COMPANY LAW

UNIT-3 CORPORATE CHARTER

PART-A, MEMORANDUM OF ASSOCIATION (MOA)

SYNOPSIS
 Introduction
 Meaning
 Definition
 Purpose
 Significance
 Content of memorandum of association
 Alteration of MOA
 Process of alteration of MOA
 Doctrine of ultra vires
 Basis of doctrine of ultra vires

INTRODUCTION
A company is formed when a number of people come together for achieving a specific purpose.
This purpose is usually commercial in nature. Companies are generally formed to earn profit from
business activities. To incorporate a company, an application has to be filed with the Registrar of
Companies (ROC). This application is required to be submitted with a number of documents. One
of the fundamental documents that are required to be submitted with the application for
incorporation is the Memorandum of Association.

MEANING
Memorandum of Association is a legal document which describes the purpose for which the
company is formed. It defines the powers of the company and the conditions under which it
operates. It is a document that contains all the rules and regulations that govern a company’s
relations with the outside world.
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. If
the company goes beyond the scope, then the action will be considered ultra vires and hence will be
void.
It is a foundation on which the company is made. The entire structure of the company is detailed in
the Memorandum of Association.

DEFINITION
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 section also states that the alterations must be made in pursuance of any previous company law
or the present Act.

PURPOSE
The following are the main purposes of a Memorandum of Association:
1. To declare the reason for the company’s formation: The foremost purpose of a Memorandum
of Association is to let the company’s members know why the company has been formed.
2. To let investors understand the company’s activities: It allows any person who is interested in
investing in a company to know everything about its activities.
3. To let investors know the prospect of their investment: A Memorandum of Association is a
public document, which means it can be read by anyone. So, with the help of the
Memorandum of Association, prospective investors will know the exact purpose for which
their investments may be used.
4. To assure the investors: The Memorandum of Association helps the existing investors in the
company to stay assured that their investments are not used for any purpose for which they
weren’t foretold.

SIGNIFICANCE
 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.

CONTENTS OF MEMORANDUM OF ASSOCIATION

The memorandum of association clauses/contents are as follows:
1. Name Clause: This clause specifies the name of the company. The name of the company
should not be identical to any existing company. Also, if it is a private company, then it
should have the word ‘Private Limited’ at the end. In the case of a public company, then it
should add the word “Limited” at the end of its name. For example, ABC Private Limited in
the case of the private, and ABC Ltd for a public company.
2. Registered Office Clause: This clause specifies the name of the State in which the registered
office of the company is situated. It helps to determine the jurisdiction of the Registrar of
Companies. The company must inform the registered office location to the Registrar of
Companies within 30 days from the date of incorporation or commencement of the company.
3. Object Clause: This clause states the objective with which the company is formed. The
objectives can be further divided into the following 3 subcategories:
 Main Objective: It states the main business of the company
 Incidental Objective: These are the objects ancillary to the attainment of main objects of the
company
  Other objectives: Any other objects which the company may pursue and are not covered in
above (a) and (b)
4. Liability Clause: It states the liability of the members of the company. In the case of an
unlimited company, the liability of the members is unlimited. Whereas, in the case of a
company limited by shares, the liability of the members is restricted by the amount unpaid on
their share. For a company limited by guarantee, the liability of the members is restricted by
the amount each member has agreed to contribute.
5. Capital Clause: This clause details the maximum capital a company can raise, also called the
authorized/nominal capital of the company. It also explains the division of such capital
amount into the number of shares of a fixed amount each.

ALTERATION OF A MEMORANDUM OF ASSOCIATION

Generally, the alteration of a company’s Memorandum of Association is allowed under the
following circumstances:
 When such an alteration is needed to let the company venture into new businesses related to
the one in which it is already involved;
 When such an alteration is pertinent to enable the company to upgrade its existing means to
carry out its objects, or
 When altering the Memorandum of Association will help the company carry on its business
more economically.

