A Start-up lawyer, in the process of incorporating a Company, drafts many legal documents as a part of the formation and incorporation process. One of the most important steps undertaken by a Start-up lawyer is to define the relationship of a company with the shareholders. The document which governs the relationship of the company and shareholders and sets out the fundamental principles on which a company shall act is called a Memorandum of Association or MOA as usually referred amongst the Start-ups. MOA not only sets legal parameters or the scope of operation of a company but also regulates external affairs and defines a relationship and nature of contract between a company and outside world.
As per Section 2(56) of the Companies Act, 2013 Memorandum of Association means: the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.
As we are aware that any act done outside the constitution of the country is not legally valid. Similarly, any act done outside the scope of the Memorandum of Association makes such acts legally invalid. If any time, the internal management takes a decision which is beyond the scope of the Memorandum of Association and does not fall within its purview , such decisions or the act shall be termed as void as it is ultra vires to the charter of the company. A Start-up lawyer emphasises not to commit any act beyond the contours of MOA as it can never be ratified by the shareholders or the company and shall always be termed as void.
Important legal points which a Start-up lawyer shall consider while drafting the MOA are as follows:
- It should be prepared very diligently;
- It should be printed and clearly divided into different paragraphs stating the different provisions;
- The paragraphs should be numbered consecutively;
- Stamped according to the provision of Companies ordinance;
- Should be signed by each subscriber in the presence of one witness.
As per the Companies Act, 2013, the MOA of the Company shall be in the following forms as detailed below:
|1||Table A||MOA of a company limited by shares|
|2||Table B||MOA of a company limited by guarantee and not having share capital|
|3||Table C||MOA of a company limited by guarantee and having share capital|
|4||Table D||MOA of an unlimited company and not having share capital|
|5||Table E||MOA of an unlimited company and having share capital|
Memorandum of Association contains below mentioned six mandatory clauses pertaining to the Company; such as name, object, situation, capital, association and liability:
- The Name Clause: This clause contains the “Name of the Company”. However, while selecting a name of the Company, some important points to be noted are as follows:
- The name selected by the Company should not be similar or identical to any company already registered
- The name of the Company should not contain the words like King, Queen, Emperor, Government Bodies and names of World Bodies like U.N.O., W.H.O., World Bank etc.
- Every public company has to use the word limited or “LTD” after its name and “private limited” as the last word in case of private company.
- Situation clauses: This clause contains the name of the State where the Company’s registered office is located. All the communications are generally addressed to the registered office of the Company. The Registered office means a place where the common seal; statutory books etc., of the company are kept. A Start-up lawyer can easily help and guide a company in the instance they want to shift their respective registered office from one place to another, by complying with the steps and procedures laid down in the Companies Act, 2013.
- The object’s clause: This clause set out the purpose for which the company is formed. Each and every detail and object for what the company is formed shall be laid down in this clause. To cover all the aspects for what a Company is formed, a Start-up lawyer while drafting this clause can divide it into two parts: Main objects and Ancillary objects. It is the most important clause of the document which cannot be amended easily. Thus, a Start-up Lawyer has to very diligently and carefully draft this clause. The object provides the protection to the shareholders, debenture holders, creditors or bankers and all other persons who are associated with the company.
- The liability clause: This clause states the nature and the liability of the members of the company. Start-up lawyer while drafting this clause, for a private company limited by share or by guarantee, should keep the fact in mind that the liability of its members is limited and it must be made absolutely clear. In case of a company limited by shares the liability of a member is limited to the nominal value of the share held by him .If the share are fully paid up his liability is nil. But in case of partly paid-up shares the liability is limited to the amount which is unpaid. In case of a company limited by guarantee, the liability clause must state the amount which every member undertakes to contribute to the assets of the company in the event of its winding up.
- The capital clause: This clause mentions the maximum amount of capital that can be raised by the company. The division of capital into shares is also mentioned in this clause. This clause states the number and face value of shares into which the capital of the company is divided. Each subscriber must take at least one share and write opposite his name the number of shares he takes.
- The Association clause: This clause states that the persons who subscribe their signatures at the end of the MOA are desirous of forming themselves into an association in pursuance of the end of the MOA are desirous of forming themselves into an association in pursuance of the Memorandum of Association. Start-up lawyer shall make sure that the Memorandum of Association is signed by seven or more persons in the case of a public company and by two or more persons in the case of a private company. Signatures shall be attested by witnesses. Start-up lawyers shall make sure that a minor or a partnership firm is not a subscriber to the MOA. However, a company may be a subscriber to the MOA of another company.
Memorandum of Association is a legal document which is compulsory to frame at the time of incorporation as they define the business objectives of a company. Since MOA formulate the base of the company it becomes important that it is written with highest efficiency and foresight. A Start up lawyer strongly advices that it is very important for a company to function in accordance with the MOA as it will ensure that the capital invested is utilized to meet the objects specified in the charter of the company.