Memorandum Of Association (MOA)

The Memorandum of Association is a document which sets out the constitution of a company and is therefore the foundation on which the structure of the company is built. It is the Principal document of a company.

It defines the scope of the company’s activities and its relations with the outside world.

It contains the Powers and Objectives of the company.

Memorandum of Association provides information to outsiders such as creditors, suppliers, etc to know the limitation and scope of a company’s dealings.

It can be altered only according to the provisions made in the Companies Act regarding its alterations.

The first step in the formation of a company is to prepare a document called “Memorandum of Association”.

Definition : According to section 2(56) of the Companies Act, 2013 : “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act;

Section 4 of the Act specifies in clear terms the contents of this important document which is the charter of the company.

The memorandum of association of a company contains the objects to pursue of which the company is formed.

It not only shows the objects of formation but also determines the scope of its operations beyond which its actions cannot go.

In Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) it was observed, “The memorandum of association of a company is its charter and defines the limitations of the powers of the company”.

Contents & Alteration of Memorandum :-

A) Name Clause :-

As per Section 4(1) of the Companies Act, 2013 the memorandum of a limited company must state the following :

A name clause, registered office clause, object (or objective clause), liability clause, capital clause, and association clause.

This clause states the company’s proposed name, must end in the word “limited” if it’s a public company or “private limited” if it’s a private company. (Exception section 8)

A company being a legal entity must have a name of its own to establish its separate entity….The name of the company is a symbol of its independent corporate existence.

The first clause in the memorandum of association of the company states that the name by which a company is to be known. The company may adopt any suitable name provided it is not undesirable.

According to section 4(2),

The name stated in the memorandum shall not :—

(a) be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or

(b) be such that its use by the company—

(i) will constitute an offence under any law for the time being in force; or, (ii) is undesirable in the opinion of the Central Government.

The object is to prevent the use of a name likely to mislead the public. For eg , a company is not allowed to use a name which is prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950.

According to section 4(3),

Without prejudice to the provisions of sub-section (2), a company shall not be registered with a name which contains—

(a) any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage(संरक्षण) of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government or any State Government under any law for the time being in force; or

(b) such word or expression, as may be prescribed, unless the previous approval of the Central Government has been obtained for the use of any such word or expression.

(For eg the words like, ‘national’, ‘bank’, ‘Exchange’ or ‘Stock Exchange’)

Publication of Name (Sec 12) :-

Every company shall, paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in legible(सुवाच्य) letters, and if the characters employed therefor are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages

It is also compulsory to get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications

The Company after incorporation can change their name by following way (Alteration):

(a) Conversion of name from private to public, or

(b) Conversion of name from public to private, or

(c) Change of name from ABC limited to XYZ limited.

Change in Name clause of the Company involves alteration of Memorandum of Association of the Company. Section 13 of Companies Act 2013 regulates the process of amendment in Memorandum of Association is applicable to all companies. All clauses of Memorandum except Capital clause can be altered by following the provisions of Section 13 of Companies Act, 2013 by passing special resolution.

Section 13 of the Companies Act, 2013 deal with change of name which says that the name of the company can be changed by a special resolution and with the approval of the Central Government. Approval of Central Government is not required if the change relates to the addition/deletion of the words “private” to the name.

When any change in the name of a company is made, the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.

Rectification of Name : Section 16 provide that if by inadvertence (अनवधनाने) or otherwise a name has been registered which is identicle to or too nearly resembles the name of an existing company whether registered under this Act or the previous Company Law, the Central Government may direct the company to change its name, and the company shall change its name or new name, as the case may be, within a period of three months from the issue of such direction, after adopting an ordinary resolution for the purpose.

This section also gives enhanced power to the Central Government to order rectification of name where such name in its opinion constitutes n infringement of a registered trademark.

Where a company changes its name or obtains a new name, it shall within a period of fifteen days from the date of such change, give notice of the change to the Registrar along with the order of the Central Government, who shall carry out necessary changes in the certificate of incorporation and the memorandum.

If a company makes default in complying with any direction given the company shall be punishable with fine of one thousand rupees for every day during which the default continues and every officer who is in default shall be punishable with fine which shall not be less than five thousand rupees but which may extend to one lakh rupees.

In the case of Atlas Cycles (Haryana) Ltd. v. Atlas Products Pvt. Ltd., use of the brand name as corporate name was settled. Both the plaintiff and the defendant companies belong to the same family. The Appellant-plaintiff was the proprietor of the trade mark in the name “Atlas”. The Respondent-defendant company containing the name “Atlas” in its corporate name started dealing in bicycles. The plaintiff objected to the use of the name “Atlas” by the defendant company.

