The term Memorandum of Association (“MOA”) is a term that every person in the corporate world will surely come across, one way or another. For you to thrive in the corporate world, a good grasp of what MOA (Also see Articles of Association) is absolutely indispensable. A shallow understanding of what it is will surely prove fatal for your business development in the long run.
In law, a company is an artificial legal person. As an artificial persona, it is important for the incorporator to give an identity to the company so that other party would know what kind of company they are dealing with.
This is where the MOA comes in. MOA will usually contain vital information such as the names of its shareholders, its registered office, the company’s objectives and its authorized share capital and whether the company’s liability is unlimited or limited by shares or by guarantee.
From the information contained in the MOA, the other party can safely rely on such information to make an initial assessment of business risk that they will have to run if they were to enter into dealing with the said company. That is why any seasoned businessmen will advise you to check the company’s MOA first before making any dealing with it.
Apart from that, the company’s power can also be found in the MOA. One can determine what the company can and cannot do through its MOA. For example, a company is considered to act beyond its power if it is trading in supply of goods when nothing in its MOA can be interpreted so as to allow it to supply goods. When a company acted beyond its power, it is said to act ultra vires.
In light of Section 20 of the Companies Acts 1965, such ultra vires is not necessarily void. It can still be legally enforceable. However, the parties that choose to proceed with ultra vires transaction run the risk of it being set aside by the court of law upon application by any relevant party.
In such case, parties to the dealing may suffer losses following the court’s order to set aside the dealings. In an extreme case, the director or any officer of the company who authorize the ultra vires transaction can even be made liable to pay for any loss suffered as a result of the said transaction.
While company can act beyond its power, it may not be wise to do so, especially if you are the director since you may be made personally liable for any losses that may follow from the ultra vires dealing.
From the above, the importance of the MOA is crystal clear. MOA is the skeletal frame of the company. It is what gives the company its identity. The MOA is the first thing that the other party will look at to decide whether it is commercially viable to make a deal with your company. It also determines what your company can and cannot do which will ultimately affect the business development of your company in the future.
While it is possible to amend the content of the MOA, amending it would take a significant amount of time and effort, and in corporate world, lost time are lost business opportunities. Having said this much, what was discussed is only a fraction of what MOA is all about. There are so much more that can be said about MOA.
Therefore, if you want your company to be your legacy, a successful legacy, it is important for you to understand what MOA is in order to be able to adopt a MOA that suits your business plan. One of the way for you to do that is to seek professional advice from qualified company secretary in Johor Bahru who specialise in the matter.