Memorandum of Association (MOA) is a company’s legal document which sets down the constitution of the company containing certain fundamental matters. MOA is a basic document that oversees the relationship between the company and the outside. This document is mandatory for every company. It is the charter of the company which defines its powers and limitations.
Memorandum of Association is basically an archive that diagrams the degree inside which your business can work. MOA’s purpose is to display the permitted range or action of the company and it characterizes the parameters of your company. It is a supreme document of the company.
Contents of Memorandum of Association
The following contents are included in the Memorandum of Association:
- Name Clause: Name of the Company must be stated with the last word ‘Limited’ in case of Public Limited Company and ‘Private Limited’ in case of Private Limited Company. There are provisions in the Companies Act which states certain rules regarding undesirable names.
- Situation Clause: MOA must mention the state in which the registered office of the company will be located. Domicile should be stated for the determination of jurisdiction of court and registrar.
- Object Clause: In object clause only one activity can be included in the main object of MOA and relating to that activity any activity can be carried out
- Liability clause: Company must state the member’s liabilities whether limited or unlimited. Members of the company are affected by this clause. Company does not have authority to increase the liability without a written consent.
- Capital Clause: Memorandum of Association of the company having share capital is required to show the shared capital amount.
- Association and Subscription Clause: It provides each subscriber to take at least one share in the company and is required to state the number of shares. Every subscriber is required to take at least one share in the company and it should be mentioned in front of his/her name in the subscription clause.
Objectives in registering MoA
Mentioned below are the objectives of registering the MoA:
- To grant legal status: MoA is a legal document which describes the scope of a company’s activities and provides the company with a legal identity. It also facilitates the establishment of the company as a separate legal entity from its shareholder(s) or the owner(s).
- To describe the purpose of the company: The company’s objectives and activities it is allowed to partake in are all set out in an MoA. An MoA assures that the company functions as per the scope of its objectives and complies with the applicable rules and legislations.
- To safeguard the shareholders’ interest: All the rights and obligations of all the shareholders of a company are outlined in the MoA which helps to protect their rights and interests. An MoA also helps to prevent any unauthorized activities or decisions that could drastically affect the shareholders.
- To assist in capital raising: The authorized share capital of a company is stated in the MoA. This assists investors in understanding the company’s potential size and capital amount which is required for its operations and activities. This helps the company to raise its capital by issuing its shares.
- To help in making decisions for the company: Since the MoA outlines all the powers and limitations of a company, it is crucial to take this legal document into account at the time of decision-making of the company. Management and directors get guidance on the activities their company can partake in due to which they’re able to make informed decisions.
Registering MoA is an essential step in a company’s formation since it provides a company its legal status, defines a company's operations, protects shareholders’ rights, helps to make informed decisions and facilitates in raising capital.
Advantages and Disadvantages of MoA
Advantages of Memorandum of Association (MoA)
MoA comes with the following advantages:
- Legal Status: A company’s legal status is provided by its MoA, which establishes it as a legal entity which is separate from its shareholder(s) or owner(s).
- Objectives: This legal document specifies all the objectives and activities which can be taken by a company in an authorized manner.
- Decision-Making: Since all the powers and limitations of a company are mentioned in the MoA itself, the document proves to be advantageous at the time of decision-making with the involvement of all the directors and management of the company.
- Capital Requirements: The company’s authorized share capital is specified by MoA which helps the potential investors to understand the company’s potential size and
- Protection of shareholders’ Rights: MoA being a legal document which states all the rights and obligations of the shareholders helps to protect the shareholders’ interest. It also prevents unauthorized activities or decisions which can compromise the shareholders’ rights or company’s image.
Disadvantages of Memorandum of Association (MoA)
The following are the disadvantages and drawbacks of MoA:
- Restrictive Nature: MoA is restrictive in nature since it specifies all the objectives and activities that can be undertaken by the company. This might prevent or limit the company from enabling new opportunities or exploring new markets.
- Difficult to Change/Alter: MoA is a legal document and therefore, it is difficult to alter or change it. Changes or modifications can only be done after receiving approval from the shareholders and the relevant authorities, which can be a time consuming and complicated process.
- Limited Liability: MoA limits the liability of the company’s members but this is not always necessarily advantageous. In certain circumstances, it may make it difficult for the company to raise capital since many investors are hesitant to invest their money in a company with limited liability.
- Costly: Getting the MoA drafted and then registered can be expensive, especially in case of legal assistance.
- Public Disclosure: Since MoA is a public document i.e., its contents are available to the public, it is vulnerable to revealing sensitive information regarding the company’s objectives and activities to the competitors and stakeholders.
Not only the advantages but also the disadvantages must be considered before getting the MoA drafted and registered. This will ensure that the MoA is appropriate for the company’s requirements.
Conclusion
It is evident that Memorandum of Association (MoA) is a crucial document for any company. It is a legal document which plays an essential role in a company’s formation. It states all the limitations, objectives and activities that a company is allowed to participate in and helps a company to be established as a separate legal entity. This legal document ensures that the shareholders’ interests are safeguarded by the law, assists in informed decision making, and provides guidance to all the directors and management of the company.
However, it must be noted that MoA comes with certain limitations and restrictions. It is not a flexible document and it is really difficult to make any changes in it. MoA’s drafting process and registration can be expensive depending on the company’s authorized capital structure. Since this document outlines all the operations and activities of a company, it might put the company at a risk of having its sensitive information revealed to the stakeholders or competitors. This is why, at the time the MoA is getting drafted, all the advantages and disadvantages must be weighed thoroughly to ensure what is appropriate according to the company’s needs. If you need any assistance to ensure that your company’s MoA complies with all the applicable laws and regulations, connect with the Registrationwala team!
