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Memorandum and Articles of Association are two important documents required to form a company. The Articles of Incorporation are a legal document that sets out the charter, objectives and powers of a company. It describes the company’s relationship with its shareholders and the outside world.
On the other hand, Articles of Association provide detailed guidelines for the company’s internal management and operations. These articles establish how the company will operate, including the roles and responsibilities of its directors and the procedures for holding meetings and voting.
Incorporating a company requires the drafting of important documents, one of which is the Memorandum of Articles (MOA). The MOA is a legal document that sets out the constitution of the company and defines its relationship with the outside world. One of the essential clauses of the MOA is the Name Clause. In this clause, the name of the company is specified.
Here are some important points to consider when drafting the Name Clause:
In addition the Name Clause is a critical component of the Memorandum of Association. It is important to choose a name that is unique, appropriate, and compliant with regulations. A well-crafted Name Clause will help to establish the company’s brand identity and reputation in the market.
When it comes to naming your company, keep in mind that certain types of companies must include specific words at the end of their name. Here are the requirements:
If you have a company limited by guarantee, the name must include the words “(Guarantee) Limited” at the end.
The second clause in a memorandum is known as the registered office clause. While a company may choose to specify a particular city in this clause, it is vital to include the name of the province as well. This helps to avoid legal complexities in situations where the company changes its office location from one city to another within the same province.
The registered office clause is an essential part of a company’s Memorandum of Articles. It serves as the official address of the company, where all official correspondence and legal documents are sent. The second clause of the memorandum specifies the registered office clause.
When mentioning the registered office clause, a company may choose to specify a particular city. However, to avoid any legal complications that may arise when changing the office from one city in a province to another city in the same province, it is essential to mention the name of the province.
In the event that a company wants to relocate its registered office from one province to another, or to a capital territory, this clause would require an amendment, after meeting the legal requirements. It is important to adhere to all legal requirements to ensure a smooth transition and avoid any legal complications.
Third & perhaps important clause of the Memorandum of Articles is company’s object or mission statement. This clause outlines the specific business activities that a company plans to engage in. Additionally, the object clause indicates both the permissible and prohibited business endeavors for the company in question.
Defining a Company’s Principal Line of Business According to the Companies Act 2017. While a company can engage in any lawful business, the Companies Act 2017 mandates that all companies specify their primary line of business at the start of the object clause. The principal line of business refers to the core activity that generates the majority of the company’s assets or revenue. This line of business should align with the company’s name, and if necessary, can be changed by following the proper procedure.
Stipulating the company’s prohibited business activities is another essential aspect of the object clause. If the company doesn’t have a license to operate in a certain field, it must be mentioned. The prohibited businesses may include:
In addition to the aforementioned conditions, it is imperative that the object clause explicitly prohibits the company from engaging in:
The fourth clause of a Memorandum of Articles is known as the liability clause, which differs depending on the company structure. If the company has limited liability, the clause should specify that the members’ liability is limited. Conversely, for unlimited liability companies, the clause must mention that members’ liability is unlimited.
A liability clause is a section of a legal agreement that outlines the responsibilities and liabilities of the parties involved. Here are six different kinds of liability clauses:
This outlines the general liability of the parties involved in the agreement. It typically states that both parties will be liable for any damages or losses that result from their actions or inactions.
It requires one party to compensate the other party for any damages, losses, or expenses that result from a specific event. For example, an indemnification clause in a construction contract may require the contractor to compensate the owner for any damage caused by the construction process.
This clause limits the liability of one or both parties in certain circumstances. For example, a software company may include a limitation of liability clause that limits their liability to the cost of the software if it is found to be defective.
One party to hold the other party harmless from any damages or losses that result from a specific event. For example, a hold harmless clause in a rental agreement may require the tenant to hold the landlord harmless from any injuries that occur on the property.
Specifies a predetermined amount of damages that one party will be required to pay to the other party if they breach the agreement. For example, a liquidated damages clause in a sales contract may require the buyer to pay a certain amount of money if they fail to make a payment on time.
The said clause releases one party from liability for certain actions or events. For example, an exculpatory clause in a waiver of liability may release a gym from liability if a member is injured while using the gym equipment. However, it is important to note that some jurisdictions may not enforce exculpatory clauses in certain situations.
The capital clause is the fifth and final clause in the context of a joint stock or guarantee company limited by guarantee with a share capital. The fifth and final paragraph outlines the company’s capital structure. In particular, this paragraph specifies the authorized capital and the procedure for dividing it into shares of a fixed amount. The authorized capital can be divided into shares of any denomination, for example, 10, 20, 100 or 1000, according to the decision of the founders.
The capital clause is an important part of the company’s constitution, as it sets out the rules for how the company can issue new shares and raise additional capital. This clause also outlines the rights and obligations of shareholders with regards to the ownership and transfer of shares. For example, the capital clause may specify whether shareholders have pre-emption rights, which means they have the first right to buy new shares before they are offered to the public.
In addition to the authorized capital, the capital clause may also cover other aspects of a company’s capital structure, such as the company’s reserve funds and the procedure for distributing profits. It is important for companies to have a clear and well-defined capital structure, as this can help to attract investors and ensure the long-term sustainability of the company.
Overall, the capital clause is a crucial part of a company’s constitution, and it is important for founders and shareholders to carefully consider the terms of this clause when setting up a new company or amending an existing one. By ensuring that the capital structure is well-defined and transparent, companies can create a solid foundation for growth and success.
When creating a new company, the memorandum of association is a crucial document required as a foundational element. Along with other documents, it is submitted to the registrar of companies. The memorandum includes various clauses related to the name of the company, registered office, object, liability, and capital structure. It is important to draft this document with care, as it will determine the scope, size, and type of business.
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