The defendants were restrained from using the word “Atlas” in their corporate/trade name in respect of bicycles and bicycle parts.

B) Situation Clause ( Registered Office Clause) :-

The name of the State in which the registered office of the company is to be situated must be given in the memorandum. But the exact address of the registered office is not required to be stated therein. Further,

As per section 12(1), A company shall, on and from the fifteenth day of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

And as per section 12(2), The company shall furnish to the Registrar verification of its registered office within a period of thirty days of its incorporation in such manner as may be prescribed. (Section 20 of the Act, can be referred here, which deals with service of documents on company : A document may be served on a company or an officer thereof by sending it to the company or the officer at the registered office of the company)

Alteration of Registered office :-

The provisions relating to shifting of registered office can be divided into the following four categories:

• Within the local limits of same city, town or village (Eg: From Kannamwar nagar to Tagore Nagar of Vikhroli)
• Outside the local limits of same city, town or village, but within the same state and same ROC (Eg: From Vikhroli to Borivli within the same state)
• Within the state but outside the jurisdiction of same ROC (Eg: From Pune to Mumbai within the same state of Maharashtra as there are two ROCs within the state of Maharashtra only i.e. ROC Mumbai and ROC Pune)
• Outside the state and outside the jurisdiction of same ROC (Eg: From Delhi to Mumbai)

1. Procedure of change Registered Office within the local limits of same town (Section 12(5)) :-

The Company may change its registered office on the authority of a special rsolution passed by a company.

Thus according to Section 12(5), a company can change its registered office from one place to another within the local limits of the city, town or village, where it is situated, by merely passing a Board Resolution. A notice of the change is required to be given to the Registrar, within 30 days of such change (Section 12(4) read with rule of Companies (incorporation) Rules, 2014).

This does not involve alteration of memorandum.

The time period for giving notice of change of situation of registered office is increased from 15 days to 30 days (amended in 2017).

2. Change of Registered Office from one city to another city in same state :-

If the registered office is to be shifted from one city, town, or village to another city, town or village within the same State, a special resolution has to be passed in the general meeting of the company.

A notice of the change is required to be given to the Registrar, within 15 days of such change

3. Change of Registered Office within same State from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of Companies :-

A Company may change its Registered Office within same State from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of Companies on confirmation by the Regional Director

(Proviso to section 12(6) : Provided that no company shall change the place of its registered office from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same State unless such change is confirmed by the Regional Director on an application made in this behalf by the company in the prescribed manner.)

The Regional Director, after hearing the parties shall pass necessary orders within a period of 30 days from the date of receipt of the application.

Thereafter, the company concerned shall file a copy of the said order with the ROC within a period of sixty days from the date of the confirmation order by Regional Director.

The said ROC shall record the ordered changes in its records. The ROC of the state where the registered office of the company was previously situated, shall transfer all the documents and papers to the new ROC. (Section 12(6))

4. Change of Registered Office from one State to another State (Section 13(4)) :-

The change of registered office from one State to another State involves alteration of memorandum, and the change can be effected by a special resolution of the company which must be confirmed by the Central Government on an application made to it.

Such a shifting of registered office from one state to another and the alteration of objects may affect not only the shareholders of the company, but also in creditors, dealers and employees.

As per the section 13(1), a company may, by a special resolution and after complying with the procedure specified, alter the provisions of its memorandum.

As per Section 13(2) Any change in the name of a company shall be subject to the provisions of subsections (2) and (3) of section 4 and shall not have effect except with the approval of the Central Government in writing

Section 13(3) When any change in the name of a company is made under sub-section (2), the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.

Section 13(4) : The alteration of the memorandum relating to the place of the registered office from one State to another shall not have any effect unless it is approved by the Central Government on an application in such form and manner as may be prescribed.

Section 13(5) : The Central Government shall dispose of the application under sub-section (4) within a period of sixty days and before passing its order may satisfy itself that the alteration has the consent of the creditors, debenture-holders and other persons concerned with the company or that the sufficient provision has been made by the company either for the due discharge of all its debts and obligations or that adequate security has been provided for such discharge.

Sec 13(6) says, a company shall, in relation to any alteration of its memorandum, file with the Registrar—

(a) the special resolution passed by the company under sub-section (1);

(b) the approval of the Central Government under sub-section (2), if the alteration involves any change in the name of the company.

Where an alteration of the memorandum results in the transfer of the registered office of a company from one State to another, a certified copy of the order of the Central Government approving the alteration shall be filed by the company with the Registrar of each of the States within such time and in such manner as may be prescribed, who shall register the same, and the Registrar of the State where the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration. (Section 13(7)).