PROCESS OF ALTERATION OF MEMORANDUM OF ASSOCIATION

Below are the steps required to be followed to bring forth any alteration in a Memorandum of
Association.
Step 1- Notice of meeting of the Board of Directors
The first step to altering any clause of a Memorandum of Association is to convey to the Board of
Directors (BoD) the proposal to make such an alteration. As mandated by Section 173 of the Act,
the BoD must be intimated through a notice at least seven days prior to the actual board meeting.
The notice must be accompanied by the details of the proposed alteration and a draft of the
resolution.
Step 2- Meeting with the Board of Directors
The second step in altering the Memorandum of Association involves the holding of the board
meeting. The meeting witnesses the discussion of the need, pros and cons of the proposed alteration.
Finally, if the BoD agrees to carry out such an alteration, the date, venue, and time for holding the
general meeting are decided. Further, a director or someone else is authorized to furnish a notice to
all the members of the company to participate in the general meeting.
Step 3- Notice of Extra-ordinary General Meeting
Next, the notice of the general meeting is sent to all the directors, members, and auditors of the
company. As per Section 101 of the Act, the notice should be sent at least twenty-one days before
the date of the actual general meeting. The notice may be sent either via electronic or physical
means. The notice should specify the exact date, time, and place of the proposed meeting.
Furthermore, it should contain a brief note of the business that is proposed to take place at the
meeting.
Step 4- General Meeting
Firstly, on the day of the general meeting, the quorum for the meeting is checked. The quorum for a
private company is a minimum of two (personally present.) In the case of a public company, the
quorum is a minimum of five; however, it changes according to the number of members present in
the meeting under Section 103 of the Act.
Secondly, the presence of the auditor of the company is checked. In case he/ she is absent, a leave of
absence may be granted.
Finally, the proposed special resolution for altering the Memorandum of Association has been
passed. A special resolution is said to be passed when it is favourably voted by at least three times
the number of votes cast against it. The votes can be cast either in person, through a postal ballot, or
by proxy.

Step 5- Filing application with the registrar of the company

After passing the required resolution, various applications have to be filed with the RoC within 30
days from the date of passing the resolution. The applications vary from one clause to another, as
discussed below.

DOCTRINE OF ULTRA VIRES

As discussed above, a Memorandum of Association defines the relationship between the company
and its members. The Memorandum of Association states the object of incorporating the company.
It provides an overview of the company’s operations. As per the doctrine of ultra vires, the company
is not supposed to bypass the boundary set by the Memorandum of Association on the company’s
activities. If the company does any act outside its operational scope specified under the
Memorandum of Association, such an act will be held ultra vires.
The term ‘ultra vires’ is Latin, and it means ‘beyond the powers.’ Such an ultra vires act shall be null
and void. It cannot be ratified by the company’s Board of Directors (BoD). Similarly, any contract
entered into by the company against the provisions of its Memorandum of Association shall be ultra
vires and have no binding effect on the company. Nevertheless, the doctrine of ultra vires allows the
company to do any act that may be incidental to its main object specified in its Memorandum of
Association.

BASIC PRINCIPLES OF THE DOCTRINE OF ULTRA VIRES

The following are the basic principles of the doctrine of ultra vires as derived through the course of
various case laws.
 The defence of ultra vires is available to all parties.
 No member of the company can ratify an ultra vires act.
 A party that has fully performed its part in an ultra vires transaction cannot later avail itself of
the defence of ultra vires; it is prohibited under the doctrine of estoppel.
 Any act committed or omitted by any agent or representative of any company within the
extent of his employment cannot be repudiated availing the defence of the doctrine of ultra
vires.
EVANS V. BRUNNER AND MOND CO. (1921)
In this landmark case, a company that carried out the business of manufacturing chemicals. The
object clause in the company’s Memorandum of Association permitted it to do anything that may be
incidental to accomplishing its business. Further, the Memorandum of Association allowed the
company to provide funds to any English university for the advancement of science and research.
Such an allowance was challenged in court. The challenge was based on the contention that it was
not a part of the main object stated in the Memorandum of Association.