Introduction to Memorandum of Association under Company Law
When a company is born, it needs a legal identity that defines who it is, what it does, and how far it can go. That identity comes from the Memorandum of Association (MOA) — the most essential document under Company Law. If you have already read our earlier discussions on the Incorporation of a Company, you’ll remember that no company can come into existence without first drafting and registering its memorandum. The MOA serves as the company’s constitutional charter, setting the boundaries for every action the company can lawfully take.
In this blog, we will explore the meaning, purpose, clauses, legal importance, alteration procedure, and doctrine of ultra vires related to the Memorandum of Association under the Companies Act, 2013. We will also analyze landmark judgments and understand how courts interpret the powers of a company through this single document.
By the end of this detailed article, you’ll not only understand what the MOA is but also why it acts as the soul of every company in India’s corporate legal framework.
Concept and Meaning of Memorandum of Association
The Memorandum of Association is derived from the Latin word memorare, meaning “to remember.” It is a legal record stating the fundamental conditions upon which a company is incorporated. It determines the company’s relationship with the external world and clearly defines the scope of its powers, objectives, and limitations.
According to Section 2(56) of the Companies Act, 2013, “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of the provisions of this Act or any previous company law. This statutory definition shows that the memorandum is not just a formation document but an ever-living constitution that evolves with lawful alterations.
To understand it better, let’s connect this with what we studied earlier in What is a Company. A company, being an artificial legal person, cannot act beyond what the law permits. The MOA, therefore, acts as the legal boundary line for the company’s conduct — its birth certificate, constitution, and limitation rolled into one document.
Legal Nature and Importance of Memorandum of Association
The Memorandum of Association serves as a public document that defines and limits the company’s powers. Anyone dealing with the company is presumed to know the contents of its memorandum. This presumption is vital because it protects investors, creditors, and outsiders from being misled about the company’s legal authority.
The MOA can be compared to a country’s constitution — just as the government cannot act beyond its constitutional powers, a company cannot act beyond the powers stated in its memorandum. Any act done outside those powers is considered ultra vires and hence void.
This principle was first established in the landmark English case Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875) L.R. 7 H.L. 653, where a company formed to manufacture railway carriages entered into a contract to finance railway construction — something beyond its objects clause. The House of Lords held that the contract was ultra vires and void.
The Indian judiciary has also reaffirmed this doctrine in A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India (AIR 1963 SC 1185), where the Supreme Court ruled that a company cannot use its funds for purposes not stated in its memorandum. These cases highlight that the MOA acts as both a shield and a boundary — protecting shareholders’ investments while ensuring corporate discipline.
Purpose and Function of the Memorandum
The main purpose of drafting a Memorandum of Association is to define the company’s fundamental conditions of existence. It informs shareholders, creditors, and the general public about the company’s identity, objects, and powers. The MOA ensures transparency and certainty by disclosing the company’s aims at the time of incorporation.
If you recall our discussion in the Types of Company blog, each company type — private, public, or one-person company — must have a memorandum suited to its structure and purpose. The memorandum tells potential investors what kind of company they are dealing with, what business it intends to run, and the risks involved.
Thus, the MOA serves multiple functions:
- It defines the company’s scope of operations.
- It prevents unauthorized activities.
- It protects the interests of shareholders and creditors.
- It establishes a transparent relationship between the company and the public.
Clauses of Memorandum of Association (Section 4, Companies Act, 2013)
Under Section 4 of the Companies Act, 2013, every memorandum of association must contain six mandatory clauses. Each clause defines a specific aspect of the company’s identity and legal authority.
1. Name Clause
The name clause specifies the legal name of the company. A public limited company must end with “Limited,” and a private limited company must end with “Private Limited.” The name must not be identical to or closely resemble that of another registered company.
The Registrar of Companies (ROC) must approve the name before registration under Rule 8 of the Companies (Incorporation) Rules, 2014. Additionally, the name cannot violate the Emblems and Names (Prevention of Improper Use) Act, 1950.
The importance of this clause lies in identity — the company’s name is its legal personality. Once approved, it gives the company its distinct corporate existence, separate from its members. Any dispute regarding name similarity is handled by the Central Government as per Section 16 of the Act.
2. Registered Office Clause
This clause indicates the State in which the registered office of the company is situated. The registered office determines the jurisdiction of the Registrar of Companies and the place for service of notices and legal documents.
Under Section 12 of the Companies Act, 2013, the company must establish its registered office within thirty days of incorporation and notify the Registrar within the same period.
The location of the registered office is significant because it determines where company records are maintained, where lawsuits may be filed, and which state laws apply to administrative matters.
3. Object Clause
The object clause defines the purpose for which the company is formed. It outlines the main objects that the company intends to pursue and the incidental or ancillary objects necessary to achieve them.
This clause is the most vital part of the memorandum because it sets the limit of corporate powers. Any action taken beyond these stated objects is ultra vires.
The Supreme Court in Lakshmanaswami Mudaliar’s case clarified that companies cannot divert their funds for purposes not directly related to their objects. For example, if a company incorporated to manufacture electronic goods decides to invest heavily in real estate, such an act would be beyond its memorandum and hence void.
The object clause prevents companies from straying into unrelated ventures and safeguards public confidence by defining the company’s lawful business sphere.
