Memorandum of Association: Definition, Importance, and Advantages
Memorandum of Association: Definition, Importance, and Advantages: There is an important document of a company, named Memorandum of Association and abbreviated as MOA. It includes all the objects based on which the company has formed. It comprises all rights, powers as well as privileges of the company. Therefore, it is known as a charter of the company. It is regarded as the charter of the company. It figures out the relationship between the company and that of the outsiders. The entire business of the company is built as per the Memorandum of Association. A company has no right to undertake either any business or activity which is mentioned in the Memorandum.
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Memorandum of Association: Definition, Importance, and Advantages
Here, in this article, we will discuss all the ins and outs of the MOA and how it is so imperative in the establishment of any company.
What is the Memorandum of Association?
In simple words, the Memorandum of Association acts as the charter of the company by which the structure of any company is set up. The MOA explains all the primary identifications of the company, the Name & Address of initial subscribers, and the business objects related to the company under an MOA. Memorandum of Association is one of the basic incorporation documents of a limited company. Generally, MOA is referred to as short ad MOA.
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For any organization, it is vital to have an efficient mode of communication that acts as an intraoffice tool. It has a count of purposes. The document is important to prepare at the time of the company’s foundation and registration. Clearly, it defines all activities as well as functions of an organization. The entire organization is regulated through the Memorandum of Association and a company is not liable to take action that crosses the boundary of MOA.
Definition of Memorandum of Association
Here is the one-liner meaning of MOA that is explained by Lord Cairns which we have written below.
“The memorandum of association of a company is the charter and defines the restrictions of the power of the company established under the Act.”
Thus, it is crystal clear from the above definition that the Memorandum of Association is a document that is established as the constitution of the company. It signifies the relationship of the company with that of the outer world. It indicates the clear scope of all activities. MOA allows the shareholders, creditors as well as other people who are in relation with the company in any form to know the wide range of activities.
The Prescribed forms of MOA
|Table A||A company restricts by shares|
|Table B||A company that is limited by guarantee and not share capital|
|Table C||A company that is limited by guarantee and share capital|
|Table D||An Unlimited capital|
|Table E||An unlimited company with a share capital|
Importance of Memorandum of Association
As we have discussed above, MOA is too vital to any company and its establishment. No doubt, it is a must-have document for the setting up of an organization. It is not only a single document but means a lot for an organization and create limits within which they need to work in the future.
Here are some other significant aspects of the Memorandum of Association that we will have to aware of first. Let us take a peek at these below and try to let us know how important it is and how many ways. Move further to know.
- Basic formality
It is the basic doc and the vital one that is needed for the establishment of any organization. No company gets registered with the MOA.
- Displays a clear picture
It signifies all the operations as well as functions attached to the company. The document controls all the functionalities of an organization and that is why it is regarded as the charter of the company. No company has a right to perform out of the limits.
- Medium of Information
It is the medium with the help of which the stakeholders can acquire information about the concerned company. It gives an idea about the motives as well as the mission of the company. In addition to this, it provides full details associated with managers as well as promoters of the company that comprises of name and address of the company.
- Shareholder’s liabilities
MOA is a clear indicator of what is the liability of each shareholder attached to an organization. It is helpful for you to get an understanding of the role as well as responsibilities that belong to a shareholder, so there will be no mess in the future.
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Positive Aspects of having MOA
Now, it is high time to know about the advantages of the company that a Memorandum of Association will give to any organization. Let us have some advantages that are vital to aware of.
- Sufficient Funds
Memorandum of Association plays an imperative role in garnering funds for the company that makes the establishment free from hassle. It provides full-fledged details related to the company’s objectives and what motive they can fulfill for the investors too.
- Mandated document
This is the mandated document for the setting up of an organization. No company can get incorporated without it. It comprises of all conditions based on which the company is formed.
- Company’s regulation and control
MOA is essential to regulate as well as control the company. It signifies the limits of the amalgamation of an organization. A company will not perform any function out of the clauses mentioned under the Memorandum of Association.
- Better relations
The document is helpful to establish some better relationships between the company and that of the stakeholders. Liability belongs to every stakeholder is mentioned through the MOA. It is useful to refine the roles as well as the responsibilities of each member.
- Medium to obtain the company’s details
Memorandum of Association is served as the mode of proffering the full details about an organization to the shareholders. It provides all info related to the company, its objectives, financial position, upcoming plans, and so on.
