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A corporation is an organization established when certain individuals join or team up together for realizing or attaining a specific purpose or certain result. This corporation formed can work as a profitable company or non -profitable company. It in itself gives rise to the privileges and accountability of the members by putting them under huge responsibility. For the formation of a corporation there are certain norms which need to be followed starting with an application that has to be delivered to Registrar of Companies. This form should be submitted with a variety of documents or papers. To note that one of the major documents to be attached along with the application is memorandum. The memorandum of association is incorporated under Section 2(56) of Companies Act 2013. This section provides that memorandum of association is the first step towards the formation. Further memorandum is a flexible document which can change with need; however, the sanctity of Company Act to be maintained while making any changes. The alterations are totally welcomed and are a part of the memorandum.
Objective of Memorandum of Association
The Memorandum of Association (MoA) is a lawfully permitted paper constituting the reason for the establishment of the corporation. Any work done beyond or outside of memorandum of Association would constitute illegal activity. It is a lawful procedure which needs to be followed for the establishment of corporations and or it can be said for corporations to be legal. The main understanding is that the corporation is bound to follow only that what it has submitted under the memorandum, and any alterations are allowed by the Registrar of Companies.
The aim and ideas of record-keeping of it is the access of the detailed information of the corporation or organization given to the government of India for official purposes, if in case any illegal activity or fraud is committed, proper steps can be taken against the corporation. It also gives the people the scope of entering into a direct or indirect lawful agreement with corporations as the memorandum is a public document and helps people understand the objects of the corporation as well. It totally mentions the authorities of the owners of corporations. The fact that memorandum can be altered makes it a bit easy for the companies as well.
Format of Memorandum of Association
Memorandum is basically a method for helping the partners, trustees, stakeholders, or anyone for meeting the basic advantages and powers of the corporation. It defines the scope of the corporation, and it has its own format for presentation. For the groundwork of memorandum with respect to the type of corporation the table must be carefully chosen and designed. It has five tables for its representation.
Further, section 4(5) of the Companies Act, 2013 states that a memorandum should be in any form as given in Tables A, B, C, D, and E of Schedule I. Since the corporation is of different types, therefore the format of the table is accordingly provided for different types of companies.
- TABLE A– It is appropriate and restricts the corporation which is limited by shares.
- TABLE B– It is applicable to a corporation restricted by guarantee and not possessing a share capital.
- TABLE C– It is valid to a corporation limited by guarantee and possessing a share capital.
- TABLE D– It is valid to an unlimited corporation not possessing a share capital.
- TABLE E– It is relevant to an unlimited corporation possessing a share capital.
Clauses of Memorandum
Under Section 4 of the Companies Act, a memorandum should include the following clauses:-
1. Name Clause: The first step towards the formation of the company is naming the company. Firstly, a name should be selected and registered. Earlier the naming of the company is done by filing the name with Registrar. Registrar on checking its data will approve the name. The name selected should not be similar to any other existing companies ‘name. Also, a name selected should not be undesirable. The name of the company is considered as undesirable if it violates Emblems Act, Trademark or it uses any offensive words. If in case the company is involved in the business of chit funds, financing, investment than it should indicate in its name the type of business. These are some basic steps to follow while keeping the name. However, recently in 2019, some amendments have been made in the companies act. Firstly, everything has been made online and secondly, form SPICE PLUS has been brought where the name can easily be registered. These changes have been brought to change the tedious process and make India more favourable for doing the business.
2. Jurisdiction of the office: The memorandum should mention and clearly specify the jurisdiction of the company. The jurisdiction of the company is decided to rum the registered office of the company. In case of any change in the registered office of the company, it should be notified to the Registrar. A further change in the registered office of the company from one state to other than all creditors should also be intimated and also to be published in the local newspaper. All business of the company will run over from the registered office.
3. Object Clause: This is the most important clause mentioned as it tells us the main reason for the formation of the company. It tells about the purpose of setting up the corporation. The objects of the company can only be changed by passing of the special resolution.
4. Liability Clause: It mentions the liability of the associates or members of the corporation. If the corporation is unlimited, the liability of the members also has no boundaries whereas in case the corporation has a limit of its shares, the liability of the members is specified by the amount due on their share. For a corporation limited by guarantee, the liability of the members is constrained by the money each fellow has agreed to subsidize (3).
5. Capital Clause: This clause details the extreme money that a corporation can raise which is also called the sanctioned or legalized capital of the corporation. This also explains the partition of such capital quantity into the number of shares of a fixed quantity each (3 p. 22).
Alteration of Memorandum
There can be various alterations made to the memorandum which were earlier submitted to the registrar of companies. The Section 2(3) of Indian Companies Act, 2013 allows corporations to have alterations in the memorandum and can be done by the majority.
1. Name Clause: There are two types of alterations done for the alteration of the name clause. The first one is the special alteration clause which means the corporation can modification their own tag by permission of Central Government, but it is not included under section 8 of Indian Companies Act, 2013. If the corporate name is identical with some other corporate or any organisation, then under standard alteration clause the central government will ask to have an alteration in the name.
2. Jurisdiction of the office: There are two methods for changing the jurisdiction of an office within the same city or a different city in the same state. For changing the registered office within the same city, the associates are required to give a proper notice of 30 days of the change while changing for a different city again a special undertaking and a proper notice to be given to registrar of new location.
3. Object Clause: The alteration of an object clause can only be done by passing special undertakings. There can only be an unaffected reason for altering the object clause the central government, for example the business done should be effective or for the purpose of spreading of business by combining with current business or doing new business.
4. Liability clause: This clause only alters through undertaking only for one reason which states that the public corporation needs to be changed into a private corporation.
5. Capital Clause: The clause of capital can be achieved as a general undertaking. This alteration if the shares are to be changed or for the subdivision of shares. A company capital clause can be changed by passing of the ordinary resolution. Alteration of capital can be made either by sub-division of shares, consolidation of shares or conversion of shares into stocks.
The amendments in the memorandum have the legal backing by virtue of section 15 of the Companies Act, 2013 which states that the memorandum should be in printed form. The Ministry of Corporate Affairs has elucidated that a document should be printed in form laser printers and also with the view of keeping in mind the principle of ease of doing business in India, will be considered valid provided it is legible and accomplishes other supplies as well.
The Memorandum of Association is a requirement or a qualification before the company can initiate any radical alteration in its composition. It is the primary need of people, government as well as the stakeholders or associates. It informs the corporate members about their basic authorities, privileges while it tells the citizens and informs about the primary necessity for setting up the corporation and makes them familiar with the corporation before any kind of agreement is made. MoA makes the government’s task a bit easy as the government also contracts and finds tenders easily and is acquainted with the legal work of its citizens.
If the proper legal framework is not done before the incorporation of the company, its licence will not be made, and it will be declared as an illegal activity. It maintains the rigidity and shape of the company and helps it achieve its primary purpose rather than distracting itself from that. Therefore, it can be concluded that the memorandum of association is a central and vital legal document required for setting up a corporation or an organization for doing any lawful business.
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