1. Introduction to Memorandum of Association
The Memorandum of Association (MOA) is a fundamental legal document that plays a crucial role in the establishment and operation of companies in Nepal. As per the Companies Act, 2063 (2006) of Nepal, every company, whether public or private, must have a Memorandum of Association. This document serves as the company’s constitution, defining its purpose, structure, and the scope of its activities.
In Nepal, the MOA is not just a formality but a legally binding document that sets the parameters within which a company can operate. It is essential for entrepreneurs, business owners, and legal professionals to understand the intricacies of the MOA to ensure compliance with Nepalese law and to establish a solid foundation for their business ventures.
2. Purpose of Memorandum of Association
The primary purpose of the Memorandum of Association in Nepal is to define the relationship between the company and the outside world. It serves several critical functions:
- Legal Identity: The MOA gives the company its legal identity, separate from its shareholders and directors.
- Scope of Operations: It outlines the activities that the company is authorized to undertake, thus preventing it from engaging in activities beyond its stated objectives.
- Protection for Investors: By clearly stating the company’s objectives and limitations, the MOA protects potential investors by informing them about the nature of the business they are investing in.
- Regulatory Compliance: The MOA ensures that the company’s formation and objectives comply with Nepalese laws and regulations.
- Public Information: As a public document, the MOA provides transparency about the company’s fundamental aspects to stakeholders, creditors, and the general public.
3. Key Components of Memorandum of Association
The Companies Act, 2063 (2006) of Nepal specifies the essential components that must be included in a Memorandum of Association. These components are typically organized into distinct clauses, each serving a specific purpose.
3.1. Step 1: Name Clause
The name clause is the first and one of the most critical components of the MOA. It states the official name of the company. In Nepal, the following regulations apply to company names:
- The name must be unique and not similar to any existing company’s name.
- It must not be contrary to public interest or morality.
- If it’s a private company, the words “Private Limited” must be added at the end of the name.
- For public companies, “Limited” should be used.
The Company Registrar’s Office (CRO) in Nepal must approve the proposed name before it can be used in the MOA.
3.2. Step 2: Registered Office Clause
This clause specifies the official address of the company’s registered office in Nepal. It’s crucial because:
- It determines the jurisdiction under which the company falls.
- It’s the address where official communications will be sent.
- It’s where the company’s statutory books and records must be kept.
The exact location (including district and municipality) must be mentioned in this clause.
3.3. Step 3: Objects Clause
The objects clause is perhaps the most substantial part of the MOA. It outlines the purposes for which the company is formed and the activities it is authorized to undertake. In Nepal, this clause should:
- Clearly state the main objects of the company.
- Include any ancillary objects that support the main objects.
- Be comprehensive enough to cover all intended activities but not so broad as to be vague.
It’s important to note that under Nepalese law, a company cannot undertake activities that are not specified in its objects clause or that are ultra vires (beyond the powers) of the company.
3.4. Step 4: Liability Clause
This clause defines the extent of the financial liability of the company’s members (shareholders). In Nepal, companies can be:
- Companies limited by shares: Members’ liability is limited to the amount unpaid on their shares.
- Companies limited by guarantee: Members’ liability is limited to the amount they agree to contribute if the company is wound up.
The liability clause must clearly state which type of liability applies to the company.
3.5. Step 5: Capital Clause
The capital clause specifies the authorized share capital of the company. In Nepal, this includes:
- The total amount of share capital.
- The number of shares.
- The types of shares (if there are different classes).
- The nominal value of each share.
For private companies in Nepal, the minimum authorized capital is NPR 100,000, while for public companies, it’s NPR 10,000,000.
4. Legal Requirements for MOA
In Nepal, the legal requirements for a Memorandum of Association are primarily governed by the Companies Act, 2063 (2006). Key requirements include:
- The MOA must be printed in the Nepali language.
- It must be divided into paragraphs numbered consecutively.
- Each subscriber (promoter) must sign the MOA in the presence of at least one witness.
- For private companies, there must be a minimum of 1 and a maximum of 101 subscribers.
- For public companies, there must be at least 7 subscribers, with no maximum limit.
