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Introduction:

Formation of a company:
Following are the steps by which a company can be formed:
•The proposed company name should be approved by the registrar of companies.
•Secondly, the memorandum and articles of association of articles should be prepared.
•Suitable persons should be appointed for the subscription of memorandum of association.
•Registration fees should be deposited to registrar of companies and receipt of certificate of
incorporation should be collected.
•Business commencement certificate should be collected from the registrar of company.[1]

Memorandum Of Association:
The memorandum of association of a company, often simply called the memorandum, is a
fundamental document that governs the relationship between the company and the outside
world. It is one of the documents required to incorporate a company. It is thus, the charter of
the company and defines its raison d’etre (i.e., reason for existence).

Requirements of Memorandum:
A memorandum of association is required to state the name of the company, the type of
company (such as public limited company or private company limited by shares), the
objectives of the company, its authorised share capital, and the subscribers (the original
shareholders of the company). A company may alter particular parts of its memorandum at
any time by a special resolution of its shareholders, provided that the amendment complies
with company law.

Purpose:
The MOA is designed to communicate to the public the state of affairs of the company and its
purpose of being and operating. This aids various stakeholders of the company (creditors,
suppliers, shareholders, etc.) to evaluate the extent of their risk and also possibilities of the
company to overcome them at a future date.[2]

Contents of Memorandum:
The MOA of every company, shall contain the following clauses (described as conditions of
the company’s incorporation):

1. The name of the company, with ‘Limited’ as the last word of the name in case of a
public limited company and with ‘Private Limited’ as the last words of the name in
case of a private limited company.

2. The State in which the registered office of the company is to be be situated.

3. The objects of the company which shall be classified as-

a. The main objects of the company;


b. Objects incidental or ancillary to the attainment of the main objects;

c. Other objects of the company not included in (a) and (b).

4. In the case of companies (other than trading corporations) with objects not confined to
one State, the States to those territories the objects extend.

5. In the case of a company limited by shares or by guarantee, the Memorandum shall


also state that the liability of its members is limited.

6. In the case of a company, having a share capital, the amount of share capital with
which the company is to be registered and the division thereof into shares of fixed
amount.

The Memorandum shall conclude with an “Associate Clause’ which states that the
subscribers desire to form a company and agree to take shares in it.

These clauses are:

1. The name clause.

2. The registered office clause.

3. The objects clause.

4. The capital clause.

5. The liability clause.

6. The association clause.

Articles Of Association:
The articles of association of a company, often simply referred to as the articles, are the
regulations governing the relationships between the shareholders and directors of the
company, and are a requirement for the establishment of a company. They are the rules,
regulations and bye-laws for the internal management of the affairs of the company. They are
framed with the object of carrying out the aims and objects as set out in the Memorandum of
Association. Together with the memorandum of association, they form the constitution of a
company.[3]

Contents of Articles:
Articles usually contain provisions relating to the following matters:

1) Share capital, rights of shareholders, variation of these rights, payment of


underwriting commission.

2) Lien of shares.
3) Calls on shares.

4) Transfer of shares.

5) Transmission of shares.

6) Forfeiture of shares.

7) Conversion of shares into stocks.

8) Share warrants.

9) Alteration of capital.

10) General meetings.

11) Voting rights of members, voting and poll.

12) Directors, their appointment, remuneration, qualifications, powers and proceedings of


Board of Directors.

13) Dividends and reserves, capitalisation of profits.

14) Accounts, audits and borrowing powers.

15) Winding up.

Companies which must have their own Articles(Sec. 26, Indian Companies Act, 1956):

The following companies shall have their own articles, namely,

(a) Unlimited companies.

(b) Companies limited by guarantee.

(c) Private companies limited by shares.

The articles of association shall be signed by the subscribers of the Memorandum and
registered along with it. A public company, may have its own Articles of Associoation. If it
does not have its own articles, it may adopt Table A given in Schedule I.[4]

So memorandum and articles of association play an important role in company registration


process.

Advantages:

• Minimum subscription is not required.


• Company's can easily raise the sufficient capital through shares.
• These are appropriate for the business persons who have the limited capital.
• Even the non resident shareholders are not responsible for the additional tax on
dividends.
• Accounts of any currency can be freely transferable without any exchange control
restrictions.

Disadvantages:

• The expenses for the company formation are very high.


• The alteration of memorandum is not so easy.
• The procedure for the establishment and the legal formalities are very complicated.
• The administrative costs and the tax payment are very high.
• In the private company, shares cannot be sold to the public.
• The problem of management occurs when directors are not able to manage the
company as the sole traders do.