Introduction

Every company is formed and registered with a vision and in Company Law, that vision must be expressed in writing. Under the Companies Act, 2013 this written charter document is known as the Memorandum of Association (MoA), governed by Section 4 of the Act.

For the incorporation of a company, an application must be filed with the Registrar of Companies (ROC) along with prescribed documents. Among these, the Memorandum of Association (MoA) is the fundamental document which sets out constitution of a Company.

Just like a country is governed by its Constitution, a Company is governed by its Memorandum. It defines who the company is, what its objectives are, the extent of its operations, and the boundaries within which it must function. In simple terms, MoA contains the fundamental objects and framework upon which the company is established.

What is Memorandum of Association?

The first step in the formation of a company is to prepare a document called the Memorandum of Association (MoA).

MoA is the charter document of a company. It is a fundamental document required for incorporating a company under the Companies Act, 2013 in India, it defines the scope, powers, and limitations of a company, acting as its constitution.

In simple terms, it tells what the company can do and what it cannot do.

Memorandum of Association is a legal document which describes the purpose for which the company is formed and therefore identified the possible scope of its operations beyond which its action cannot go. It defines as well as confines the powers of the company. If anything is done beyond these powers that will be ultra vires (beyond the powers) of the company and so void.

MoA regulates the external affairs of the Company and defines relationship of the Company with the outsiders.

It tells us the name, address, objects, liability and capital of the Company.

It also defines the boundary beyond which the company cannot do anything (Also called the ultra vires rule).

Legal Definition:

As per Section 2(56)[1] “memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act.

Important  Features of MoA

1. Charter Document of the Company

It is the foundation/charter document that defines the constitution of the company.

Just like a country has a constitution, a company has its MoA.

• Mandatory for Incorporation

No company can be registered without a MoA

The requirement of memorandum is evidenced in Section 3 of the Act, which provides the mode of incorporation of a company and states that a company may be formed for any lawful purpose:

1. by seven or more persons, where the company to be formed is a public company;
2. two or more persons, where the company to be formed is a private company; or
3. one person, where the company to be formed is a One Person Company

by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of its registration.

• Defines the Scope of Activities

It specifies the main objects and ancillary objects.

A company cannot go beyond what is written in its MoA (doctrine of ultra vires).

• Regulates External Affairs

While the Articles of Association (AoA) deal with internal management, the MoA regulates the company’s relationship with outsiders.

• Binding Effect

Under Section 10 of the Companies Act, 2013, the MoA is binding:

Between the company and its members.

Among the members themselves.

• Public Document

Once registered, the MoA becomes available for public inspection under Section 399 of the Act.

Outsiders can rely on it to know the company’s powers and objects.

• Contains Essential Clauses

It has 7 mandatory clauses: Name, Registered Office, Objects, Liability, Capital, Subscription, and Nominee (for OPC).

• Rigid Document

Alteration of MoA is not simple. Specific procedures (like passing special resolutions and ROC/Tribunal approval in certain cases) must be followed.

Purposes of MoA

1. Provides Legal Identity to the Company

It declares the intention of the subscribers to form a company and legally incorporates the entity.

• Guides Shareholders

The MoA tells potential shareholders what the company’s objectives are.

It helps them understand how their investment will be used and the risks involved.

Example: If a company’s object is to manufacture electronics, a shareholder knows their money will not be used for unrelated activities like real estate.

• Informs Creditors

Creditors can check the MoA to see whether the company has the authority to enter into certain transactions.

This protects them from engaging in dealings that might be ultra vires (beyond the company’s powers).

• Guides Other Business Partners

Suppliers, contractors, or business partners can determine whether their transactions are legally within the company’s scope.

This ensures that all dealings are valid and enforceable.

• Defines Liability of Members

The MoA clearly mentions whether members’ liability is limited or unlimited, protecting both members and outsiders.

Philosophy Behind Section 4 of the Companies Act, 2013

Section 4 of the Companies Act, 2013 deals with the Memorandum of Association (MoA), which is often described as the charter of a company. The philosophy behind this provision is deeply rooted in corporate certainty, transparency, and stakeholder protection.

The law recognizes that a company, being a separate legal entity, can engage in a wide variety of activities. However, without a clear definition of its identity, purpose, and powers, those dealing with it would face unnecessary risk.

Section 4 ensures that stakeholders i.e. investors, creditors, regulators, employees, and even the general public must be fully informed about the company in the following ways:

Who the company is?

