B.com(H/P)|CH-6 : Memorandum of Association (MOA) |Company law| Sem-2/4th Sol Du NEP| Company Law

Introduction to Company Law and Memorandum of Association

Overview of the Topic

• The speaker introduces the topic, emphasizing that this series is tailored for B.Com students, focusing on important aspects of company law.

• The first chapter under Unit 2 is about the "Memorandum of Association," which will be followed by discussions on the "Articles of Association" and "Prospectus."

Understanding Memorandum of Association (MOA)

• The MOA is defined as a written document that outlines the purpose for which a company is incorporated, detailing its objectives.

• It specifies what activities a company will engage in, serving as a guide for both external users (like investors and creditors) and internal users (company management).

Functions and Importance of MOA

• The MOA helps external users understand the company's operations and potential profitability while providing internal users with clear boundaries regarding their operational scope.

• It defines the limits within which a company can operate; any actions outside these boundaries are not permissible.

Key Features of MOA

• The document establishes boundaries for corporate actions, ensuring that companies do not exceed their stated objectives or purposes.

• Specific objectives are outlined in the MOA, such as types of products manufactured or services offered by the company.

Examples and Practical Implications

• If a company's MOA states it will issue shares up to ₹10 crores, it cannot issue more than that amount without amending its memorandum.

• Companies must adhere strictly to their stated objectives; deviations from these can lead to legal complications.

Viewing Recommendations

Tips for Watching Effectively

• Viewers are advised to watch at normal speed (1x or 1.25x), as faster speeds may hinder comprehension due to rapid speech delivery.

Registration Process Insights

Required Documents for Company Registration

Understanding Memorandum and Articles of Association

Introduction to Key Documents

• The video discusses two essential documents in company registration: the Memorandum of Association (MOA) and the Articles of Association (AOA).

• These documents are required during the incorporation process and must be submitted to the Registrar of Companies along with other necessary documentation.

Importance of Memorandum of Association

• The MOA serves as a supreme charter for a company, outlining its objectives and scope.

• Historically, charters were granted by monarchs to establish companies; this concept has evolved into what we now refer to as the MOA.

Public Access to Company Documents

• The MOA is considered a public document, meaning anyone can request access to it through the Registrar of Companies after paying a nominal fee.

Objectives Defined in the Memorandum

• The MOA clearly states all objectives that a company aims to achieve, providing clarity on its operational limits.

Structure of the Memorandum

• The MOA consists of various clauses that define specific aspects such as company name, objectives, and limitations on operations.

• There are seven key clauses within an MOA; however, only six are typically relevant unless forming a one-person company.

Breakdown of Clauses in Memorandum

• The first clause is known as the Name Clause, which specifies what name will be used for the company. This includes justifications for choosing that particular name.

• It is mandatory for companies to declare whether they are public or private within their MOA.

Company Naming Regulations and Provisions

Company Name Requirements

• The first step in naming a company is to specify whether it is a public or private entity. Public companies must include "Limited" in their name, while private companies should use "Private Limited."

• According to the Emblems Act of 1950, there are specific provisions that restrict certain names from being used for companies. It is mandatory to choose a compliant name.

Restrictions on Company Names

• Names associated with government entities (e.g., "W.A.O." or "U.N.O.") cannot be used as they may mislead the public into thinking the company is government-owned.

• Companies cannot incorporate names related to enemy countries, ensuring no association with nations considered adversarial.

• Terms like "Banking," "Insurance," or "Investment" can only be used if the company actually operates in those sectors; otherwise, such names are prohibited.

Name Reservation Process

• A company can reserve its chosen name by submitting suggestions (up to six names) to the Registrar of Companies along with necessary documents like the Memorandum of Association.

• The Registrar will check for existing companies with similar names and either approve one of the suggested names or reject them based on availability.

Timeframe for Name Reservation

• If approved, the reserved name must be utilized within 60 days; failure to do so will result in losing that name's reservation status.

Importance of Registered Office

• A registered office address must be provided where all official communications and notices will be sent. This location serves as a point of contact for regulatory bodies and stakeholders.

Company Incorporation and Compliance

Notification Requirements for Registered Office

• Companies must notify the Registrar of Companies (ROC) about their registered office within 30 days of incorporation or commencement of business.

• The address provided during incorporation must be communicated to the ROC, ensuring compliance with legal requirements.

Object Clause in Memorandum of Association

• The object clause outlines the company's objectives and activities, which must be clearly stated in the Memorandum of Association (MOA).

• Activities should not contradict public policy or constitutional provisions; illegal operations are strictly prohibited.

• For example, if a company claims to produce eco-friendly products but engages in harmful practices, it violates its stated objectives.

Legal Compliance and Public Policy

• Companies must operate within the framework of their declared objectives and cannot engage in illegal activities that go against public policy.

