Companies Act

Memorandum of Association (MOA) under Companies Act, 2013: A company is that is formed when several individuals come together to achieve a specific purpose. This purpose is usually commercial. Companies are typically created to earn profit from their business activities. An application needs to be filed with the Registrar of Companies (ROC) for incorporating a company. This application is needed to be submitted with many documents. One of the essential documents required to be submitted along with the application for the incorporation is the Memorandum of Association.

• Memorandum of Association Definition
• Meaning of the Memorandum of Association
• The object of registering a Memorandum of Association or MOA
• Memorandum of Association Format
• Sample of the Memorandum of a Company Ltd. by the Shares
• Content in the Memorandum of Association
• What are the Section 8 companies?

Memorandum of Association Definition

Section 2(56) of the 2013 Companies Act defines the Memorandum of Association. It specifies that a “memorandum” implies two things:

• Memorandum of Association as initially framed: A memorandum as initially framed refers to the memorandum of association as it was during the incorporation of that company.
• Memorandum as altered from time to time: This means that all the alterations made in the memorandum from time to time will also be a part of the Memorandum of Association. This section also says that the alterations should be made to pursuance any of the previous company laws or the present Act.

Along with this, according to Section 399 of the 2013 Companies Act, any individual can inspect a document filed to the Registrar of the company in the pursuance of the provisions of this Act. Therefore, any individual who is willing to deal with the company can know about the company via the Memorandum of Association.

Meaning of Memorandum of Association

It is a legal document that describes the need for which the company has been formed. It describes the company’s power and the conditions under which it is operating. It is a document with all the rules and regulations that govern a company’s relations with the world outside.

Every company needs to have a Memorandum of Association that defines the scope of the operations. Once it has been prepared, the company cannot choose to operate beyond the scope of this document. In case the company goes beyond the scope, then the action will be considered ultra vires and void.

It is a base on which the company has been made. The whole company’s structure is detailed in this Memorandum of Association.

This memorandum is a public document. Hence, if an individual wants to enter into any contract with the company, they will have to pay the required fees to the Registrar of Companies (ROC) for obtaining this Memorandum of Association. With the Memorandum of Association, they will get all the company details. It is the responsibility of the individual who indulges in any of the transactions with the company to know about their memorandum.

The Object of registering a Memorandum of Association or MOA

A Memorandum of Association is an important source of documentation that contains all the company details. It supervises the relationship between the company and the stakeholders of the company. Section 3 of the 2013 Companies Act describes the value of memorandum by stating that, for registering a company,

1. In the case of a public company, seven or more individuals are needed;
2. In the case of a private company, two or more individuals are required;
3. In the case of a one-person company, only one individual is required.

In all the above scenarios, the concerned individuals must first subscribe to a memorandum before registering with the Registrar.

Thus, a Memorandum of Association is needed for the registration of a company. Section 7(1)(a) of this Act states that for the incorporation of any company, the Memorandum of Association and the Articles of Association of the company need to be duly signed by its subscribers and filed to the Registrar. Along with this, a memorandum has different objects as well. They are,

1. It permits the shareholders to learn about the company prior to buying its shares. This assists the shareholders in deciding how much capital they are going to invest in their company.
2. It offers information to all the shareholders willing to get associated with the business in any way.

Memorandum of Association Format

Section 4(5) of the 2013 Companies Act proposes that a memorandum needs be in any form as stated in Tables A, B, C, D, and E of Schedule 1. The Tables are of various kinds because of different types of companies.

• Table A – It applies to a company limited by shares.
• Table B – It applies to a company limited by guarantee and not having a share capital.
• Table C – It applies to a company limited by guarantee and having a share capital.
• Table D – It applies to an unlimited company not having a share capital.
• Table E – It applies to an unlimited company that has a share capital.

The memorandum needs to be printed, numbered, and divided into different paragraphs. The subscribers of the company should also sign it.

Sample of Memorandum of a Company Ltd. by the Shares

ABC Private Limited, a company situated in Delhi, is engaged in the manufacturing of security devices. It is willing to register with the Registrar of Companies (ROC). For registration, this company needs to subscribe to a memorandum initially.

The Memorandum of Association of the ABC Private Limited is going to look like this:

(Since ABC Private Limited is a company limited by the shares, the form given in Table A will apply to it.)