The MoA specifies the legal name and registered office, establishing the company’s identity and location for legal and regulatory purposes.

What the company can do?

The MoA lays out the objects of the company, defining the scope of business activities it is legally authorized to undertake.

Liability of members:

Whether the company has limited liability or unlimited liability is clearly stated, helping creditors and investors assess their risk exposure.

Capital structure:

The authorized capital and its division into shares (including share classes and nominal value) are specified, making it clear how the company is financed.

Founders/Subscribers:

The MoA lists the initial subscribers who brought the company into existence, reflecting the foundational ownership and responsibility.

Bare Act Text of Section 4

Section 4[2] – Memorandum:

• The memorandum of a company shall state—

• the name of the company with the last word “Limited” in the case of a public limited company, or the last words “Private Limited” in the case of a private limited company;

Provided that nothing in this clause shall apply to a company registered under Section 8

• the State in which the registered office of the company is to be situated;

• the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof;

• the liability of members of the company, whether limited or unlimited, and also state:

• in the case of a company limited by shares, that liability of its members is limited to the amount unpaid, if any, on the shares held by them; and

• in the case of a company limited by guarantee, the amount up to which each member undertakes to contribute—

• to the assets of the company in the event of its being wound-up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, as the case may be; and

• to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves;

• 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 a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share; and

• the number of shares each subscriber to the memorandum intends to take, indicated opposite his name;

• in the case of One Person Company, the name of the person who in the event of death of the subscriber shall become the member of the company.

• The name stated in the memorandum shall not—

• be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or

• be such that its use by the company—
• will constitute an offence under any law for the time being in force; or
• is undesirable in the opinion of the Central Government.

• Without prejudice to the provisions of sub-section (2), a company shall not be registered with a name which contains—

• any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government or any State Government under any law for the time being in force; or

• such word or expression, as may be prescribed,

unless the previous approval of the Central Government has been obtained for the use of any such word or expression.

• A person may make an application, in such form and manner and accompanied by such fee, as may be prescribed, to the Registrar for the reservation of a name set out in the application as—

• the name of the proposed company; or
• the name to which the company proposes to change its name.

• (i) Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of twenty days from the date of approval or such other period as may be prescribed:

Provided that in case of an application for reservation of name or for change of its name by an existing company, the Registrar may reserve the name for a period of sixty days from the date of approval.

(ii) Where after reservation of name under clause (i), it is found that name was applied by furnishing wrong or incorrect information, then-

• if the company has not been incorporated, the reserved name shall be cancelled and the person making application under sub-section (4) shall be liable to a penalty which may extend to one lakh rupees;
• if the company has been incorporated, the Registrar may, after giving the company an opportunity of being heard—

• either direct the company to change its name within a period of three months, after passing an ordinary resolution;
• take action for striking off the name of the company from the register of companies; or
• make a petition for winding up of the company.

• The memorandum of a company shall be in respective forms specified in Tables A, B, C, D and E in Schedule I as may be applicable to such company.

• Any provision in the memorandum or articles, in the case of a company limited by guarantee and not having a share capital, purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.

Simplified Analysis of Section 4 – Memorandum of Association:

Key Clauses of the Memorandum of Association – Sub-section (1) states what the Memorandum must contain:

Name Clause:

This clause defines the name of the company. Every company must have a distinct and unique name that is not identical or too similar to any existing company’s name.

A company, being a separate legal entity, must have a name of its own to establish its independent identity. The company’s name serves as a symbol of its legal existence and represents its distinct personality in the eyes of law.

If it is a private company, its name must end with the words “Private Limited”, and if it is a public company, it must end with the word “Limited.”

Examples:

ABC Private Limited → for a Private Company

ABC Limited → for a Public Company

Provided that Section 8 Companies (non-profit organisations) don’t have to use these endings.

Situation/Registered Office Clause:

This clause specifies the name of the State in which the registered office of the company will be situated.

The purpose of this clause is to establish the company’s legal domicile or jurisdiction. By mentioning the State, it becomes clear which Registrar of Companies (ROC) will have authority over the company and where all official communications, notices, and legal documents will be sent.

Object Clause:

This clause defines the objects or purposes for which the company is proposed to be incorporated, along with any matters considered necessary in furtherance of those objects.

In simple terms, it explains why the company is being formed, what activities it intends to carry out, and the extent of its operational powers. The Object Clause acts as both a guide and a limitation:

Affirmatively, it lays down what the company can do.

