What Is The Meaning And Purpose Of The Memorandum Of Association For A Business?

Memorandum of association is the basic document of a joint stock company. It is known as the charter of the company. Memorandum of association sets out the limits outside which the company cannot go.The main purpose of the memorandum of association is to enable shareholders, creditors and all those who deal with the company to know what its permitted range of enterprise. The main clauses of the memorandum of association of a company limited by shares which have been described in sections 16, 17 and 18 of the companies' ordinances of Pakistan 1984. Memorandum of association clauses are:

1. Name clause.

This clause states the name of the company. A company selects any name but it should not resemble the name of any other company. The company ordinance of Pakistan 1984 provides that the name of the company must end with the word "limited".

2. Situation clause.

It is also known as domicile clause. The company is required to show the name of the province in which the office is situated.

3. Object clause.

This clause is the essence of the memorandum of association. It clearly defines the nature of company.

4. Liability clause.

This clause of memorandum of association contains a declaration that the liability of the members of the company is limited to the extent of the value of the share purchase by them.

5. Capital clause.

A company having a share capital shall state the total maximum amount of share capital with which it is registered.

6. Association and subscription clauses.

This clause contains a declaration by the subscribers that are desirous of forming a company and agree to have number of the shares written against their respective names.

The Memorandum of Association commands a paramount echelon in the process of establishment and development of a company specially in the regard of the delegation and demarcation of authorities to respective individuals who are connected with the company some way or the other. In other words, it is meant to be a company charter that encloses in itself the essential conditions based on which the company could be conveniently commenced and incorporated. It highlights the major elements that constitute the foundation of the company and adumbrates its scope beyond which the company could not go. As for the purpose of the Memorandum, it is of two dimensions. The first dimension comprises the shareholder where it tells the shareholder the field and scope of the company and with the help of that the shareholder decides the suitability of his investment in the company. The second dimension involves any stakeholder of the company. The Memorandum tells these companies whether the objectives that the respective stakeholder aims to accomplish with the help of the company are within the realm of the company's objectives or not.

Memorandum of association is a charter(which gives right to do something) which is required in the incorporation of the company