The 2013 Companies Act

Company Limited by the Shares

Memorandum of Association

of the

ABC Private Limited

• The company’s name is ABC Private Limited. (Name Clause)
• The office of the company that has been registered will be situated in the state of Delhi. (Registered Office Clause)
• The object on which the company has been established are (Object Clause):
• The objects that need to be pursued by the company on its incorporation are:
• To carry forward the business of manufacturing, altering, converting, designing, and producing security systems.
• To buy, sell, trade, or act as agents for importing or exporting all the security-related devices.
• To carry on with the business and act as buyers, sellers, traders, and dealers to obtain the above objects.
• Matters that are necessary for the promotion of the objects specified in the clause 3A are:
• To manufacture and deal in the packaging materials, branding, boxes, grading, weighing, and marketing for all different kinds of security devices and various other electronic components connected with it.
• To make, draw, accept, endorse, execute, issue, assign and otherwise deal with the drafts, cheques, debentures, bills of exchange, railway receipts, promissory notes, bonds, bills of lading, warrants, and all other transferable or negotiable instruments.
• To integrate with other companies or company.
• To merge or acquire with another company.
• To begin a joint venture with another company.
• To distribute any of the Company’s property amongst the members of the species or the kind of subject to the provisions of the 2013 Companies Act in the event of winding up.
• Applying for purchase, tender, or otherwise acquire any contracts, subcontracts, licenses, and concessions for or concerning the objects or business herein mentioned or any of them, and execute, undertake, carry out, dispose of, or on the other hand turn to the same account.
• The liability of the company’s member(s) is limited, and this liability is going to be limited to the unpaid amount, in case any, on the shares that they hold. (Liability Clause)
• The share capital of this company is 70,00,000 rupees, which has been divided into 2000 shares of Rs. 3500 each. (Capital Clause)
• We, the several individuals whose names and addresses have been subscribed, are desirous of being formed into any company in pursuance of this memorandum of association, and we agree respectively to take the number of shares into the capital of the company and set against our respective names.

Content in Memorandum of Association

Section 4 of the 2013 Companies Act states that the contents of the memorandum. It details all the vital information that the memorandum needs to contain.

Name Clause

The first clause of the memorandum states the company’s name. The company can choose any name for their business. However, there are some conditions that are needed to be complied with.

Section 4(1)(a) states that:

1. If a company is a public company, in that case, the word ‘Limited’ must be there in their name. For example, “Robust,” a public company, its registered name is going to be “Robust Limited.”
2. If a company is a private company, in that case, the phrase ‘Private Limited’ must be there in the company’s name. “Robotics” is a private company; its registered name is going to be “Secure Private Limited.”
3. This condition is not going to be applicable to the Section 8 companies.

What are Section 8 companies?

Section 8 Company has been named after Section 8 of the 2013 Companies Act. It describes the companies which have been established to promote art, commerce, sports, education, social welfare, research, religion, etc. Section 8 companies are pretty similar to the Trust and Societies; however, they have better recognition and legal standing than the Trust and Societies.

Small Company as Per Companies Act, 2013: The Companies Act from the year 2013 had brought to light the concept of Small Company. It has not specifically been registered with this particular name but is a private company with a small amount of investment and lesser turnover. In developing such as India, these companies play a prominent role.

• About the Small Company under the Companies Act of 2013
• Features of a Small Company
• Privileges of Small Companies
• Exceptions made for Small Companies.

About Small Company under the Companies Act of 2013

In accordance with the Companies Act 2013, a Small Company implies the company is going to satisfy the following conditions:

• The company has a shared capital of not more than 50 lakhs or such a high amount as may be suggested, which shall not cross more than ten crores.
• Its annual turnover is not more than the amount of 2 crores or such a huge amount as may be suggested that shall not cross more than ten crores.

For becoming a Small Company, a private company needs to fulfill these conditions.

Features of a Small Company

The following are the characteristics of a Small Company:

• A small company is a private company.
• The company has fewer employees.
• The area of operation is limited.
• The Companies Act from the year 2013 offers certain benefits to Small Companies.
• The company has Separate legal entities from the owners.
• A Small Company’s status might change in years as the capital and the turnover of the company also changes.

Privileges of Small Companies

The Companies Act of 2013 offers a few benefits to the Small Companies which involve:

• Every company is needed to hold four board meetings each year. Whereas the Small Company requires to hold any 2-board meeting in an annum, i.e., one board meeting in each half of the year. The gap, however, between the two board meetings must not be less than 90 days.
• A Small Company need not maintain a statement of cash flow as its Financial Statements part.
• For Small Companies, the Annual Return can be chosen to be signed by the Secretary of the company alone, or in case there is no secretary, a single Director can also do the same.
• The auditor of every company has to be changed by rotation according to Section 139(2) of the 2013 Companies Act. Small Companies, however, need not comply with this section and hence be exempted from the requirement of the section.
• The Companies Act suggests lesser penalties in the case of a Small Company in comparison to any other company.
• A Small Company is not needed to report in its Audit report about the Internal Financial controls and the company’s operating effectiveness.

Exceptions Made for Small Companies

A company is not considered as a Small Company when:

• The company is a public company.
• The company is a subsidiary of any other company.
• The company has holdings from any other company.
• The company is being governed by any other Special Act.
• It is a Section 8 Company.