Clauses of Memorandum of Association
Different clauses appear in the Memorandum of Association such as liability clause, name clause, situation clause, capital clause, and so on. The documents established the relationship of the organization with that of its stakeholders. It is helpful for the stakeholders to easily understand as well as acquire the knowledge related to the company. MOA is known as the charter of any organization.
Memorandum of Association involves six different clauses as we have mentioned below.
- Name Clause
- Domicile Clause
- Objects Clause
- Liability Clause
- Capital Clause
- Subscription Clause
Let us dive into the MOA and the following are the contents of the Memorandum of Association which has given below.
Clause 1 – Name Clause
This aspect of the MOA explains the name of the company. If the company name gets approved from the registrar of companies before the company done with the registration. The name of the company ends with the word “Limited” in terms of either public or private companies. In One Person Company case, the name ends with “Private Limited” words.
The company establishes a separate identity for the company and the name clause of the memorandum comprise of legal, approved as well as the authentic name of an organization. Company names ought not to bear any sort of similarities registered with a similar company name due to the multiple times these enterprises safeguard the companies name through the process of trademark registration.
Clause II – Domicile Clause
This clause contains all details regarding the company’s registered office. It includes the state name or union territory related to the registered office and might not have the actual office address. The name of the registrar is also a part of it.
Clause III – Object Clause
The main body of MOA is included in the object clause. It gives a list of all operations associated with an organization. Every operation as well as the motive of an organization engaged in must be displayed in the object clause. In addition to this, any such operation is displayed in this clause that is regarded to be beyond the company’s reach. The objects included in the company fall into two different categories that we have described below.
- The company’s proposed objects for which it is incorporated.
- Matters have taken into account essential in furtherance.
Clause IV – Liability Clause
This clause includes the liability that belongs to every member of the company. Simply, it mentions that every company’s member describes the contribution amount for each individual in case the company is shutting down or winding up. No matter what the financial position of an organization is, no member needs to pay more than the value that he or she holds in the case of shares.
Clause V – Capital Clause
The clause includes the amount of share capital with which the company has set up and registered. Also, it explains the kinds of shares, the face value of each share as well as the number of shares it holds. Private and public companies are not liable to listed in the stock exchange that considers any face value of the shares. On the flip side, the public companies that have to be listed will be signified share’s face value.
Clause VI – Subscription Clause
Last but not least cause of the MOA is known as the subscription clause. This type of clause lists down the objectives of the shareholders behind the establishment of an organization and also mentions that the subscriber agrees to take the shares up in the company. Additionally, it specifies the count of shares that a subscriber has taken up. It all happens as per the details mentioned in the subscriber sheet of the Memorandum of Association.
What is the usage of MOA?
The extent, as well as the scope of the business operations that a specific company can carry out, can be established through the Memorandum of Association. The company has a right to take part in the business activities that are specified in the MOA. If they want to expand their business, then there is a need to make changes in the Memorandum of Association.
This is a legal document that applies to all sorts of LLC. Limited Liability Company involves both Private Limited Liability as well as Limited Liability Partnership. It is used to define the clear relationship between the company and the stakeholders. The Memorandum of Association is a public record that any person can see under the Right to Information Act. Memorandum of Association includes the address of the company, the names of all shareholders, the real address of the registered office, and the described shares. All tweaks and exemptions are contained in an MOA about a specific company.
The constitution of a company is a blend of Memorandum of Association and Articles of Association. There is no need for MOS in the US but it is a legal formality for all limited liability companies across European nations such as the United Kingdom, the Netherlands, France, and so on.
Here are some FAQs related to the Memorandum of Association which we have mentioned below.
- If there are some changes required in MOA, then which forms need to fill?
There are a few forms that need to be filled such as MGT-14, INC-14, MGT-14, SH-4, MGT-14, INC-1, and IINC-14. The names of such forms are Object Clause, Name Clause, Capital Clause, Conversion of Public company to the Private, and vice-versa.
- How many persons require to sign MOA?
It varies in the case of pubic and private companies. In the case of a public company, it will be seven and a minimum of two in a public company. If the case is of One Person company, then it will be one.
- What are the MOA’s Uses?
Some are listed below.
- Define the scope and extent of an organization.
- Regulate the company’s relations with that of the globe.
- Vital for the company’s incorporation.
- It acts as the charter of the company and includes all details about the company.
At the end of the story, the Memorandum of Association is a very imperative document without which there is the incorporation of any organization. It is regarded as a charter of the company and MOA as a constitution of the company that is required at the time of the establishment of the company.