Question

Essay Type Questions:
Define Memorandum of Association and describe the clauses of memorandum.

Answer 1

A Memorandum of Association is a legal document prepared in the formation and registration process of a limited liability company to define its relationship with shareholders. The is accessible to the public and describes the company’s name, the physical address of the registered office, names of shareholders and the distribution of shares. The Memorandum of Association and the Articles of Association serve as the constitution of the company.

Memorandum of association must have the following clauses:

1. Name Clause:

A Company is a legal entity. So, it must have a name to establish its identity. Name Clause in the Memorandum of Association confers protection against subsequent company registration in the same or closely similar name. It secures to the company monopoly of corporate trading under a particular name.

2. Situation Clause:

Memorandum of Association must state the name of the State in which the registered office of the company is to be situated. It will fix up the domicile of the company. Address of the registered office of the company need not be mentioned in the Memorandum of Association.

3. Objects Clause:

It is the most important clause in the Memorandum of Association. It defines and limits the scope of operations of the company. It explains to the members the scope of activity of the company where their capital will be employed. It gives protection to the shareholders by ensuring that the funds raised for specified businesses are not going to be risked in another.

4. Liability Clauses:

Liability clause mentions the liability of members of the company- In case of a company limited by shares, Memorandum of Association must have a clause to the effect that the liability of the members is limited to the extent of the amount of the unpaid portion of the shares held by him.

5. Capital Clause:

Memorandum of Association of a limited company having share capital (i.e. company limited by shares or company limited by guarantee having share capital) must also state the amount of share capital with which the company is to be registered which is usually called authorized or nominal capital.

6. Association Clause:

This clause states that the persons subscribing their signatures at the end of the Memorandum are desirous of forming themselves into an association in pursuance of the Memorandum.