A memorandum of association is a document used in the incorporation process to define a new company’s relationship with the world. It used to require more details, but now focuses on stating a group’s willingness to form a legally incorporated business and share capital. Non-profit entities may include a clause specifying no distribution from proceeds. It’s important to determine what’s required for inclusion in the document due to changes in laws since 2009.
A memorandum of association is a type of business document that is used as part of the incorporation process to form a new company and helps define the relationship between that new company and the rest of the world. In the past, this document, sometimes known simply as a memorandum, required a number of details that are not normally included in articles of incorporation that are filed at the time a company is formally incorporated. A memorandum of association is required as part of the documentation required for incorporation in many nations including the UK, India and Ireland, as well as other nations around the world.
In the past, one of the functions of a memorandum of association was to define the scope of external activities that the company would engage in once properly incorporated. To some extent this is still true in many nations as the text should provide a general concept of what the company will be providing in terms of goods or services. In recent years, the depth of detail required in the document has changed to more general data, while more specific information is required in other documents that must also be submitted as part of the incorporation process.
Today, the essential information of a memorandum of association focuses on stating that a certain group of individuals are willing to form a legally incorporated business and are willing to share capital to finance the company’s activities. Depending on the government regulations that apply to the memo content, it may be necessary to define what partners will receive in exchange for their investment, such as stock. While there was a need to identify the company name, a permanent business address and the type of company they wanted to form, details of that type are now accounted for in other documents and are not deemed necessary in the submitted memo. as part of the incorporation documents. Sometimes there are provisions that allow for additional information to be included later, if necessary, to meet a change in government standards and regulations.
In the past, the memorandum of association also required the wording to state exactly what the company would do as part of the business transaction. This means that the provisions would indicate whether the company would manufacture goods and services or simply sell products manufactured by a seller or supplier. Today, the details required in the memorandum no longer include this type of information, as this data is found in other documents related to the incorporation process.
For non-profit entities that are incorporating, it is not uncommon for a memorandum of association to include a clause that specifically specifies that owners or members will receive no distribution from the proceeds of the venture. Depending on applicable government regulations, the wording may not require exact identification of how owners and investors will be compensated, leaving the company free to provide wages or similar types of compensation in exchange for investments made in the operation. As numerous changes in the laws of many nations regarding the content of the memorandum of association have occurred since 2009, taking the time to determine what is and what is not required for inclusion in the document is essential for any group of individuals wishing to initiate and incorporate a new business.
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