Negatively, it restricts the company from engaging in activities beyond what is stated in the clause.

Thus, this clause serves as a boundary line for the company’s functioning. Any act done beyond these stated objects is considered ultra vires (beyond powers) and is void in law. Even if all shareholders agree, such acts cannot be ratified, because they fall outside the company’s legal authority.

The purpose of the Object Clause is to inform shareholders, creditors, and outsiders about the permitted range of the company’s activities, so they can assess the risk and legality of their dealings with it.

Liability Clause:

This clause specifies the extent to which the members of the company are liable in the event of winding up. It determines the financial responsibility each member undertakes as part of their membership.

Depending on the type of company, the liability varies as follows:

Unlimited Company:

The liability of members is unlimited. This means members are personally responsible for all the debts and obligations of the company, without any limit.

Company Limited by Shares:

The liability of each member is limited to the amount unpaid on the shares held by them.

If the shares are fully paid-up, their liability becomes nil.

This form provides protection to shareholders, as their personal assets remain safe beyond their investment.

Company Limited by Guarantee:

The liability of each member is limited to the amount they agree to contribute at the time of incorporation to the company’s assets in the event of winding up.

1. Capital Clause:

This clause specifies the maximum amount of capital that a company is authorised to raise, commonly known as its Authorised Capital, Nominal Capital, or Registered Capital.

It also explains how this capital is divided into a specific number of shares of a fixed value each.

For example:

“The capital of the company is ₹10,00,000 divided into 1,00,000 equity shares of ₹10 each.”

This clause essentially sets a financial ceiling, the company cannot issue shares beyond this authorised limit unless it formally alters its Memorandum of Association in accordance with Section 61 of the Companies Act, 2013.

While determining the amount of authorised capital, companies consider both their current financial requirements and future expansion plans with reference to their stated objects.

Subscription Clause:

The Subscription Clause identifies the individuals who have agreed to form the company by signing its Memorandum of Association (MoA). These individuals are called the subscribers or promoters of the company.

Each subscriber must:

• Sign the Memorandum in confirmation of their intention to form the company; and
• State clearly the number of shares they agree to take in the company.
• Every subscriber is required to take at least one share in the company. This minimum shareholding signifies their willingness to contribute to the company’s capital and become its initial member.

At the end of the Memorandum, the subscribers include a formal declaration that reads:

“We, the several persons whose names and addresses are subscribed below, are desirous of being formed into a company in pursuance of this Memorandum of Association, and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.”

Following this declaration, the names, addresses, occupations, and signatures of the subscribers are recorded, along with the number of shares each subscriber agrees to take and their signatures attested by a witness.

Nominee Clause (For One-Person Companies):

This clause is applicable only to a One Person Company (OPC). It requires that the Memorandum of Association (MoA) must mention the name of one person who will become the member of the company in the event of the death or incapacity of the sole subscriber.

This nominated individual is called the “Nominee.” The nominee gives his or her written consent to act in that capacity, and such consent must be filed with the Registrar of Companies (ROC) at the time of incorporation.

The purpose of this clause is to ensure the continuity and perpetual existence of the company. Since an OPC has only one member, the death or inability of that member could otherwise bring the company’s operations to an end. The inclusion of a nominee ensures that the company’s legal personality remains intact even after the original owner’s demise.

If the nominee later withdraws consent, or the original member wishes to change the nominee, a new nomination can be filed with the ROC following the prescribed procedure.

Sub-section (2): Restrictions on the Company’s Name

Section 4(2) of the Companies Act, 2013 places important restrictions on the name of a company to ensure clarity, legality, and fairness. According to this clause, a company cannot choose a name that:

1. Is identical or too similar to the name of an existing company:

This prevents confusion among investors, creditors, and the public.

For example, if there is already a company named “ABC Technologies Pvt. Ltd.”, a new company cannot be registered as “ABC Technology Pvt. Ltd.”, as it is deceptively similar.

• Is offensive, illegal, or undesirable in the opinion of Central Government:

Names that violate any law or are morally or socially inappropriate and the names that are undesirable in the opinion of Central Government are prohibited.

This includes names that may hurt public sentiments, mislead the public, or imply unlawful activity.

Sub-section (3): Names Requiring Central Government Approval

Section 4(3) of the Companies Act, 2013 restricts companies from using certain words or expressions in their names that may mislead the public regarding the company’s status or affiliation. Specifically, a company’s name cannot include words that:

1. Suggest a connection or patronage with the Central Government, any State Government, local authorities, statutory bodies, or corporations established under any law.

