MOA
The Company’s Rulebook
Understanding the Memorandum of Association and the Doctrine of Ultra Vires – the legal framework that defines and confines corporate power.
What is a Memorandum of Association (MoA)?
The MoA is the foundational charter of a company. It’s a mandatory legal document that acts as the company’s constitution, defining its scope of operations and its relationship with the outside world. Think of it as the ultimate source of corporate authority.
The 6 Pillars of the MoA
1. Name Clause
Specifies the official, legal name of the company, ending with “Limited” or “Private Limited” to indicate its status.
2. Registered Office Clause
States the location (State) of the company’s registered office, determining its legal jurisdiction.
3. Objects Clause
The most critical clause. It defines the business activities and purposes for which the company was formed. All company actions must fall within this scope.
4. Liability Clause
Declares the extent of liability for its members, typically limited to the value of their shares.
5. Capital Clause
Details the company’s authorized share capital and how it is divided into shares of a fixed amount.
6. Subscription Clause
Confirms the intention of the founding members (subscribers) to form the company and take shares.
The Doctrine of Ultra Vires
“Ultra Vires” is Latin for “beyond the powers.” This legal doctrine acts as a guardian, ensuring a company does not act outside the scope defined in its MoA’s Objects Clause. The chart illustrates the boundary: actions within the scope are ‘Intra Vires’ (valid), while those outside are ‘Ultra Vires’ (void).
Why Does This Doctrine Matter?
The Doctrine of Ultra Vires is not just a technicality; it’s a critical protection mechanism for the two most vital stakeholders in any company: its owners and its financiers.
The doctrine significantly reduces the risk for shareholders and creditors by ensuring company funds are used only for their intended, authorized purposes, preventing misuse and unauthorized ventures.
Consequences of Crossing the Line
Company Commits an Ultra Vires Act
An action is taken that is outside the Objects Clause of the MoA.
The Act is Void Ab Initio
The act and any related contracts are considered legally void from the start. They have no legal effect.
Consequence A
Contract is unenforceable by either party.
Consequence B
Act cannot be ratified, even by unanimous shareholder consent.
Consequence C
Directors can be held personally liable for any losses.
