The Memorandum of Association, which outlines a company’s constitution, serves as the cornerstone upon which the organization’s structure is created. It outlines the company’s activities’ range and how it interacts with the outside environment.

The first step in the formation of a company is to prepare a document called the memorandum of association. In fact memorandum is one of the most essential pre-requisites for incorporating any form of company under the Companies Act, 2013 (hereinafter referred to as ‘Act’). This is evidenced in Section 3 of the Act, which provides the mode of incorporation of a company and states that a company may be formed for any lawful purpose by seven or more persons, where the company to be formed is a public company; two or more persons, where the company to be formed is a private company; or one person, where the company to be formed is a One Person Company by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of its registration.

Definition:

According to Section 2(56) of the Act “memorandum” means the memorandum of association of a company as originally framed and altered, from time to time, in pursuance of any previous company law or 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 of the company which it shall pursue. It not only shows the objects of formation of the company but also determines the scope of its operations beyond which its actions cannot go. “THE MEMORANDUM OF ASSOCIATION”, as observed by Palmer, “is a document of great importance in relation to the proposed company”

In the celebrated case of Ashbury Railway Carriage & Iron Co. Ltd. v. Riche, (1875) L.R. 7 H.L. 653, Lord Cairn observed: “The memorandum of association of a company is its charter and defines the limitations of the powers of the company………. it contains in it both that which is affirmative and that which is negative. It states affirmatively the ambit and extent of vitality and powers which by law are given to the corporation, and it states negatively, if it is necessary to state, that nothing shall be done beyond that ambit………” [Egyptian Salt and Soda Co. Ltd. v. Port Said Salt Association Ltd. (1931) A.C. 677]

FORM OF MEMORANDUM OF ASSOCIATION

Section 4(6) of the Act provides that the memorandum of association should be in any one of the Forms specified in Tables A, B, C, D or E of Schedule I to the Act, as may be applicable in relation to the type of company proposed to be incorporated or in a Form as near thereto as the circumstances admit.
(i) the Form in Table A is applicable in the case of companies limited by shares;
(ii) the Form in Table B is applicable to companies limited by guarantee not having a share capital;
(iii) the Form in Table C is applicable to the companies limited by guarantee having a share capital;
(iv) the Form in Table D is applicable to unlimited companies not having a share capital;
(v) the Form in Table E is applicable to unlimited companies having a share capital.
A company shall adopt any of the model Forms of the memorandum of association mentioned above, as may be applicable to it.

1. NAME CLAUSE : firm must have its own name in order for others to recognize it as a distinct legal entity. Public companies must include the word “Limited” at the end of their names, while private companies must have the words “Private Limited.” The name of the company is a sign of its separate corporate existence, according to Section 4(1) of the Companies Act, 2013. If the company is, then this does not apply. Part 8 Company

The company name must not contain any expression or word that is associated with the federal, state, or local governments. The name must not, in accordance with Section 4(2), be such that its use would be illegal or objectionable in the eyes of the Central Government. To reserve a name, the company’s promoter must submit an application to the Registrar. For a period of 60 days from the date of the application for name reservation, the Registrar holds the company’s name in reserve.

2. SITUATION CLAUSE: The state where the company’s Register Office is located must be included in the Memorandum. In accordance with Section 12 of the Act, the company must have a registered office where all correspondence and notices may be addressed within 15 days of its incorporation. Every office or location where the company conducts business must have its name and registered office address painted or affixed on the outside..

3. OBJECT CLAUSE: The object for which the business is proposed to be incorporated, as well as any matters deemed necessary in furtherance of that object, must be specified in the Memorandum of Association. The company’s powers are limited by its memorandum of association. Any activity that goes beyond the Memorandum is known as an Ultra Vires transaction, and it is void from the start.

4. LIABILITY CLAUSE: The Memorandum of Association’s Liability provision must state whether a member of the company has restricted or unlimited liability. The liability of a member of a business limited by shares is capped at the outstanding balance on the shares the member owns. The Memorandum for a guarantee company must state the maximum contribution that each member agrees to make to the assets or the firm in the event of its dissolution.

5. CAPITAL CLAUSE: The capital amount with which the company is being registered must be stated in this section. The shares with fixed nominal values are those into which the capital is divided. The capital may be referred to as “nominal”, “authorized”, or “registered”. This figure establishes the upper bound beyond which the corporation is not permitted to issue shares without amending the memorandum.

6. SUBSCRIPTION CLAUSE: The Memorandum’s subscribers agree to purchase the specified number of shares listed next to their names in the Memorandum of Association. Each subscriber to the company’s memorandum must purchase a minimum of one share. Each subscriber must indicate how many shares they are willing to purchase next to their name.

In the case of Atlas Cycles (Haryana) Ltd. v. Atlas Products Pvt. Ltd [146 (2008) DLT 274 (DB)], 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.

A person cannot be permitted to name a company even after his personal name if that name resembles the name of an existing company. [K.G. Khosla Compressors Ltd. v. Khosla Extractions Ltd., (1986) 1 Comp LJ 211: AIR 1986 Del 181]

Conclusion:

The Memorandum of Association is a legal document that outlines the company’s charter and serves as the cornerstone of the organization’s structure. It limits and defines the company’s authority. A contract or act that the company undertakes or engages in that is outside the scope of the authority granted by the memorandum will be deemed ultra vires the company and void. The Companies Act, 2013, however, shall take precedence over any provisions in a company’s memorandum if those provisions are inconsistent with those in the Act.

A company’s memorandum of association may be modified in a number of ways, including by changing the company’s name, its objects, the State in which the registered office will be located, the share capital structure, capital reduction, or the directors’ liability provisions.