Example: A private company cannot name itself “Delhi State Development Corporation Pvt. Ltd.” if it has no official connection with the government, as it would mislead people into believing it is a government entity.

• Include restricted or sensitive words prescribed by rules:

Examples include terms like “Board,” “Commission,” “Authority,” “Undertaking,” etc.,

Such names can only be used if prior approval is obtained from the Central Government. Without this approval, the Registrar of Companies (ROC) will refuse registration of the company under that name.

Purpose:

The main aim is to prevent deception and misuse of names, ensuring that companies do not falsely imply government endorsement or connection. This protects the public, investors, and other stakeholders from being misled and maintains the integrity and credibility of corporate registration.

Sub-section (4): Application for Reservation of Name

Any person intending to incorporate a new company or an existing company wishing to change its name can apply to the Registrar of Companies (ROC) to reserve a proposed name.

The application must be made in the prescribed form, accompanied by the required fee.

An application for reservation of name shall be made through the web service available at www.mca.gov.in by using web service and filing form SPICe Part-A and for change of name by using web service and filing Form RUN (Reserve Unique Name) along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014, which may either be approved or rejected, as the case may be, by the Registrar, Central Registration Centre after allowing re-submission of such web form within fifteen days for rectification of the defects, if any.

Sub-section (5): Period of Reservation and Consequences of Name reservation by filing false or incorrect information

Reservation Period:

• For a new company, the ROC can reserve the approved name for 20 days (or any other prescribed period).
• For an existing company changing its name, the reservation can be for 60 days or any other prescribed period).

False or Incorrect Information:

If the information provided is false or incorrect, there are consequences depending on whether the company is already incorporated:

(a) Before incorporation:

• The reserved name is cancelled.
• The applicant may face a penalty of up to ₹1 lakh.

(b) After incorporation:

The ROC may, after giving the company a chance to be heard, take one of the following actions:

• Direct the company to change its name within three months, passing an ordinary resolution;
• Strike off the company’s name from the register; or
• Initiate winding-up proceedings for the company.

Sub-section (6): Form of Memorandum

The MoA must follow the prescribed formats given in Tables A to E of Schedule I, depending on the type of company:

Table A – Company limited by shares

Table B – Company limited by guarantee (no share capital)

Table C – Company limited by guarantee (with share capital)

Table D – Unlimited company (no share capital)

Table E – Unlimited company (with share capital)

Sub-section (7): Restriction for Companies Limited by Guarantee (No Share Capital)

This clause applies to companies that are limited by guarantee and do not have share capital. It states that any provision in the MoA or Articles that gives a person the right to participate in divisible profits of the company other than as a member is void.

Comparative Analysis – MoA vs AoA:

The Memorandum of Association (MoA) and the Articles of Association (AoA) are the two most fundamental documents of a company. Together, they form the company’s constitution, defining its scope of operation and the framework of internal governance.

According to Section 2(5) of the Companies Act, 2013, “Articles” mean the Articles of Association of a company as originally framed or as altered from time to time, or as applied in pursuance of any previous company law or of this Act. It also includes the regulations contained in Table F of Schedule I insofar as they apply to the company.

Basis of Difference	Memorandum of Association (MoA)	Articles of Association (AoA)
1. Meaning	The MoA is the charter document of the company that defines its constitution, scope, and powers.	The AoA contains the internal rules and regulations governing the management and administration of the company.
2. Purpose	To specify the company’s objectives and extent of powers granted by law.	To regulate the company’s internal affairs and day-to-day operations.
3. Position	It is the primary document and supersedes the Articles.	It is subordinate to the Memorandum.
4. Scope	Defines what the company can do and the limit of its powers.	Defines how the company will carry out those powers.
5. Legal Effect	Acts beyond the MoA are ultra vires and void.	Acts beyond the AoA but within MoA can be ratified by shareholders.
6.Relationship	Defines the relationship between the company and the outside world.	Defines the relationship between the company and its members.

Note to Reader:

This article primarily focuses on the Memorandum of Association (MoA), we will discuss the Articles of Association (AoA), which govern the internal management and operations of a company, in a detailed and separate article

Doctrines Related to Memorandum of Association (MoA) and the Articles of Association (AoA) under Company Law.

