Memorandum of Association

MEMORANDUM OF ASSOCIATION

CORPORATE LAW - I

PROJECT REPORT ON

TOPIC: Memorandum of Association

JAMIA MILLIA ISLAMIA

FACULTY OF LAW

SUBMITTED IN PARTIAL FULFILMENT OF

B.A.LL.B. (HONS.) SIXTH SEMESTER

SUBMITTED TO: SUBMITTED

FROM:

DR. QUAZI USMAN S. ABBAS HAIDER

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ACKNOWLEDGEMENT

Now that the project stands complete, I intend to place on record my gratitude towards all without

whom completing the project would have been nothing but out of question.

In the first place, I thank our Lecturer of Corporate laws I as he had time and again helped me, guided

me throughout, and answered all the queries that encountered while my work relating to project was

afoot.

Secondly, I thank the library staff who liaised with us in searching material relating to the project.

Thirdly and finally, I thank the almighty for the monumental tacit support, which boosted my morale and

help me stay confident all through my work upon the project, placed forth by him.

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SYED

ABBAS HAIDER

Incorporation of company:

Company forms of business enjoy the status of a legal entity as it is incorporated under Indian

Companies Act, 1956. For incorporation the following documents are required to be submitted:

Memorandum of Association which is the fundamental charter defining aims and

objectives of a company.

Articles of Association which contain various rules and regulations for internal

management.

The name and address of the registered office.

A statement of nominal capital.

A list of proposed directors, their names and addresses.

A statutory declaration by.

Types of Companies

Joint stock companies are classified into different types a different basis.

On the basis of incorporation there are 3 types of companies called Chartered Company,

statutory company and registered company.

On the basis of liability companies are classified as company having unlimited liability,

company having liability limited by guarantee and company having liability limited by

shares.

On the basis of nationality two types of companies are found called national company

and multination company.

On the basis of transferability of shares two types of companies called private company

and public company are found.

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On the basis of ownership companies are classified as Government Company, holding

company and subsidiary company.

Features:

A close analysis of various definition of company reveals the following characteristics:

It is an association of at least 2 or seven persons.

It is a corporate form of legal entity because it is registered.

A company is a legal entity quite distinct.

It has perpetual existence as its operation is not affected by death of a shareholder.

The liability of shareholders is limited.

Advantages:

Company as a type of business organization has a number of advantages to its credit. These are:

It has a permanent existence.

Shares are transferable.

It enjoys a number of financial advantages over other forms of organization.

It experiences a state of effective and better management.

It has enough ability to adapt with future changes.

As shareholders are numerous, it facilities diffusion of risks.

Disadvantages:

Despite of a number of advantages, company form of business organization is not free from

limitations. The major limitations are:

Absence of personal touch.

A lot of difficulties in formation.

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Lack of prompt and effective decision making.

No secrecy is maintained.

A lot of chances on frauds by directors.

It is not a bed of rose because of conflict between owners and management.

ASSOCIATION

An association may be defined as a group of persons having similar views and organized

for the pursuit of certain common aims. Man is a social animal and he organizes a

number of associations for the satisfaction of his associative instinct and various needs.

STATE

The state is the supreme association. It controls and co-ordinates the activities of all other

associations. Sometimes it creates associations like the universities, trade unions etc., to

exist and function.

The state is therefore, all-pervasive, all embracing and all inclusive association. It is the

most powerful of all associations. It brings harmony by controlling the external behavior

of these associations.

Although state is the supreme association entrusted with the job of controlling all other

associations yet a new school of thought known as Pluralism has come into existence.

According to this theory, the associations are as important as the state itself. Associations

perform functions which are as vital to human existence as the state is.

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Memorandum of Association

The Memorandum of Association is the constitution of the company and provides the foundation

on which its structure is built. It is the principal document of the company and no company can

be registered without the memorandum of association. It defines the scope of the company’s

activities as well as its relation with the outside world.

According to Lord Macmillan , “The purpose of the memorandum is to enable the shareholder,

creditors and those who deal with the company to know what is permitted range of enterprise.”

In the words of Charles Worth, “the memorandum of association is the company’s charter and

defines the limitations of its powers. Its purpose is to enable shareholders; creditors and those

who deal with the company, to know what its permitted range of enterprise is. It is the document

which informs all persons dealing with the company, what the company is formed to do. How

capital will it raise it’s its nationality is? It regulates the company’s external affairs, while the

articles of association regulate its internal affairs.” This is an exhaustive definition which

explains the nature and scope of memorandum.

Section 2 (28) of the Companies Act defines a memorandum as “the memorandum of association

of a company as originally framed or as altered from time to time in pursuance of any previous

Company Law or of this Act.” The contents of the memorandum are explained in Section B of

the Act.

Memorandum of association is one of the documents which has to filed with the registrar of

companies at the time of incorporation of a company. Section 2(28)defines a memorandum to

mean “the memorandum of association of a company as originally framed or as altered from

time to time in pursuance of any previous company law or of this act.” The definition, however,

either does not give us any idea as to what a memorandum of association really is nor does it

point out the role which it plays in the affairs of the company.

