Importance of Memorandum of Association

The Memorandum of Association is the Constitution of the company, prepared at the time of registration and periodically updated to incorporate changes. It is a legal document that defines the very foundation of the company. Therefore, utmost precision and clarity needs to be taken at the time of drafting the MOA. 

It contains all the fundamental details about the establishment and its location, the defined scope of business activities and objectives, extent of authority, legal rights of the company, and all other information needed to register the company. It is also referred to as the Charter, that needs to be filed as a part of the Registration Compliance. 

As per Section 399 of the Companies Act, an MOA is a public document, hence any individual or entity entering into a contract with the company is expected to have knowledge of its MOA.

This document also defines the boundary for the registered company, so any activity overriding the provisions of the MOA will be considered ultra vires the company and void.

Clauses in an MOA

The MOA comprises of 6 clauses

1. Name Clause - The company is a legal entity must have an established identity. The first clause in the MOA is the Name clause that states the Registered name of the Company.

2. Situation Clause - This clause gives the full address of the registered office of the company.

3. Object Clause -  The MOA has to specify the objectives for which the company has been incorporated. It covers the main and ancillary objectives of the company.

4. Capital Clause -  It states the amount of capital with which the company has been registered. This clause provides the shareholding pattern with details of the shareholders and the number of shares held by them.

5. Liability Clause - It mentions the limited or unlimited liability of each of its members. This clause will state the amount each member will have to pay up in the event of liquidation of the company.

6. Association and Subscription Clause - The memorandum needs to be subscribed by at least 7 members in the case of a Public limited company and at least 2 in the case of a private company

The importance of the Memorandum of Association

• The MOA is a  fundamental and vital document required for the registration of a company.

• It clearly defines the span of operations and functions of the company. This document has full control over the functioning of the company. The company cannot perform activities outside this document limits unless necessary amendments have been made.

• It brings about transparency and is the medium via which all the stakeholders get full information regarding the company. 

• The clauses mentioned provide the complete details regarding the promoters of the company. It contains name, address of all important persons associated with the business. 

• Memorandum of association is a means of attracting investors as they get a clear idea of the gamut of activity and objectives of the company.

• This document defines the liabilities of every shareholder of the company. This helps in understanding the role & responsibilities of each person.

The Bottom Line

To sum up, we’d like to say that the Memorandum Of Association is a very vital document for a company to be incorporated. This charter’s properly defined functions and rules increase efficiency and transparency. Therefore, they are indispensable for any organization.