Doctrine of Ultra Vires:

Meaning and Origin

The term Ultra Vires is derived from Latin, where “Ultra” means beyond and “Vires” means powers. In company law, the Doctrine of Ultra Vires refers to acts performed beyond the scope of powers and objects laid down in the Memorandum of Association (MoA) of a company.

A company, being a creation of law, is confined to the authority granted to it by its constitutional documents, primarily the MoA. Therefore, any act that goes beyond the express or implied powers given in the MoA is said to be ultra vires the company and is void ab initio (invalid from the very beginning).

This doctrine was established to protect the interests of shareholders and creditors, ensuring that the company’s capital is used only for the purposes for which it was originally raised.

Legal Principle

A company can act only within the scope of objects mentioned in its Memorandum of Association.

Any act done beyond these objects is ultra vires and therefore void, and it cannot be ratified by the company, even with the unanimous consent of its shareholders obtained.

This principle upholds the sanctity of the MoA as the charter or constitution of the company, setting the legal boundaries within which the company must function.

Purpose of the Doctrine:

• Protection of Shareholders:

Shareholders invest in the company based on the objects stated in its MoA. The doctrine ensures that their investment is utilized only for those specified purposes.

• Protection of Creditors:

Creditors extend credit on the understanding that the company will operate within its defined objects. If funds are diverted to unrelated activities, their security would be at risk.

• Corporate Discipline and Transparency:

It prevents misuse of corporate powers and promotes legal certainty by ensuring that all corporate actions have a legitimate foundation.

• Accountability of Directors:

Directors are bound to act within the authority of the company’s constitution. The doctrine ensures that they do not exceed these limits.

Effects of Ultra Vires Acts

• Void Ab Initio:

Any ultra vires act is null and void from the outset. It has no legal effect, and no subsequent ratification, even by unanimous shareholder approval can make it valid.

• Personal Liability of Directors:

If directors authorize or carry out an ultra vires transaction, they may be personally liable to compensate the company for any resulting loss, since they acted outside their authority.

• Injunctions by Shareholders:
  Shareholders can obtain an injunction to restrain the company from undertaking or continuing an ultra vires act.

• Right to Recover Property or Funds:

If the company’s funds or property have been misapplied in an ultra vires transaction, the company has the right to recover them from the third party, provided the property is traceable.

• No Enforcement by Third Parties:

Contracts that are ultra vires cannot be enforced either by the company or the third party involved.

Case Laws:

Ashbury Railway Carriage & Iron Co. Ltd. v. Riche (1875)

Facts:

The company was incorporated with the object of manufacturing and selling railway carriages and wagons. However, the directors entered into a contract to finance the construction of a railway line in Belgium.

Held:

The House of Lords held that the contract was ultra vires the company as financing railway construction was not within its objects. Therefore, the contract was void and unenforceable, even though all shareholders agreed to it.

Principle Established:

Any activity not expressly or impliedly covered by the objects clause of the MoA is ultra vires and cannot be validated by shareholder consent.

 Lakshmanaswami Mudaliar v. Life Insurance Corporation of India (1963)

Facts:
A company’s MoA authorized it to carry on life insurance business and other connected matters. The directors resolved to donate a portion of its funds to charitable trusts not connected to its business.

Held:
The Supreme Court of India held that the donation was ultra vires the company as it was not related to its business objects. The funds of a company can only be used for purposes that are reasonably incidental to its objects.

Principle Established:

A company cannot spend its money on purposes that, though noble, are unrelated to its objects clause. The MoA acts as a binding limitation on the scope of corporate action.

Doctrine of Constructive Notice:

Meaning and Origin

The Doctrine of Constructive Notice is based on the legal presumption that the Memorandum of Association (MoA) and Articles of Association (AoA) of a company are public documents. Once a company is registered, these documents are filed with the Registrar of Companies (ROC) and become accessible to the public for inspection in public domain under Section 399 of the Companies Act, 2013.

Hence, any person dealing with the company is presumed to have knowledge of the contents of these documents, whether they have actually read them or not. In other words, ignorance of the company’s constitutional limitations is no excuse.

Legal Principle

Every person who deals with a company is deemed to have constructive notice of the contents of its Memorandum and Articles of Association. Therefore, if an outsider enters into a contract inconsistent with the provisions of these documents, they cannot later plead ignorance to avoid the consequences.

This doctrine imposes a form of legal responsibility on outsiders to acquaint themselves with the company’s internal regulations and restrictions before entering into any transaction.

