In the process of formation of a company, a legal document is prepared which is known as Memorandum of Association(MOA). The document outlines the relationship of the company with its shareholders.
MOA is also known as the company’s charter. Out of all the documents, it is considered as the most important document because the purposes for which the company is formed are mentioned in it. The powers of the company are also stated in the document.
The company can carry the operations and the processes which are mentioned in the MOA. In case it wants to add a product or carry an activity which is not stated in the Memorandum, the document has to be altered.
In the U.S, Memorandum of Association does not apply, but in other countries including the UK, France, Netherlands and Commonwealth nations it is a legal necessity.
There are six clauses which form part of Memorandum of Association. These are as follows:
- Name clause
- Location clause
- Object Clause
- Liability clause
- Capital clause
- Association Clause
The legal name by which your company is known is stated in the name clause. The name has to be permitted by the registrars. The name of the company can be only approved if it does not match with the name of any other prevailing company. As MOA is a legal document of a limited liability company, hence the name of the company should have the word “limited” at its end.
In this clause, the company has to disclose the location of its registered office. In the registered office of the company, all the documents and registers are kept, and all the necessary business communications are done in the office. Before initiating any activity, the company has to establish its registered office. The clause also specifies the name of the state where the office is situated as mentioning the exact address is not compulsory.
The main objects and purposes for which the company is established are stated in the object clause. The classification of objectives of the company are as follows:
- The primary objectives trailed by the company.
- Secondary objects which are essential for achieving the main objects.
- Any other objects which are not mentioned in the above two.
If any company performs such activities which are not included in its objectives, the company is regarded to be acting ultra vires, i.e. outside its powers.
The liability of each member of the company is stated in this clause. It defines that every member of the company has a limited liability, i.e. the amount that one person has to pay to another on account of some loss or damage is limited. The financial status of the company has nothing to do with the liability of members. No one can be told to pay anything which is beyond the unpaid amount on his shares.
The amount of share capital with which the company is commenced and registered is stated in the capital clause. The assets of the company are also stated in the clause.
This clause specifies that every member has to subscribe to one share of the company by filing a subscription clause in front of a witness who also has to affix his or her signature.