4. Liability Clause
This clause defines the extent of liability of each member. In a company limited by shares, the liability is restricted to the unpaid amount on their shares. In a company limited by guarantee, members agree to contribute a specified amount in case of winding up.
This provision is essential because it assures investors that their personal assets are protected — they risk only what they have invested or agreed to guarantee. This is one of the main advantages of incorporation, as we explained earlier in the Lifting of Corporate Veil blog. The liability clause, therefore, reinforces the principle of separate legal entity by limiting personal liability.
5. Capital Clause
The capital clause states the authorized share capital of the company — the total amount the company is permitted to raise through shares. It also specifies the division of capital into shares of fixed value.
The capital structure forms the financial backbone of the company. Any alteration in the capital clause requires a special resolution and compliance with Section 61 of the Companies Act, 2013.
This clause ensures that creditors and investors know the financial strength of the company. The transparency in the capital structure builds trust and accountability in corporate dealings.
6. Association or Subscription Clause
This clause contains the declaration by the subscribers of the memorandum, expressing their intention to form a company and take up shares. It must be signed by at least seven persons for a public company or two persons for a private company.
Each subscriber must take at least one share, and their signatures must be witnessed. This clause transforms an abstract intention into a concrete legal act — the birth of the company itself.
Alteration of Memorandum
A company’s growth sometimes demands modification of its memorandum. However, since the MOA defines the company’s constitution, alterations are strictly regulated under Sections 13 and 14 of the Companies Act, 2013.
1. Name Clause
Changing the name requires a special resolution and approval from the Central Government under Section 13(2). Once approved, the new name must be updated in all official documents.
2. Registered Office Clause
If the company shifts its registered office from one state to another, it requires the Regional Director’s approval. Such a move is allowed only if it serves the company’s business purposes.
3. Object Clause
To change the object clause, the company must pass a special resolution and file it with the ROC within thirty days. The change becomes effective only after registration.
4. Capital Clause
Alteration of the capital clause requires compliance with Section 61, allowing an increase or consolidation of share capital through shareholder approval.
5. Liability Clause
This clause can be altered only with tribunal approval, especially when it increases members’ liability.
These strict procedures ensure that the company cannot alter its fundamental conditions without transparency, shareholder consent, and regulatory oversight. You can verify statutory text on indiacode.nic.in.
Doctrine of Ultra Vires and the Memorandum
The Doctrine of Ultra Vires is a cornerstone of corporate law. It means “beyond the powers.” Any activity not authorized by the memorandum is void and cannot be ratified even by unanimous shareholder consent.
In Attorney General v. Great Eastern Railway Co. (1880) 5 App Cas 473, the House of Lords clarified that acts reasonably incidental to the company’s objects are valid, but anything beyond that scope is ultra vires.
Indian courts have adopted this doctrine to protect investors and maintain corporate accountability. The Supreme Court in A. Lakshmanaswami Mudaliar reiterated that companies cannot use their funds for purposes outside their memorandum, even if the majority agrees.
This doctrine ensures that the MOA remains the living constitution of a company, controlling its powers and protecting public interest.
Distinction between Memorandum and Articles of Association
While both documents are essential for incorporation, their functions differ fundamentally.
The Memorandum of Association establishes the company’s relationship with the outside world, whereas the Articles of Association (AOA) regulate the company’s internal management.
In case of a conflict, the memorandum always prevails. The MOA defines the extent of powers, while the AOA provides the mode of exercising those powers. Together, they create the corporate constitution — external and internal halves of one whole.
Judicial Interpretation and Case Law Analysis
Courts have consistently emphasized the binding nature of the memorandum. In Re Introductions Ltd. (1970) Ch. 199, it was held that the memorandum is a public document, and outsiders are presumed to know its contents.
Similarly, in Cotman v. Brougham (1918) A.C. 514, the court stated that the object clause must be interpreted in light of the company’s main purpose and not extended arbitrarily.
In India, Lakshmanaswami Mudaliar’s case remains a guiding authority, demonstrating how misuse of funds beyond the memorandum’s limits can invalidate corporate acts.
Relationship with the Companies Act, 2013
The Companies Act, 2013 treats the memorandum as the cornerstone of incorporation. It provides statutory backing under Sections 4, 13, and 14 and ensures transparency through online public access via the Ministry of Corporate Affairs portal.
The memorandum must be filed at the time of incorporation, verified by the Registrar, and remains accessible for inspection. Any alteration or non-compliance may lead to penalties or cancellation of registration.
Significance in Modern Corporate Governance
In today’s corporate world, where companies engage in diversified business activities, the memorandum acts as a safeguard of legal certainty. It prevents reckless management decisions, ensures adherence to stated objectives, and builds investor confidence.
Even though modern statutes have relaxed the rigidity of ultra vires to an extent, the principle continues to maintain corporate discipline and legal accountability.
Conclusion
The Memorandum of Association is far more than a procedural requirement — it is the legal soul of a company. It defines the very existence, purpose, and extent of a company’s powers. From incorporation to dissolution, the MOA remains the guiding document that binds the company to its lawful path.
For every law student or corporate professional, mastering this topic means understanding the DNA of corporate law itself. If you’ve understood how a company’s constitution governs its power, ask yourself — does your business or organization operate within its legal limits?