Purpose of the Doctrine

• To Protect the Company:

It ensures that third parties cannot take advantage of their ignorance to bind the company to acts contrary to its constitutional documents.

• To Promote Transparency:

By making the MoA and AoA public, the law encourages openness about the company’s scope, powers, and internal management.

• To Encourage Diligence:

It reminds investors, creditors, and contracting parties to verify the company’s authority before entering into agreements.

Effects and Implications

• Binding on Outsiders:

Outsiders are deemed to have knowledge of all limitations, restrictions, and procedures mentioned in the company’s MoA and AoA.

• Cannot Claim Ignorance:

If a person enters into a contract that violates these provisions, they cannot later argue that they were unaware of them.

Illustration

Suppose the Articles of a company require that any contract above ₹10 lakhs must be signed by two directors jointly. If an outsider enters into a contract of ₹25 lakhs signed by only one director, he cannot claim the contract’s validity on the ground of ignorance.

By law, he is presumed to know the company’s Articles and should have verified the internal authorization.

Case Law: Kotla Venkataswamy v Chinta Ramamurthy

Facts:
The AoA of the Company requires that all documents should be signed by Managing Director, Company Secretary and Working Director of the Company on behalf of the Company.

A deed of mortgage was executed by Company Secretary and Working Director only not by Managing Director.

Held:
The contract held that no claim would lie under mortgage deed as the same was invalidly executed. Highlighting the crucial role of a company’s Articles of Association, the court in Kotla Venkataswamy v Chinta Ramamurthy found the mortgage deed invalid according to these rules. Despite the plaintiff’s good faith, the court deemed the deed invalid.

Principle Established:

Persons dealing with a company are presumed to know its rules and powers as contained in its MoA and AoA.

Limitations of the Doctrine

While the Doctrine of Constructive Notice protects companies, it can sometimes be harsh on outsiders who act in good faith. To balance this, the courts developed an exception known as the Doctrine of Indoor Management.

1. Doctrine of Indoor Management:

Meaning and Origin

The Doctrine of Indoor Management also known as Turquand’s Rule. It is an important exception to the Doctrine of Constructive Notice.

While the doctrine of constructive notice assumes that outsiders know the contents of a company’s public documents (MoA and AoA), it is unreasonable to expect them to know the company’s internal workings or whether every internal procedure has been properly followed.

Thus, the Doctrine of Indoor Management protects outsiders dealing with the company in good faith, by allowing them to assume that the internal formalities and procedures required by the MoA or AoA have been properly carried out.

This doctrine was first established in the famous English case of Royal British Bank v. Turquand (1856) Hence, it is also known as Turquand’s Rule.

Legal Principle

Outsiders dealing with a company in good faith are entitled to assume that internal company rules and procedures have been properly complied with.
They are not bound to investigate whether internal formalities have actually been observed.

In essence, while outsiders are deemed to know the external limitations of a company (via the MoA and AoA), they are not expected to verify internal approvals or procedural compliance.

Illustration

Suppose a company’s Articles provide that borrowing above ₹50 lakh requires approval from a shareholders’ meeting. If the company’s directors borrow ₹75 lakh without such approval, the lender who lent in good faith and had no reason to suspect irregularity can still enforce the loan.

He is entitled to assume that internal procedures (i.e., shareholder approval) were duly followed.

Case Laws

• Royal British Bank v. Turquand (1856)

Facts:
The company’s Articles stated that directors could borrow money on bonds only if authorized by a resolution passed in a general meeting. The directors borrowed money without such resolution.

Held:
The court held that the lender was entitled to assume that the required resolution had been properly passed. The transaction was valid, and the company was bound by it.

Principle Established:

Outsiders dealing with the company are entitled to presume that internal procedures have been duly complied with, provided they act in good faith.

Exceptions to the Doctrine:

The Doctrine of Indoor Management does not protect outsiders in the following situations:

• Knowledge of Irregularity:

If the outsider knew of the irregularity or was aware that internal procedures had not been complied with, they cannot claim protection.

Example: If an officer acts beyond their authority and the outsider is aware, the act is not binding.

• Forgery or Fraud:
  The doctrine does not apply in cases of forgery. A forged document is void ab initio and cannot bind the company under any circumstances.
  Case: Ruben v. Great Fingall Consolidated (1906) — A forged share certificate issued by a company secretary was held invalid.

• No Knowledge of the Articles:

The doctrine cannot be used by a person who had no knowledge of the company’s Articles at all.