In Re Orissa Chemical and Distilleries (P) Ltd, it has been held that, the shifting of registered office from one state to another cannot be opposed by the State on the ground of loss of revenue.

C) Object Clause of the Company :-

The third compulsory clause in the memorandum sets out the objects for which the company has been formed.

Sec 4(1)(c) says that, The memorandum of a company shall state the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof.

The object clause is important important because it determines the purpose and the capacity of the company. It indicates the purpose for which the company has been set up and its actual capability.

It states affirmatively the ambit and extent of powers of the company and, stated negatively, that nothing should be done beyond that ambit and that no attempt shall be made to use the company for any other purpose than that which is specified.

The purpose of the objects clause is to enable the persons dealing with the company to know its permitted range of activities.

The acts beyond this ambit are ultra vires and hence void and these acts cannot be validated even if assented to by all the shareholders.

Doctrine of Ultra Vires states that, an act which is ultra vires is void, and does not bind the company. Neither the company nor the contracting party can sue on it. Also, the company cannot make it valid, even if every member asents to it.

It is on the basis of the main objects clause that the concerned Registrar of Companies enquires as to the objects intended to be pursued by the company either immediately or within a reasonable time after its incorporation….The Registrar must satisfy himself by reference to certain documents, information or explanations furnished by the company.

Attorney General v. G.R. Rly. Co. : Although express powers are necessary, a company may do anything which is incidental to and consequential upon the powers specified, and acts will not be ultra vires.

Bell Houses Ltd. v. City Wall Properties Ltd. : The natural and ordinary meaning of the language used in several clauses should be taken into consideration for determining whether a particular transaction does or does not fall within the objects stated in the memorandum.

Dr. Lakshmanaswami Mudaliar A. v. LIC : The Memorandum Of Association is the ‘Lakshman Rekha’ for a company. An act beyond the objects mentioned in the memorandum is ultra vires and void and cannot be ratified.

Radha Cinema Co. v. Chitralipi Films : Where no connection or nexu exists between the exercise of a power and the attainment of an object, exercise of power will be ultra vires.

Alteration of Object Clause : As per the section 13(1), a company may, by a special resolution and after complying with the procedure specified, alter the provisions of its memorandum.

It means that a company can change its objects by passing a special resolution. The company shall file with the Registrar the special resolution passed by the company under section 13(1). The Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution.

D) Liability Clause :-

Sec 4(1)(d) : The memorandum of a company shall state the liability of members of the company, whether limited or unlimited, and also state,

(i) in the case of a company limited by shares, that liability of its members is limited to the amount unpaid, if any, on the shares held by them; and

(ii) in the case of a company limited by guarantee, the amount up to which each member undertakes to contribute :

(A) to the assets of the company in the event of its being wound-up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, as the case may be; and

(B) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves;

Alteration of Liability Clause : As per the section 13(1), a company may, by a special resolution and after complying with the procedure specified, alter the provisions of its memorandum.

It means that, a company can change the liability clause of its memorandum of association by passing a special resolution. Further section 13(6)(a) provides that, a company shall, in relation to any alteration of its memorandum, file with the Registrar, the special resolution passed by the company under sub-section (1);

E) Capital Clause :-

This is the fifth compulsory clause which must state that, the amount of the capital with which the company is registered. The shares into which the capital is divided must be of fixed value, which is commonly known as nominal value of the share. The capital is variously described as “nominal”, “authorised” or “registered”.

The amount of nominal capital is determined having regard to the present as well as future requirements of the company with reference to its object.

The usual way to state the capital in the memorandum is : “The capital of the company is Rs. 10,00,000 divided into 1,00,000 equity shares of ’10 each’…… This amount lays down the maximum limit beyond which the company cannot issue shares without altering the memorandum as provided by section 61 of the Companies Act, 2013.

A company is not authorised to issue capital beyond its authorised /nominal /registered capital. If it receives applications for shares beyond the shares covered by the authorised capital, the amount received on excess number of shares should be returned.

Alteration of Capital Clause :- Section 61 of the Act allows a company to alter the capital clause of its memorandum by passing an ordinary resolution in a general meeting, provided it is authorised to do so by its articles. Thus, a company may alter its capital clause –

(a) increase its authorised share capital by such amount as it thinks expedient

(b) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares.

(c) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;

(d) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.

All the above alterations do not require the confirmation by the Tribunal except that, alteration relating to consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner.

These alterations are, however, required to be notified and a copy of the resolution should be filed with the Registrar within 30 days of the passing of the resolution along with an altered memorandum (Section 64(1))

The Registrar shall record the notice and make any alteration which may be necessary in the company’s memorandum or articles or both. It must be noted that cancellation of shares in pursuance of section 61(1) does not amount to reduction of share capital.