• The object clause ensures that companies adhere to legal standards set by the Companies Act, maintaining lawful operations.

Liability Clause Overview

• The liability clause specifies how much liability shareholders have concerning company debts—either limited by shares or guaranteed amounts.

• In a limited by shares scenario, shareholders are only liable for unpaid shares; they do not risk personal assets beyond this amount.

Types of Liabilities Explained

• Limited by guarantee means that shareholders agree to pay a specific amount if the company goes into liquidation. This guarantees creditors will receive payment up to that agreed limit.

Capital Clause Details

• The capital clause defines various types of capital: authorized capital (maximum amount a company can raise), nominal capital (value assigned to shares), and subscribed capital (amount actually taken up by shareholders).

Company Capital Structure and Share Issuance

Understanding Company Capitalization

• The speaker discusses the growth of their company, emphasizing the need for funds to expand operations. They mention that people are interested in buying shares of the company.

• The speaker contemplates issuing shares to raise capital but realizes that issuing 15 lakh shares exceeds their authorized capital limit of 10 crore, which is illegal.

• Explanation of authorized capital: it defines how many shares a company can issue legally. The distinction between subscribed and nominal capital is introduced.

Types of Capital Explained

• Nominal capital refers to the total value of shares a company expects to issue, while issued capital is what has actually been issued. For example, if a company has an authorized capital of 10 lakh but issues only 8 lakh worth, this amount represents its issued capital.

• Clarification on subscribed capital: it indicates how much stock investors have agreed to purchase. If only 6 lakh worth of shares are bought from the issued amount, that becomes the subscribed capital.

Shareholder Contributions

• Out of the subscribed shares, some shareholders fully pay for their stocks while others do not. Fully paid-up shares indicate complete payment by shareholders; unpaid or partially paid-up shares reflect incomplete payments.

• The importance of adhering to legal limits when issuing share capital is emphasized; companies cannot exceed their authorized limits.

Formation and Membership Requirements

• Discussion on subscription agreements: who will be considered subscribers (shareholders), and how they will sign off on Memorandum of Association (MOA).

• A public company must have at least seven members, while a private company requires at least two members for formation.

Signing and Witnessing Procedures

• Members must sign the MOA indicating their commitment to operate under its objectives. Each subscriber should hold at least one share as proof of interest in the company.

• At least one witness is required during signing to validate that subscribers have indeed signed the document.

Nomination Clause Importance

• Introduction to nomination clauses: essential for single-person companies where a nominee must be designated in case something happens to the owner.

• Details about nominee consent requirements are discussed; all necessary information about nominees must be included in official documents like MOA.

Capital Reduction Concepts

• Transition into discussing reduction concepts: both 'reduction' and 'diminution' refer to decreasing values within a company's context—specifically regarding its capitalization structure.

Understanding Fully Paid and Unpaid Shares

Overview of Share Types

• There are 4 crore fully paid shares, meaning the full payment has been received for these shares.

• Additionally, there are 2 crore unpaid shares, indicating that only partial payments have been made.

Reduction in Capital

• The term "reduction" refers to decreasing subscribed capital by buying back shares and reserving them, similar to a company buyback.

• If shares are not issued or are unpaid, reducing these involves canceling or buying back those specific shares.

Diminution vs. Reduction

• Diminution occurs when unissued shares are reduced from authorized capital; this does not affect the authorized capital directly.

• Reducing subscribed capital impacts the subscribed capital but does not change the authorized capital.

Impact on Authorized and Subscribed Capital

Effects of Reduction

• A reduction in subscribed capital decreases its value while diminishing affects unsubscribed capital (shares not yet issued).

• The difference between reduction and diminution is crucial: reduction affects subscribed capital while diminution impacts unsubscribed.

Resolutions Required for Changes

• To reduce authorized capital, an ordinary resolution can be passed easily; however, a special resolution is needed for share buybacks.

• Special resolutions require notifying shareholders through public announcements about buybacks or cancellations.

Legal Considerations in Share Transactions

Tribunal Involvement

• For reductions involving public shares, it’s necessary to approach a tribunal; this is not required for internal share cancellations.

Summary of Key Differences

• The distinction between reduction (affecting subscribed capital with public involvement) and diminution (internal adjustments without tribunal intervention).

Conclusion and Next Steps

Final Thoughts

• Encouragement to like, share, and subscribe if viewers found the content helpful.

Summary of Closing Remarks

Final Thoughts and Encouragement

• The speaker expresses that if there are any issues, they apologize in advance, indicating a supportive tone.

• They emphasize the importance of not stressing over tasks or papers, encouraging a relaxed approach to challenges.

• A reminder is given to meet again at the same time and day tomorrow, reinforcing continuity and commitment.

• The speaker concludes with a friendly farewell ("टाटा बाय"), suggesting a positive end to the session.