• Acts Outside Apparent Authority:

If the act is entirely outside the authority conferred by the MoA or AoA, the company cannot be bound by it.

The Doctrine of Indoor Management serves as a shield for outsiders dealing with companies in good faith. While the Doctrine of Constructive Notice presumes that public documents are known to all, Turquand’s Rule softens its rigidity by recognizing the practical difficulty of investigating every internal corporate action.

Doctrine of Alter Ego:

Meaning and Origin

The Doctrine of Alter Ego (Latin: “the other self”) is a principle of corporate law which attributes the acts and state of mind of certain key individuals such as directors or senior officers to the company itself.

Since a company is an artificial legal person, it cannot think, decide, or act on its own. It acts through human agents such as its directors, managers, and officers.

Under this doctrine, when these persons are in control of the company’s affairs, their actions and intentions are treated as those of the company. Hence, the company is said to have acted through its “alter ego”.

This principle was evolved by courts to prevent companies from evading liability for wrongful or criminal acts committed by individuals in managerial control, by hiding behind the corporate veil.

Legal Principle

The acts, knowledge, and intentions of directors or key managerial persons, who are the directing mind and will of the company are deemed to be the acts, knowledge, and intentions of the company itself.

This doctrine treats the company and the persons who control its decision-making as one and the same in law, for the purpose of determining liability or responsibility.

Purpose of the Doctrine:

• To Attribute Liability:

To hold the company liable for the wrongful acts or omissions of those in control of its operations.

• To Prevent Misuse of Corporate Personality:

Ensures that corporate status is not used as a shield to commit fraud or evade responsibility.

• To Identify the Real Decision-Makers:

Helps courts to identify the real decision makers and fix responsibility where actual control lies.

• To Reflect Reality:

Recognizes that corporate decisions are the product of human thought and intention, not of a fictional legal entity.

Illustration

If a company’s Managing Director knowingly authorizes the submission of false financial statements to obtain a loan, the fraudulent intent of the Managing Director is treated as the fraudulent intent of the company itself.
The company cannot claim innocence on the ground that the wrongful act was committed by an individual, same the Managing Director cannot escape from the liability that the act done by the Company.

Case Laws

Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. (1915)

Facts:
A ship owned by the company caught fire due to negligence. The managing director, who was in full control, was aware of defects in the ship. The question was whether the company could be held liable for his knowledge and negligence.

Held:
The House of Lords held that the managing director was the “directing mind and will” of the company. His knowledge and negligence were imputed to the company itself.

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Principle Established:

When a person in control of a company acts within the scope of their authority, their mind and actions are considered those of the company.

Hence as per this Doctrine “A company is liable to be prosecuted for the criminal offence although act may be committed through its agent.”

Practical Importance of MoA:

The Memorandum of Association is not merely a statutory formality, it is the constitutional charter that defines a company’s foundation. Understanding its implications is crucial for every stakeholder involved in forming or advising a company.

1. For entrepreneurs:

For entrepreneurs and startup founders, the careful drafting of the Memorandum of Association (MoA) plays a crucial role in determining the scope and flexibility of their company’s future business operations. A narrowly defined object clause may limit the company’s ability to diversify or enter new markets, while an overly broad clause could attract objections from the Registrar of Companies. Striking the right balance between specificity and flexibility ensures both long-term scalability and legal compliance.

Therefore, it is always advisable to engage a skilled professional, such as a Company Secretary, who can draft the MoA tailored to your business ideas and needs, helping you avoid unnecessary legal costs later when amendments or alterations become necessary.

The team at Lawgical Search is here to guide you through every step of starting your startup, including incorporating your company smoothly and compliantly.

• For Professionals

Company Secretaries and Legal Professionals play a pivotal role in ensuring that the MoA complies with the Companies Act, 2013 and MCA-prescribed formats.

They must ensure:

• The name, registered office clause, and object clause adhere to statutory requirements.
• The drafting avoids legal ambiguities or duplication of clauses.
• The document aligns with the Articles of Association and other incorporation documents.

Their professional diligence safeguards clients against future non-compliance or legal disputes.

• For Investors

Investors often review the object clause of the MoA before investing in a company. It helps them assess whether the proposed activities fall within the company’s lawful scope and whether management’s decisions are aligned with the declared objectives. A clearly defined MoA thus builds investor confidence and transparency.