Secretarial Audit under Companies Act, 2013: The Secretarial Audit is a method to check compliances made by the company under Corporate Law and other laws, rules, regulations, etc. It is a compliance audit. The Companies Act, 2013, introduces it. It is a crucial tool for corporate compliance management, which helps detect noncompliance and take corrective measures accordingly.

Each and every company needs to obey massive amounts of laws, rules, and regulations. These laws are complex, and noncompliance would attract significant risk to the company. Occasionally inspecting the company’s records gives exact information whether, and if that is the case, then, till the extent the company has complied with the laws applicable to the company.

Secretarial Audit gives relief to the regulators, stakeholders, and management by ensuring that the company has a constructive approach meant to evaluating and improving the effectiveness of risk management, control, and governance processes.

• Secretarial Audit is compulsory for which companies?
• Who can be appointed as a Secretarial Auditor?
• Appointment of Secretarial Auditor
• Scope of Secretarial Auditor
• Power to Secretarial Auditor
• Is Secretarial Audit obligatory for the fiscal year 2013-2014?
• Punishment for Default
• Penalty for incorrect audit report

Secretarial Audit is Compulsory for which Companies?

Conferring to Section 204 of the Companies Act, 2013 along with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the companies which are required to attain ‘Secretarial Audit Report’ from independent practising company secretary are:

1. Every listed company
2. Every public company which has a paid-up share capital of 50 Crore rupees or more
3. Every public company that has a turnover of two hundred 50 Crore rupees or more.

“Turnover” means the total value of the attainment of the amount made from the sale, distribution, and supply of goods or on account of services administered, or both, by the company during a financial year. [Section 2(91)]

Secretarial Audit is also compulsory for a private company that is a subordinate of a public company, and that falls under the prescribed class of companies.

Who Can be Appointed as a Secretarial Auditor?

A Secretarial Audit can be conducted only by a member of the Institute of Company Secretaries of India holding the certificate of practice and can also furnish the Secretarial Audit Report to the company.

Appointment of Secretarial Auditor

Conferring to Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, Secretarial Auditor must be appointed using tenacity passed at a duly convened Board meeting, and resolution for appointment will be filed along with Registrar of Companies within 30 days in E-form MGT-14.

The letter of engagement given to the Secretarial Auditor should come from the company. They should formally accept the letter of engagement. Further, as a reasonable corporate practice, any change within the Secretarial Auditor during the year should be informed to the members within the Board’s Report.

Scope of Secretarial Audit

A secretarial auditor must check compliances by the company under the laws and rules mentioned below;

1. The Companies Act of 2013
2. The Depositories Act of 1996 and the Regulations

Foreign Exchange Management Act of 1999 and the rules and regulations made under it to the extent of External Commercial Borrowings, Foreign Direct Investment, and Overseas Direct Investment.

1. The Securities Contracts (Regulation) Act of 1956 (‘SCRA’) and the Rules made under it
2. The subsequent Regulations and Guidelines set under the Securities and Exchange Board of India Act of 1992 (SEBI Act):
3. Prohibition of Insider Trading in the Regulations of 1992.
4. Substantial Acquisition of Shares and Takeovers Regulations of 2011.
5. Issue of Capital and Disclosure Requirements in the Regulations of 2009.
6. Registrars to an Issue and Share Transfer Agents of 1993 regarding the Companies Act and dealing with the client.
7. Issue and Listing of Debt Securities in the Regulations of 2008.
8. Employee option Scheme and Employee Stock Purchase Scheme in the Guidelines of 1999.
9. Delisting of Equity Shares in the Regulations of 2009
10. Buyback of Securities in the Regulations of 1998.
11. The Secretarial Standards published by The Institute of Company Secretaries of India.
    1. The Listed Agreements that are entered by the corporate with Stock Exchange, if applicable
    2. Other laws as may apply precisely according to the company

Thus, the scope of the Secretarial Audit is not limited to only corporate laws applicable to companies but extended to all the laws applicable to the companies.

Recently, the Institute of Company Secretaries of India (ICSI) has issued a FAQ on Secretarial Audit and has clarified “other laws,” which is mentioned below:

At its 226th meeting, which was held on November 21st, 2014, the Council of the ICSI decided on the Scope of Secretarial Audit with regards to “point (viii) (other laws may apply specifically to the company),” which is explained below:

1. Reporting on agreement of ‘Other laws as may apply specifically to the company’ will embody all the laws applicable to their specific industries. For example, in the case of banks, all laws that apply to the banking system are included; likewise, all laws applicable to the natural oil business are enclosed for an organization in the crude oil sector. The same factor applies to pharmaceutical sectors, cement industries, etc.
2. They are reporting and examining whether or not the systems and processes are able to watch the laws and guarantee compliance with general laws like competition law, environmental laws, labour law, etc.

