About MOA and

AOA
Written by © P. K. Pandya & Co. 2010 All rights reserved.
Wednesday, 03 February 2010 11:32
Memorandum of association specifies name of the proposed company, location of registered
office, main object / activities of the proposed company, limited lability clause, authorised share
capital of the company, statement that minimum paid-up share capital of the company shall be
Rs.100,000/- for private limited and Rs.500,000/- for public limited company. Lastly, in
subscription clause details of the first shareholders (called 'subscribers') are specified alongwith
number of shares agreed to be taken/subscribed by them. To 'subscribe' means 'to append one's
signature or mark to (a document), as in approval or attestation of its contents; to attest by or as
by signing; to agree or assent to; to sign one's name to a document; to give approval to the
contents of a document by signing one's name'.

Liability of subscriber: A subscriber whose name has not been entered on the register is
nevertheless liable for the shares he has subscribed for. Whenever any person signs a
memorandum his name must be placed on the list of contributories although no shares may have
been allotted to him.

In drafting memorandum of association of the proposed company, care shall be taken (a) that
main object is as per FIPB approval, if granted; (b) object which are incidental or ancilliary to the
attainment of main object shall be carefully drafted to ensure that they are incidental to main
object and not object clause by themselves; (c) other objects shall as fa as possible may be kept
nil or minimum. In case of foreign company, ensure that other objects states "subject to approval
of Governement and/or authorities, if any, as may be required" and (c) clause V i.e. capital clause
shall only specify total authorised share capital and its division into nature of shares and value per
share. Capital clause shall not contain authority to vary capital etc. as the same shall be covered in
the articles of association. Capital clause shall also specify about minimum paid-up share
capital.

Where a body corporate / foreign company is subscriber, an authority letter / board resolution
authorising individual to sign and subscribe the shares for and on its behalf is required. Where a
company to be registered is promoted by foreign national, person resident outside India or foreign
company, subscription pages of memorandum and articles of the proposed company, certificate
of incorporation and memorandum and articles of foreign company as well as authority letter /
board resolution shall either be certified by Indian Consultate or Apostle as per Hague
Convention.

No objection from applicants who do not sign memorandum & articles

The Registrars of Companies have been advised to ensure at the time of registration of a new
company that the subscribers to the memorandum and the articles of association tally with the
list of promoters / first director stated in the application for availability of name and in case, one
or more of the promoters are not interested to participate in the promotion of a new company at a
later state. “No objection letter” from such promoter(s) is made available to the Registrar, while
submitting the documents for registration. The Registrars of Companies are also being advised to
dispose of applications for availability of name ordinarily within 14 days of the receipt of
application and to correspond with the applicant promoter(s), in this behalf” No. 27/1/89-CL-III
dated 17-02-1989: (1989) 65 Com Cases 575 (St.). Instances came to the notice of the
Department that some promoters are pre-empting the names, which is not a healthy practice. It
has, accordingly, been decided that, in future, Registrars of Companies should register the
company only in cases where the promoters, as per availability of name and application, are also
the subscribers to the memorandum and articles of association of the proposed company at the
time of its registration. In case of any change in the name(s) amongst the subscribers the changed
subscribers are advised to make fresh application for the availability of name. The Registrar may,
as per existing procedure, allow the same name, if otherwise available, after three months from
the date when the name was allowed to the original promoter(s). Circular No. 1 of 1990 dated 5th
January 1990; (1990) 67 Com Cases 230 (St.)

On reconsideration it has now been decided, in partial modification of the above circular, that so
long as there is at least one promoter common both in name availability application and the
subscription clause of Memorandum & Articles of Association, and others have no
objection, the company may be registered. (Para ii) [Circular No. 1/95, F. No. 14/6/94-CL-V
dated 16-02-1995].

While drafting the object clause, amongst others, the following guidelines should be kept in mind
so as to avoid protracted resubmission process while incorporating companies:

(i) The main object clauses are not drafted in consonance with the name as per guidelines issued
by the Ministry of Corporate Affairs. The object clause is sometimes drafted very vaguely
without specific activities. Abbreviations are not permitted to be used in the object clause and the
expressions “etc.”, “and the like” should not be used in the object clause.

(ii) Incidental object (under Clause III - B) in the Memorandum of Association sometimes
contain independent business activity, which is not permitted. The incidental objects stated (under
Clause III - B) should be purely incidental or ancillary to the main object(s) (under Clause III - A)
of Memorandum of Association.

(iii) Ministry has clarified that numerous objects should not be added under the "other objects" (in
Clause III-C) of Memorandum of Association. The guidelines stipulate that the number of
“other objects” (under clause III - C) should have a bearing upon the capital structure of the
company. If the capital is less/low, the number of “other objects” should be less, say restricted to
about 10 to 15.
(iv) It should be borne in mind that if the subscribers are Foreign Nationals / Foreign Companies /
NRI, the restrictions laid down in Foreign Exchange Management Act, 1999 should be taken into
account while drafting the object clause. Activities which are prohibited for Foreign Nationals /
Foreign Companies / NRI should not be included in the main object (under clause III - A) and
other objects (under clause III - C) of Memorandum of Association. Wherever, Sectoral Cap has
been stipulated, it should be ensured that the subscription by Foreign Nationals / Foreign
Companies / NRI, are kept within the 'Sectoral Cap' limit in the subscription clause (equity
shares).

(v) In the case of Non-Banking Financial Companies, it should be borne in mind that no NBFC
Activity can be carried on by any company without RBI permission / registration. Therefore,
non-NBFC Companies should not have NBFC Activities included in the main object
(under clause III - A) and other objects (under clause III - C) of Memorandum of Association.

Articles of Association constitute a set of rules regulating the internal affairs and management of
the company.

It is the second important document which must be registered in case of unlimited companies,
companies limited by guarantee and a private company limited by shares together with the
memorandum.

In case of public company limited by shares, there is no obligation to register articles of

association and if it is registered without articles, the regulations in Table A of Schedule I of the
Companies Act 1961 are deemed to be the articles of the company.

Article deal with relation between the company and its shareholders, between the shareholders
and the management, matters like shares and share capital, company meetings, directors,
secretary etc. In addition, the public limited companies have also to include in their articles
certain compulsory provisions which are designed to facilitate free transferability of shares.
Private companies have also to include in their articles certain prescribed restrictions.

The members of the company have full control over the articles of association and may alter
them according to what they think fit in general meeting by special resolution.

An important implication of articles is that their provisions amounts to a public notice, known as
constructive notice, to all those who deal with the company. They are deemed to have notice of
the manner in which the articles require the company to deal with a particular situation. That is
why when articles are altered the same has to be recorded with the ROC.

Any provisions in a company's article will be ineffective if it is in conflict with the memorandum,
the Companies Act or any other law for the time being in force.

Though the articles are subordinate to memorandum yet if there be any ambiguity in the
memorandum, the article may be used to explain it but not so as to extend the objects.

Articles are to be in a printed form and signed by the signatories to the memorandum.