According to the Companies Act, 2013, which Clause is not the part of Memorandum of Association?

Q: According to the Companies Act, 2013, which Clause is not the part of Memorandum of Association?

According to the Companies Act, 2013, which Clause is not the part of Memorandum of Association?

Question

Accepted Answer

The correct option is 2:
The Memorandum of Association (MOA) is legally considered the "charter" or "constitution" of a company, defining its fundamental principles and the scope of its powers and activities in relation to the outside world. Section 4 of the Companies Act, 2013, mandates that the MOA must contain certain essential clauses which legally define the company. The **Novation Clause** is not a part of this statutory requirement. Novation is a concept in contract law which refers to the act of replacing one of the parties in a contract with a new party, or replacing an old obligation with a new one. This pertains to the transfer or renewal of a contractual liability, which is a matter for the company's contractual dealings, not its foundational legal constitution.

The incorrect option is 1:
The **Name Clause** is the first and a mandatory part of the Memorandum of Association, as per the Companies Act, 2013. Every company, being a separate legal entity, must have a unique name for identification and to signify its independent corporate existence. This clause states the official name of the company, and for limited companies, it must ensure the words 'Limited' or 'Private Limited' are included at the end to inform the public about the members' liability status. The name chosen must also comply with the guidelines set by the Central Government, primarily by not being identical or too similar to an existing company or registered trademark, thereby preventing confusion.

The incorrect option is 3:
The **Liability Clause** is another mandatory provision of the MOA and is crucial for the protection of the company’s members and external stakeholders. This clause explicitly defines the nature and extent of the liability of the company’s members. For companies limited by shares, it states that the liability of each member is limited to the unpaid amount, if any, on the shares held by them. This stipulation sets the financial boundary for the member's risk. If this clause were omitted, the financial structure and the legal standing of the company would be fatally compromised.

The incorrect option is 4:
The **Capital Clause** is essential for all companies having a share capital, as it sets the maximum limit on the amount of capital the company is legally authorized to raise. This maximum limit is known as the Authorised, or Nominal, or Registered Share Capital. It details how the total authorised capital is divided into shares of fixed amounts. This clause is pivotal because a company cannot issue shares beyond the capital limit stated in the MOA. This clause, therefore, acts as a statutory ceiling on the company's capacity to raise capital from the public or its members.