When you’re registering your Company, the Memorandum of Association details the vision, mission, and objective of your business in legal terms. However, it is much more than that.
It sets the foundation on which you establish your private limited Company. Every decision you will make would be based on the words you have written in this document. Therefore, you should always be precise about what you enter into its pages.
And while drafting an MOA is a task that you can leave to your resident company secretary, it is you who knows your company more than anyone else.
You have the idea and the passion, and the zeal to start a company. So let these tips help you write down your business objectives in a legal format – one that the MCA can understand.
Overview of the Memorandum of Association
Here is the legal format of an MOA for a private limited company:
It is the first clause of your document. It states the name of your Company. As per Section 4(1)(a) of the Companies Act, 2013, your Company’s name should fulfil the following conditions.
- For a Public Limited Company, suffix the word "Limited" at the end.
- If the business entity you’re set on registering is a private limited company, the name should contain the words “Private”, and “Limited”.
- For Section 8 Company Registration, you don’t need to worry about the above rules. However, the nomenclature rules for an NGO business entity say that terms like “Federation”, “Organization”, “Chambers” or others that give an impression of an organization must be present in the name.
Other rules regarding the name of the Company:
- The name should be unique.
- It should be inoffensive.
- And it must not be deceptively similar to a name that already has been established by a different director.
Registered Office Clause
This clause contains the address of the Registered Office. A piece of critical information, it sets the foundation for all the future communication between the MCA and the Company.
Here are the rules concerning the registered office clause
- During the time of private limited company registration, you must only mention the state in which the registered office is located.
- After the incorporation process and when applying for Certificate of Business Commencement (CBC), you must provide all the details about your registered office, right down the street corner where it is located.
Object Clause of your Business
Now we reach the most important clause of the Memorandum of Association. Here, your concern is to communicate to the MCA, the intent of your business. And thus, you have to clearly state the business that you will conduct with your company once you get the incorporation certificate.
Some key pointers when entering the objectives in the object clause:
- Do not be ambiguous: It doesn’t matter how inane the point might seem, you have to enter it. For instance, if your business is delivering products. You have to specify the types of products you deliver, the way that you deliver, the locations to where you deliver to, the valuations around that delivery business, and so on. The term “so on” is not tolerated in the MOA. You have to specify all the business objectives. If you need help, get a Company Secretary on a speed dial but be as ambiguous as you possibly can. Details matter in this legal document.
- Make sure that you deeply understand your business: To come up with the information that we have explained above, you must know your business inside and out. Therefore, only start drafting the MOA once you have created a rough draft of all the functions your company will perform.
This document protects to:
- The shareholders by informing them the way you are using their investment to do business;
- The creditors by making them understand that you won’t partake in activities that go beyond the confines of the clause;
- And the public interest by assuring them that you won’t diversify your business beyond the wordings of the Memorandum of Association.
Here, you will put the information regarding how the shareholders would share the liability within the Private Limited Company.
As the liabilities are limited in nature, the Companies Act defines two types of these liabilities:
- Limited by Shares: As per Section 2(22) of the Companies Act, a Company limited by shares is the one in which the shareholders only pay for their subscribed shares.
- Limited by Guarantee: As per Section 2(21) of the Companies Act, the company limited by guarantee entails members instead of shareholders. These members guarantee to hold the liability of a fixed amount.
It is the clause stating the name of the persons signing the memorandum. Each subscriber signing this document should provide the number of shares to which he is subscribing. Signing in the presence of two witnesses, each subscriber must at least subscribe to one share.
It is a declaration that states the subscribers are signing the memorandum and forming an association. All components of the Memorandum of Association must be accurate and unambiguous.
Registrar of companies banks upon you providing the accurate details.
And for that, you need to follow some specific tips.
Tips of drafting the Memorandum of Association
Now that you have the overview of the details that should be present in the MOA, here are the tips to follow to put them effectively:
- Before choosing a name, conduct a thorough company name search: Uniqueness is a critical aspect to consider when selecting a name for your enterprise. And you can only do so if the name you have chosen is unique.
- Be as unambiguous as you possibly can when drafting the company objectives. Yes, it will get tiring writing long sentences. However, you can leave any stone unturned when explaining to the MCA about your business objectives. Additionally, the MOA is a legal document – helpful in many legal proceedings where un-ambiguity is a substantial factor to consider.
- Getting the consent of all the directors is important: Without it, the shareholders or members won’t sign the MOA. As a result, your enterprise won’t get registration.
With these three tips, you can make your MOA foolproof – ensuring that it holds up as a legal document as proof of your business’s existence during legal proceedings or other matters concerned with the expansion of your enterprise.
Need help drafting the MOA?
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