The MOA must be submitted to the Company Registrar’s Office along with other required documents for company registration.
5. Our Services for Drafting MOA
As legal experts specializing in company formation in Nepal, we offer comprehensive services for drafting Memorandum of Association. Our services include:
- Consultation to understand your business objectives and structure.
- Name availability check and reservation with the Company Registrar’s Office.
- Drafting of the MOA in compliance with Nepalese laws and regulations.
- Review and refinement of the draft MOA.
- Assistance with obtaining necessary approvals and signatures.
- Submission of the MOA to the Company Registrar’s Office.
Our team of experienced lawyers ensures that your MOA is not only legally compliant but also tailored to your specific business needs.
6. Time Taken to Draft MOA in Nepal
The time required to draft a Memorandum of Association in Nepal can vary depending on several factors:
- Complexity of the company structure.
- Availability of required information from clients.
- Time taken for name approval by the Company Registrar’s Office.
Typically, a straightforward MOA can be drafted within 3-5 working days. However, for more complex structures or if revisions are needed, it may take up to 7-10 working days.
7. Cost of Drafting
The cost of drafting a Memorandum of Association in Nepal depends on various factors:
- Type of company (private or public).
- Complexity of the company structure.
- Additional services required (e.g., name reservation, submission to CRO).
While exact costs can vary, typically, the professional fees for drafting an MOA range from NPR 15,000 to NPR 50,000. This does not include government fees for company registration, which are separate.
Foreign Movie Making in Nepal | Document Notary Process in Nepal | Small Business घरेलु Registration in Nepal
8. Relevant Laws and Authorities
The primary laws and authorities governing the Memorandum of Association in Nepal are:
- Companies Act, 2063 (2006)
- Company Registration Rules, 2064 (2007)
- Company Registrar’s Office (CRO)
- Ministry of Industry, Commerce and Supplies
These laws and authorities provide the legal framework for company formation and operation in Nepal, including the requirements for the MOA.
9. Common Practices in Nepal
In Nepal, certain common practices have evolved regarding the Memorandum of Association:
- Many companies opt for a broad objects clause to allow for future diversification.
- It’s common to include a separate clause for “incidental or ancillary objects” to support the main objects.
- Most private companies in Nepal are incorporated with the minimum authorized capital of NPR 100,000.
- The use of standard templates provided by legal firms or the CRO is widespread, especially for small and medium enterprises.
However, it’s important to note that while these practices are common, each MOA should be tailored to the specific needs and objectives of the company being formed.
10. Conclusion
The Memorandum of Association is a crucial document in the company formation process in Nepal. It defines the company’s identity, purpose, and limitations, serving as a guidepost for its operations and a source of information for stakeholders. Drafting an MOA requires careful consideration of legal requirements and business objectives.
As legal experts, we emphasize the importance of seeking professional assistance in drafting your MOA to ensure compliance with Nepalese laws and to create a solid foundation for your business. A well-drafted MOA can prevent future legal complications and provide clarity in business operations.
FAQs:
What is a Memorandum of Association?
A Memorandum of Association is a legal document that defines a company’s relationship with the outside world. It includes the company’s name, registered office, objects, liability of members, and share capital.
How does a Memorandum differ from Articles of Association?
While the MOA defines the company’s relationship with the external world, the Articles of Association govern the company’s internal management and the relationships between shareholders and directors.
Can a company change its Memorandum of Association?
Yes, a company can change its MOA through a special resolution passed by shareholders and with approval from the Company Registrar’s Office. However, certain changes may require court approval.
What happens if a company acts beyond its Memorandum?
Actions that are beyond the scope of the MOA are considered ultra vires and can be declared void. Directors may be held personally liable for such actions.
Is a Memorandum of Association a public document?
Yes, in Nepal, the MOA is a public document available for inspection at the Company Registrar’s Office upon payment of a prescribed fee.
Who signs the Memorandum of Association?
The MOA must be signed by all the subscribers (promoters) of the company in the presence of at least one witness.
What is the “objects clause” in a Memorandum?
The objects clause outlines the purposes for which the company is formed and the activities it is authorized to undertake. It is a crucial part of the MOA that defines the scope of the company’s operations.
