be

chosen. Undesirable names are those names which in the opinion of the
Central Government are:
1. Prohibited under the Provisions of Section 3 of Emblems and Names
(Prevention and Improper Use) Act, 1950.

2. Names which resemble each other, which are chosen to deceive.

3. The name includes a registered trademark.

4. The name includes any word or words which are offensive to a

section of people.

5. Name which is identical to or too nearly resembles the name of an

existing Limited
3 Section 8 Companies Act,2013.(It describes companies which are established to promote commerce, art,
sports, education, research, social welfare, religion etc. )
 Liability Partnership.

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

Registered Office Clause:

The second clause of the Memorandum is the

Registered Office clause which defines the
situation and address of the Company.

The Registered Office of a company determines its nationality

and jurisdiction of courts. It is a place of residence and is used
for the purpose of all

communications with the company.

Section 12 of the Companies Act, 2013 talks about Registered Office of

the company.
Before incorporation of the company, it is sufficient to mention only the
name of the state where the company is located. But after incorporation,
the company has to specify the exact location of the registered office. The
company has to then get the location verified as well, within 30 days of
incorporation.
Change in place of Registered Office should be notified to the Registrar
within the prescribed time period.

Object Clause:

Section 4(c) of the Act details the object clause. The Object Clause is the
most important clause of Memorandum of Association. It states the
purpose for which the company is formed.
Three sub clauses are made
I. Main objects: The main objects and the identical or ancillary objects
are stated.
II. Other objects: those not included in (I.) above may be added here.
III. States to which objects extend: Non-trading companies should state to
which of the States in India, the objects extend. The objects should not
be illegal, opposed to public policy or to any provision of law. The
rationale for stating the objects is to enable the shareholder to know
how his contribution is being used.

Necessity of Object Clause:  

By limiting the scope of powers of the company. The object clause
provides protection to:
Shareholders – The object clause clearly states what operations will the
company perform. This helps the shareholders know their investment in
the company will be used for what purpose.
Creditors – It ensures the creditors that capital is not at risk and the
company is working within the limits as stated in the clause.
Public Interest – The object clause limits the number of matters the
company can deal with thus, prohibiting diversification of activities of the
company.

Doctrine of Ultra Vires:

‘Ultra’ means ‘beyond’ and ‘vires’ means ‘power’. So ‘ultra vires’

is something beyond the power.  An action outside the
memorandum is ‘ultra vires’ the company. This doctrine was
first established by the Hose of Lords in – “Ashbury Railway
Carriage & Iron Co. Ltd vs. Richie”4 – 1875.
4(1875) L.R. 7 H.L. 653.
The object clause not only secures the shareholders and creditors, but also
limits the powers of the directors which means that the company should
devote itself only to the objects set out in the memorandum and to no
others. The company cannot move in a direction away from the fields
determined by the object clause. This is where the doctrine of ‘Ultra Vires’
comes into play.
If the company operates beyond the scope of the powers stated in the
object clause, then the action of the company will be ultra vires and thus
void.
Case Law:

Ashbury Railway Carriage & Iron Co. Ltd vs. Richie”– 1875.

Facts : The M/A stated the objectives ........ to make and

sell ......... Railway Wagons.......... and General Contractors.....
The co. entered into a Contract with Riche, to finance a Railway
line in Belgium. The company. later repudiated stating it as ultra
vires.Riche sued for damages.

Held, the contract was ultra vires and hence void. It has no
powers to finance railway line. The Judge stated that, the term
general Contractors must be taken to indicate the making
generally of such contracts as are connected with the business
of the mechanical engineers, otherwise it would authorize the
contracts of any and every description, even fire & marine
insurance. Regarding ratification by the shareholders, the court
said that a thing cannot be ratified which is outside the powers
of the company. Even all the shareholders cannot attempt to do
something, which by law, they are prohibited to do.

Consequences of Ultra Vires

1. Liability of Directors: The directors of the company have a duty to
ensure that company’s capital is used for the right purpose only. If
the capital is diverted for another purpose not stated in the
memorandum, then the directors will be held personally liable.
 6. Ultra Vires Borrowing by the Company: If a bank lends to the
company for the purpose not stated in the object clause, then the
borrowing would be Ultra Vires and the bank will not be able to
recover the amount.

7. Ultra Vires Lending by the Company: If the company lends money

for an ultra vires purpose, then the lending would be ultra vires.

8. Void ab initio – Ultra Vires acts of the company are considered void
from the beginning.

9. Injunction – Any member of the company can use the remedy of

injunction to prevent the
company from doing ultra vires acts.

Liability Clause:

The fourth clause has to state the nature of liability that the
members incur. The Liability Clause provides legal protection to
the shareholders by protecting them from being held personally
liable for the loss of the company.

There are two kinds of limited liabilities:

Limited by Shares – Section 2(22) of the Companies Act, 2013 defines a
company limited by shares. In a company limited by shares, the
shareholders only have to pay the price of the shares they have subscribed
to. If for some reason they have not paid the full amount for the shares and
the company winds up, then their liability will only be limited to the
unpaid amount.
Limited by Guarantee – It is defined in Section 2(21) of the Companies
Act, 2013.A company limited by guarantee has members instead of
shareholders. These members undertake to contribute to the assets of the
company at the time of winding up. The members give guarantee of a
fixed amount that they will be liable for.
Non-profit Organizations and other charities usually have a structure of
companies limited by guarantee.
Capital Clause:

It states the total amount of share capital in the company and how it is
divided into shares. The way the amount of capital is divided into what
kind of shares. The shares can be equity shares or preference shares.
Illustration: The share capital of the company is 80,00,000 rupees, divided
into 3000 shares of 4000 rupees each.

Association or Subscription Clause:

The last and final clause of the Memorandum of Association is

called the subscription clause. The subscription clause basically
lists down the motives of the shareholders behind the incorporation
of the company and also states that the subscribers are agreeing to
take up shares in the company. It also specifies the number of
shares taken up by each subscriber.

Alteration of Memorandum

Amendments or alteration of the provisions may be made, as per Sn.17.

1. Alteration or Change of name of the Company:
This may be made by passing a special resolution and the approval of the Central Government in
writing. Change becomes effective when it is registered with the Registrar.
2. Change of Regd. Office and Objects Clause:
This may be made by passing a resolution in the General Body and by
getting the sanction of the Company Law Board.
• Alteration to the Liability Clause: The Liability clause of the
memorandum cannot be altered except with the written consent of all the
members of the company. By altering the liability clause, the liability of
the directors of the company can be made unlimited. In any case, the
liability of the shareholders cannot be made unlimited. Changes in the
liability clause can be made by passing a special a special resolution and
sending a copy of the resolution to the Registrar of Companies.
Alteration to the Capital Clause: The capital clause of a company can be
altered by an ordinary resolution.
The company can,
1. Increase its authorised share capital.

10. Convert the shares into stock.

11. Consolidate and divide all of its shares.

12. Cancel the shares which have not been subscribed to.

13. Diminish the share capital of the shares cancelled.

The altered Memorandum of Association should be submitted to the

Registrar within 30 days of passing the resolution.

CONCLUSION
In the end, we’d like to say that the Memorandum Of Association is
a very important document without which the company cannot be
incorporated. It is a charter document of the company and MOA
and AOA both act as a constitution of the company.

Section 4(5) of the Companies Act states that a memorandum should be in

any form as given in Tables A, B, C, D, and E of Schedule 1.
It regulates company’s relation with the outside world. It helps anyone
who wants to enter into a contractual relationship with the company to
gain knowledge about the company. It governs the relationship between the company
and its stakeholders.