• For Creditors

Creditors and financial institutions rely on the MoA to determine the company’s powers and scope of operation. If a company enters into a transaction ultra vires (beyond its objects), such an act is void, and creditors can sue to prevent misuse of funds or unauthorized dealings. Hence, the MoA indirectly protects creditors by defining the legal limits of corporate power.

Points to be Kept in Mind While Drafting the Memorandum of Association (MoA)

Drafting the Memorandum of Association requires legal accuracy, foresight, and compliance with statutory provisions. Professionals such as Company Secretaries and Law Professionals must ensure that every clause reflects both the intent of the promoters and the requirements of the Companies Act, 2013.

While drafting MoA one should keep the following thing in mind:

Adherence to Legal Provisions

The MoA must be drafted in accordance with Section 4 of the Companies Act, 2013 read with Companies (Incorporation) Rules, 2014.

Importantly, it shall be in the respective form specified in Table A, B, C, D, or E of Schedule I of the Companies Act, 2013, depending on the type of company being incorporated—

• Table A – Company limited by shares
• Table B – Company limited by guarantee and not having share capital
• Table C – Company limited by guarantee and having share capital
• Table D – Unlimited company not having share capital
• Table E – Unlimited company having share capital

Selection of an Appropriate Name

The proposed name must:

• Not be identical or deceptively similar to an existing company, LLP, or registered trademark.
• Not include prohibited or misleading words implying government patronage.
• Comply with Rule 8 of the Companies (Incorporation) Rules, 2014.
  Professionals must conduct a name availability search through the MCA portal before filing incorporation documents.

Clarity and Precision in Object Clause

The Object Clause defines the scope of the company’s activities and must be drafted with utmost care. It should:

• Clearly differentiate between main objects and ancillary/incidental objects.

Tip: Define the main objects precisely, and include ancillary or incidental objects separately to maintain clarity and flexibility.

• Avoid vague or all-encompassing phrases and avoid unnecessary repetition.
• Provide sufficient flexibility for future diversification without inviting MCA objections.

Verification of Registered Office Clause

Ensure that the Registered Office Clause specifies the state in which the company’s registered office will be situated. Any subsequent shift from one state to another requires Regional Director (RD) approval, hence accuracy is vital at the time of incorporation.

Accuracy in Liability Clause

The Liability Clause must correctly state whether the company is:

• Limited by shares,
• Limited by guarantee, or
• Unlimited.

For companies limited by shares, explicitly mention that members’ liability is limited to the unpaid amount on the shares held by them.

Correct Representation of Capital Clause

Specify the authorised share capital, its division into shares of fixed value, and ensure that it aligns with details in the SPICe+ and AoA. Any mismatch can result in incorporation rejection or may cause difficulties at the time of filing Form INC-20A. (Declaration of Commencement of Business)

Inclusion of Nominee in case of OPC

For a One Person Company (OPC), the name of the nominee is mandatory under Section 3(1)(c) of the Act. The written consent of the nominee (Form INC-3) must be attached while filing the incorporation form.

Proper Drafting of Subscription Clause

The Subscription Clause should include:

• Full details of subscribers (name, address, occupation, and shares agreed to take).
• Signatures of subscribers along with witness attestation.
  Ensure that all subscribers sign in the presence of a witness and that the clause matches e-filing data.

Consistency with Articles of Association (AoA)

The MoA and AoA must be mutually consistent. The Articles should not contain provisions that override or contradict the Memorandum. Cross-verification of both documents is essential before submission.

Future Amendments and Flexibility

Professionals should foresee potential business expansion and draft the MoA to minimize frequent alterations. A well-thought-out document saves future compliance costs and legal formalities.

Conclusion

In essence, Section 4 of the Companies Act, 2013 does far more than prescribe the contents of a company’s charter — it lays the cornerstone of corporate personality itself. The Memorandum of Association is the company’s constitutional compass, defining its existence, purpose, and powers. It ensures that while business aspirations take flight, they remain grounded in legality and transparency.

From incorporation to expansion, every corporate journey begins with the MoA. Its drafting demands foresight, precision, and deep understanding of both law and business objectives. A well-structured MoA not only safeguards a company from future legal challenges but also reflects the vision and credibility of its founders.

Thus, the MoA stands as a bridge between the promoters’ intent and the company’s lawful identity, transforming an entrepreneurial vision into a recognized legal entity.

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[1] https://ca2013.com/section-256-memorandum/

[2] https://ca2013.com/memorandum/

Written by Mahboob Gaddi and Farman Ahmad | Founders, Lawgical Search