The format of the Secretary Audit Report conjointly needs reports on the following.

1. The company’s Board of administrators is punctually grooved with the correct balance of government and non-government administrators and freelance administrators.
2. The changes inside the composition of the Board of administrators which passed during the period under review were applied in compliance with the Act’s Provisions.

Adequate notice is given to all or any administrators to schedule the Board conferences. The plan and some careful notes on the agenda were sent at least before a minimum of seven days. A system exists for seeking and getting additional information and clarifications regarding the agenda items before the meeting and for substantive participation at the meeting.

1. The majority of the decision is carried through. At the same time, the views of dissident members are recorded as parts of the minutes.
2. There are adequate systems and processes within the company that are conterminous with the scale and operations of the corporate to watch and guarantee compliance with applicable laws, rules, and pointers.

Moreover, Secretarial Auditor is needed to report and supply details of certain events and actions that occurred throughout the reportage period having primary behaviour on the corporate affairs inconsistent with the above-referred laws and rules. Few events are provided as examples within the format of an audit report.

However, in the case of monetary laws like tax laws and Customs Act, etc., Secretary Auditor might trust the Reports given by Statutory Auditors or chosen professionals.

Power to Secretarial Auditor

The Companies Act, 2013 has authorized the secretarial auditor and has given them all rights and powers as given to the statutory auditor. In keeping with Section 204 of the businesses Act, 2013, the corporate auditor’s secretarial auditor shall be allowed to need information and rationalization from the corporate officers as they will consider necessary for the performance of their duties as auditor.

Is Secretarial Audit Obligatory for the Fiscal year 2013-2014?

The secretarial audit report will annex with its Board’s report created in terms of sub-section (3) of section 134 of the Companies Act of 2013.

Ministry of Company Affairs, vide it’s circular No. 08/2014, dated April 4th, 2014, has processed that the Board Report of the corporate associated with the fiscal year that commenced before April 1st, 2014, shall be created following the relevant provisions of the Companies Act of 1956.

Since the secretarial audit report is an annexure to Board’s Report, so the secretary audit is not obligatory for the fiscal year over on March 31st, 2014.

Punishment for Default

According to Sub-Section 4 of Section 204 of the Companies Act, 2013, suppose a corporate or any company officer or the company secretary in following contravenes the provisions of section 204 of the Act. The corporate, each officer of the company or the company secretary is following, who is in default, will be corrected with a fine of a minimum of Rs one lakh, extending up to Rs five lakh.

Furthermore, as per subsection (15) of section 143 under the Companies Act of 2013, suppose a secretarial auditor finds reasons to believe that any fraudulent offence is being committed against the corporate by staff or officers of the corporate. In that case, they shall instantly report this issue to the Central Government within the prescribed time limit and following the prescribed manner. If not announced, they need to pay a fine of a minimum of Rs one lakh rupees which can extend up to Rs twenty-five lakh.

Penalty for Incorrect Audit Report

Penalty for false statements will be dealt with within Section 448 of the Companies Act, 2013. The section declares that if in any return, budget, report, prospectus, certificate, or any alternative document is required for the needs of any of the provisions of this Act or the rules created under it if anyone makes a statement-

1. that is fake in any explicit material particulars, knowing it to be false; or
2. that omits any material reality, knowing it to be material, shall be liable underneath section 447.

Section 447 deals with the punishment for fraudulent acts.  Anyone who is found to be guilty of fraud will be punishable and might be imprisoned for a term of a minimum of six months. However, it can extend up to 10 years, and that they shall even be at risk of a fine which will not be less than the quantity concerned with the fraud. However, it can extend up to 3 times the amount concerned with the fraud. If the scam involves any public interest, then the term of imprisonment should not be less than a span of three years.

In terms of Section 448, any Company Secretary in following is at risk of attracting penalties if he makes a false statement within the secretarial Audit Report in any material particulars, knowing it to be faulty or eliminates any material reality being aware of it to be material.

Besides, the Company Secretary in following shall be accountable for professional or alternative misconduct mentioned in 1st or 2nd Schedule or each of the Schedules to the Company Secretaries Act, 1980 and wherever held guilty, be accountable for the subsequent actions:

1. wherever found guilty of professional or alternative misconduct mentioned within the 1st Schedule:
2. They will be reprimanded.
3. The removal of name from the register of members up to 3 months
4. A fine which can extend up to 1 lakh.
5. If they are found guilty of professional or other misconduct mentioned in the 2nd Schedule:
6. They will be reprimanded.
7. The removal of name from the registrar of members permanently or such period as may be thought fit by the Disciplinary Committee;
8. A fine which can extend up to 5 lakhs.