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What is Capital Clause of Memorandum of Association?

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Last Updated on June 13, 2024 by Kanakkupillai

Memoranda of Association are legal documents necessary for company incorporation. As specified by the Companies Act 2013, they must contain six clauses. An operational statement provides shareholders, creditors, and external parties with insight into a business’s scope of operations and may even be changed by filing a special resolution with the Registrar of Companies (ROC).

MOA Clauses

Every company relies upon its Memorandum of Association as the cornerstone document safeguarding shareholders and governing relations with external entities. Registration cannot occur before filing this document with relevant government authorities and fulfilling liabilities between directors and shareholders before amending MoA documents by themselves.

Drafting and submitting an MOA gives a company legal status. It details their activities and any regulatory limitations they must operate within, providing clarity regarding operations and regulatory framework. A standard MOA usually contains six key clauses: capital clause, liability clause, object clause, registered office clause, name clause, and association clause.

MoAs capital clause, which specifies how a company will divide up their authorized share capital between shares and fixed investments; subscribers’ names, occupations and addresses, as well as subscription numbers, must also be listed – additionally, at least two subscribers for private limited companies must sign their MoA. At the same time, seven must do the same, with both signatures being authenticated by witnesses.

MoAs (Memoranda of Agreement) are legal documents required when filing for private limited company registration. Since these public documents can be acquired at the Registrar of Companies by paying an associated fee, shareholders, creditors, and potential investors should familiarise themselves with its contents before entering any contracts with it.

A Memorandum of Association contains an Object Clause that details a company’s primary goals and activities and their scope within legal and regulatory restrictions. As a company needs change or new goals arise, its object clause can also be updated accordingly; similarly, its liability clause could also be revised should you wish to increase liability limits from limited to unlimited or vice versa.

Your object clause should provide information on why and how your company was founded, its main goals, key components necessary for their achievement, scope of operations, and possible expansion opportunities into new business sectors.

The Association Clause is a section of a memorandum that lists those who agreed to form and become company members, including their names, addresses, occupations and signatures.

Memoranda of Association should contain details concerning authorized capital and total issued shares; their classification, subdivision or consolidation, as well as transfer or redemption procedures;

Memoranda of Association should include a “name clause” outlining your corporate name. This clause becomes particularly pertinent if your brand or advertising campaigns utilize your name; to maintain uniqueness, it must not resemble another and must include registration location details and registered office space details.

Memoranda of Association should include a liability clause detailing individual liabilities should a company be liquidated and whether those are limited by shares or unlimited. Furthermore, when winding up occurs, this undertaking requires members to contribute towards it as part of their contribution; any deadlines members need to meet before liquidating may also be stated here.

Liability clauses of MOAs play an essential role in informing potential investors whether their liability will be limited by shares or unlimited. They help decide whether they invest or not; hence, filing them with the Securities and Exchange Commission of the Philippines (SECP) before use should occur by your business.

A Memorandum of Association’s Subscription Clause provides vital details regarding shareholder motivation behind company formation and subscribers agreeing to purchase shares according to the MoA Subscriber Sheet. New entrepreneurs and business owners should carefully read through MoA to avoid legal complications or disputes later down the road.

Capital Clause

A company’s Capital Clause sets forth its maximum number and minimum issue price per share it can issue. It provides investors with information to assess whether investing in this particular company would be wise. Furthermore, this section of a memorandum of association outlines how equity and preference shares will be divided among shareholders, including voting privileges and dividend preferences for individual shares.

This clause also addresses the company’s registered address; this element helps determine which jurisdiction the registrar of companies covers while also enabling members and stakeholders to connect effectively.

Objectives and activities related to a company. It’s critical that its activities don’t go beyond its capabilities, protecting shareholder interests while operating within legal constraints and complying with laws.

Capital Clauses require companies to set aside Authorised Capital or a maximum issue limit per shareholder from which they may legally issue shares to investors. This figure must be established at company formation and published as nominal or registered capital in the company’s articles of incorporation – it should then remain an important aspect of compliance for their ongoing operations.

Changes to a company’s authorised capital differ significantly from changes made to its paid-up capital (i.e. shareholder contributions). Seeking shareholder approval before changing an authorised capital requirement could profoundly affect its structure and significantly modify shares’ par value/face value.

An optimal authorized capital structure that aligns with growth plans and financing requirements inspires investor trust while serving as an essential roadmap to financial security for the future.

Capital Clause in MOA

A company’s Memorandum of Association contains an important Capital Clause that details authorized capital, its distribution among shares and any rights attached to those shares. Here are its core features:

  • Authorized Capital: This section details the maximum capital a company can issue; any increases beyond this threshold require shareholder approval.
  • Division of Capital: To distribute its funds among shareholders. This section describes what sorts of securities the company can issue (ordinary, preference and any others), their nominal or face values, and any restrictions or obligations for these shares issued to individuals.
  • Capital Clause and Share Issue Limit: The Capital Clause determines how many shares a company may issue at once; this could range anywhere between one share to an unlimited number, depending on business requirements and regulatory restrictions in its local jurisdiction.
  • Currency of Capital Investment: This clause specifies which form of currency capital investments will take, whether local currency or an alternative form.
  • Rights Associated with Shares: This section details the privileges and conditions attached to different classes of shares, such as preferential dividend rights for preference shares or preferential treatment in case of liquidation. Preference shares could give their holders priority over ordinary shareholders when receiving dividend payments and may provide preferential treatment in any liquidation proceedings.
  • Increase of Authorized Capital: A Capital Clause typically details how to increase authorized capital, along with any approval processes necessary from shareholders and regulatory authorities as appropriate.
  • Change of Capital Structure: Should it become necessary to alter the capital structure by subdividing or consolidating shares, the Capital Clause outlines an easy process for doing so.
  • Issue of Shares: This clause sets forth the conditions under which shares may be issued, transferred, or forfeited. It may include pre-emption rights, restrictions on transferability, and provisions regarding new share issuance.
  • Redeeming Shares: If the company has the authority to redeem its shares, its Capital Clause should include details regarding redemption conditions and procedures.
  • Buyback of Shares: Should the company decide to repurchase shares, its Capital Clause should include any necessary provisions related to funding sources and restrictions or limits placed upon these purchases.

Capital Clauses are essential components of Memoranda of Association documents. Any modifications require shareholder approval and compliance with legal and regulatory requirements. Companies should carefully draft and review these clauses to maintain clarity while complying with applicable laws and regulations.

Supreena

Welcome to www.kanakkupillai.com! Hello there, I'm Supreena, a legal advisor deeply passionate about entrepreneurship and dedicated to helping business owners and startup enthusiasts navigate the complex landscape of business formation, growth, and success. My profound understanding of the intricate aspects of various industries, legal frameworks, and strategies for sustainable growth makes me your trusted partner in achieving your business goals. With a commitment to promoting diversity and inclusivity in the business world, I firmly believe that every entrepreneur, regardless of their background, should have access to the legal expertise and guidance needed to thrive in the competitive startup ecosystem. I am honored to be part of your journey toward entrepreneurial success through this blog, where I'll provide valuable legal insights and strategies tailored to your business needs. Thank you for entrusting me with the opportunity to contribute to your path to business prosperity. For more information and resources, please visit www.kanakkupillai.com.