The memorandum of association is an extremely important document in relation to the affairs of

the company. It is a document which sets out the constitution of the company and is really the

foundation on which the structure of the company is based. It contains the fundamental

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conditions upon which alone the company is allowed to be incorporated. A company may pursue

only such objects and exercise only such powers as are conferred expressly in the memorandum

or by implication therefore i.e. such powers as are incidental to the attainment of the objects. A

company cannot depart from the provisions contained in its memorandum, however, great the

necessity may be. If it does, it defines its relation with the outside world and the scope of its

activities. The purpose of the memorandum is to enable shareholders, creditors and those who

deal with the company to know what is the permitted range of the enterprise.

It defines as well as confines the powers of the company; it not only shows the object of its

formation, but also the utmost possible scope of its operation beyond which its action cannot go.

Lord Cairns in Ashbury Railway Carriage Co. V. Riche pointed out,” The memorandum is as it

were, the area beyond which the action of the company cannot go; inside that area the

shareholders may make such regulations for their own government as they think fit

Purpose of memorandum:

The purpose of the memorandum is two fold.

1. The intending share holder who contemplates the investment of his capital shall know within

what field it is to be put at risk.

2. Anyone who shall deal with the company shall know without reasonable doubt whether the

contractual relation into which he contemplates entering with the company is one relating to a

matter within its corporate objects.

At least seven persons in the case of public company and at least two in the case of a private

company must subscribe to the memorandum. The memorandum shall be printed, divided into

consecutively numbered paragraphs, and shall be signed by each subscriber, with his address,

description and occupation added, the presence of at least one witness who will attest the same.

The main purpose of the memorandum is to explain the scope of activities of the company. The

prospective shareholders know the areas where company will invest their money and the risk

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they are taking in investing the money. The outsiders will understand the limits of the working of

the company and their dealings with it should remain within the prescribed scope.

Importance of Memorandum

Memorandum is the fundamental document of a company which contain conditions upon which

the company is incorporated. This document is important for the following reasons.

Memorandum defines the limitations on the powers of the company established under the

Act.

The whole structure of the company is built upon memorandum.

It explains the scope of activities of the company. The investment knows where their

money will be spent and outsiders also know the nature of activities the company is

authorized to take up.

It is a basic document of the company with regard to its constitution

It is a charter of the company which sets out its written goals.

Contents of Memorandum:

According to section 13, the memorandum of association of every company must contain the

following clauses:

1. The name of the company with ‘limited’ as the last word of the name in the case of a public

limited company and with ‘private limited’ as the last word in the case of a private limited

company.

2. The state in which the registered office of the company is to be situated.

3. The objects of the company to be classified as:

a. The main objects of the company to be pursued by the company on its incorporation and

objects incidental to the attainments of the main objects, and

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b. Other objects not included above

4. In the case of companies with object not confined to one state, the states to whose territories

the objects extend.

5. The liability of members is limited if the company is limited by shares or by guarantee.

6. In the case of a company having a share capital, the amount of share capital with which the

company proposes to be registered and its division into shares of a fixed amount.

An unlimited company need not include items 5 and 6 in its memorandum.

In the case of a company limited by guarantee, its memorandum of association shall state that

each member undertakes to contribute to the assets of the company, in the event of its being

wound up while he is a member or within or year after wards for the payment of the debts and

liabilities of the company.

Every subscriber to the memorandum shall take at least one share and shall write opposite to his

name the number of shares taken by him.

Clauses of Memorandum

The memorandum of association contains the following clauses:

The Name Clause (section-25 )

A company may be registered with any name it likes. But no company shall be registered by a

name which in the opinion of the central government is undesirable and in particular which is

identical or which too nearly resembles the name of an existing company. Where a company is

registered by a name so similar to that of another company, that the public are likely to be

deceived, the court will grant an injunction restraining it from using that name.

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A company being a separate legal entity must have a name. A company may select any name

which does not resemble the name of any other company and it should not contain the words like

king, queen, emperor, government bodies and the names of world bodies like UNO, WHO,

World Bank etc. The name should not be objectionable in the opinion of the government. The

word ‘limited’ must be used at the end of the name of a Public and ‘Private Limited’ is used by a

Private Company. These words are used to ensure that all persons dealing with the company

should know that the liability of its members is limited. The name of the company must be

painted outside every place where business of the company is carried on.

If the company has a name which is undesirable or resembles the name of any other existing

company, this name can be changed by passing an ordinary resolution.

A company may change its name by passing a special resolution and with the prior approval of

the Central government. If the company is registered with an undesirable name then it can

change it with an ordinary resolution with the approval of the Central Government. The Central

Government can also direct the comapny within 12 months of its registration to change its name

and this will have to be done within three months. The change in name will be effective when it

is resisted with the Registrar

Every public company must write the word ‘limited’ after its name and every private limited

company must write the word ‘private limited’ after its name. The use of the word ‘company’ is

however, not compulsory. Companies, whose liabilities are not limited, are prohibited from using

the word ‘limited’. The words ‘limited’ may be dispensed with in the name of charitable

companies. But companies formed to promote art, science, religion etc, which do not propose to

pay dividend but intend to apply all its profits towards the working of the company, can be

registered without the word ‘limited’ under licenses granted by the central government.