F) Subscription Clause :-

It’s the last clause in the memorandum of a company. The memorandum must be signed by at least two persons in case of private company and by atleast seven persons in the case of a public company, with all descriptions like name, address, occupation etc. and mention the number of shares taken by him.

Once a subscriber has affixed his signature and other details on the memorandum and the documents are filed with the ROC, he cannot withdraw his name for any reason.

Doctrine of Ultra Vires

Anything which is beyond the authority or power is called ultra-vires.

The Doctrine of Ultra Vires is related to a objects and powers  specified in a Memorandum of Association of a company. Memorandum of Association of a company  is a basic charter of the company. It’s a fundamental law. In case of company, whatever is not stated in Memorandum of Association of a company, as to the objects and powers is prohibited by “The Doctrine of Ultra Vires”.

A company must confine itself to business activities which are intra vires, namely those which are listed in the object clause of its memorandum.

The general rule is that, an act which is ultra vires the company is incapable of ratification. It is ultravires for a company to act beyond the limits of its memorandum. Any attempted departure will be invalid and cannot be validated even if assented to by all the shareholders of the company.

In India, the first time that this doctrine was applied in the case of Jahangir R Modi v.Shyam Ji Laddha where the Bombay High Court held that purchasing joint-stock company by the directors on behalf of the company for purchasing shares in another joint-stock company was ultra vires unless it had expressly been authorised by the memorandum of association. 

Lakshmanaswamy Mudaliar v. L.I.C. of India : The appellants were directors of United India Life Insurance Company. They were also trustees of a trust to be formed. The company passed a resolution whereby a sum of Rs 2 lakh was given as a donation to the trust. When Life Insurance Corporation took over the life insurance business it was found that the transaction was ultra vires the company. The trustees were asked to refund the amount. The Court held that the directors could not spend the company’s money on any charitable or general object which they might choose. An act beyond the objects mentioned in the memorandum is ultra vires and void and can not be ratified.

In above case the SC also drew a distinction between the company’s objects and its powers. The authority to make a donation is a power and not object. As observed by the court, the memorandam of company states the objects of the company, and not its powers and even if a power is so stated, it does not become an object by itself.

Shareholder’s rights in Ultra Vires Acts :

1. Null and Void : An ultra vires contract is as null and void as a contract with minor.

2. Right to Refund : A shareholder can get back the money paid by him to the company under an ultra vires allotment of shares.

Consequences(Effects) of an ultra vires transaction :

1. Void ab Initio : The ultra vires acts are null and void ab ignition. The company is not bound by these acts. Even the company cannot sue or be sued upon (Ashbury Railway Carriage and Iron Company v. Riche)

Ultra vires acts are void ab initio and hence cannot become intra vires by reason of estoppel or ratification.

2. Injunction : The members can get an injunction to restrain a company wherein ultravires act has been or is about to be undertaken ( Attorney General v. Gr. Eastern Rly. Co.)

3. Personal Liability of Directors : If the corporate capital is diverted by director’s against the company’s objectives,as mentioned in the memorandum, the directors will be personally liable.

In Jehangir R. Modi v. Shamji Ladha, the Bombay High Court held, “ A shareholder can maintain an action against the directors to restore the funds, without making the company a party to the suit.

4. Liability of directors for breach of warranty of authority : In contract of agency, if agent acts beyond his authority, he is personally liable. As directors are agent of company, if they induce the third party, even innocently, to enter in to a contract with the company of which, company itself has no authority to act, they become personally liable to compensate third party for any loss suffered by him.

5. Effect of property acquired under an ultra vires contract : Where a company’s money has been used ultra vires to acquire some property, the company’s right over such property is held secure and the company will be right party to protect the property. This is because, though the property has been acquired for some ultra vires object, it represents the money of company.

Exceptions to the  ‘Doctrine of ultra vires :

There are a few exceptions to the Doctrine of Ultra Vires. They are listed out as follows-

** An act which is within the scope of the object clause of the company but outside the authority of directors can be ratified by the share-holders ** The share-holders have the authority to validate an intra vires act performed in irregular manner in the company.

** An incidental or consequential effect of an act shall not be considered as ultra vires, unless it is expressly prohibited by the statute.

More Law Notes on Companies Act, 2013 –

• Introduction to Companies Act 2013 – Law Notes – Salient Features, Advantages & Disadvantages of forming a Company
• The Companies Act, 2013 – Incorporation of Company ,ROC & Promoters – Law Notes
• The Companies Act, 2013 – Typer of Companies – Law Notes
• The Companies Act, 2013 – Formation of Company – Law Notes