A company cannot adopt a name which violates the provisions of the emblems and names act

1950. This act prohibits the use of the name and emblems of the united nation, and the world

health organization, the official seal and emblem of the central and the state governments, the

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Indian National Flag, the name and pictorial representation of Mahatma Gandhi and the prime

minister of India.

If a limited company makes a contract without using the word ‘limited’ the directors who make

the contract on behalf of the company would be personally liable.

Every company is required to publish its name outside its registered office, and outside every

place where it carries on business, to have its name engraved on its seal and to have its name on

all business letters, bill heads, notices and other official publications of the company.

Registered Office (Section 17):

Every company should have a registered office, the address of which should be communicated to

the Registrar of Companies. This helps the Registrar to have correspondence with the company.

The place of registered office can be intimated to the Registrar within 30 days of incorporation or

commencement of business, whichever is earlier.

A company can shift its registered office from one play to another n the same town with

intimation to the Register. But if the company wants to shift its registered office from one town

to another town in the same state, a special resolution is required to be passed. If the office is to

be shifted from one state to another state it involves alteration in the memorandum The change in

registered office place from one state to another requires a change in memorandum. This change

affects the interests of shareholders, investors, creditors, employees etc. This change can be

affected only with the approval of Company Law Board. Earlier this power was vested with the

court but the Company Law (Amended) Act, 1974 has transferred it to Company Law Board.

Object Clause (Section 17):

The objects clause is the most important clause in the memorandum of association of a company.

It is not merely a record of what is contemplated by the subscribers, but it serves a two-told

purpose:

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(a) It gives an idea to the prospective shareholders the purposes for which their money will be

utilized.

(b) It enables the persons dealing with the company to ascertain its powers.

In case of companies which were in existence immediately before the commencement of the

companies’ act 1965, the objects clause has simply to state the objects of the company. But in the

case of a company to be registered after the amendment, the objects clause must state separately:

(a) Main objects. This sub-clause has to state the main objects to be pursued by the company on

its incorporation and objects incidental or ancillary to the attainment of the main objects.

(b) Other objects. This sub-clause shall state other objects which are not included in the above

clause.

Further, in the case of a non-trading company. Whose objects are not confined to one states

clause must mention specifically the states to whose territories the objects extend.

The subscribers to the memorandum of association may choose and object or objects for their

company. There are, however, certain restrictions.

1. The objects should not be against the policy of the constitution. For example, the object should

not be such as to encourage untouched ability which has been abolished under our constitution.

2. The objects should not include anything which is illegal or against public policy. For example,

forming a company for dealing in lotteries or for trading with the alien enemies.

3. The object must not be against the provisions of the companies act, as for example,

authorizing the company to purchase its own shares.

On its being registered, the company has power to do whatever is necessary to do for attaining

the objects stated in the memorandum, and to do whatever else is incidental to or consequential

upon the attainment of the main object. It is, therefore, clear that any act of the company outside

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its stated, objects is ultra viruses and therefore void and cannot be ratified even by the whole

body of shareholders.

This clause states the name of the state where the registered office of the company is to situate.

The registered office clause is important for two reasons. Firstly, it ascertains the domicile and

nationality of a company. This domicile clings to it throughout its existence. Secondly, it is the

place where various registers relating to the company must be kept and to which all

communications and notices must be sent. A company need not carry on its business at its

registered office.

A company shall have its registered office. Such office must be in existence from the date on

which the company begins to carry on business or within 30 days after incorporation, whichever

is earlier. Notice of situation of the registered office and every change therein must be given

within 30 days from the date of incorporation of the company of after the date of change, as the

case may be.

The object clause is the most important clause in the memorandum; its change may affect the

activities of the company. This clause is a limitation on the company beyond which it cannot

carry its activities. The object clause can be changed by passing a special resolution and by

getting the permission of the Company Law Board. A copy of the resolution should be field with

the Registrar within 30 days of passing the resolution. A petition is also made to the Company

Law Board for issuing a confirmation. When this change is allowed by the Board, then printed

copy of the Memorandum as altered must be field with the Registrar within three months of the

order.

The change in situation and objects clause is allowed only under certain situations. It will be

allowed when it necessary for any of the following reasons:

The change is necessary to allow the company to carry on its business more economically

or efficiently.

The company will be able to attain its objectives by new and improved means.

The company may enlarge the local area of its operations.

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The company is enabled by change to carry on some new business with convenience and

advantage.

To restrict or abandon any of the objects specified in the memorandum.

To sell whole of part of the company’s property.

To amalgamate with any other company or body of persons.

This is one of the important clauses of the Memorandum of Association. It determines the rights

and powers of the company and also defines its sphere of activities. The object clause should

decide carefully because it is difficult to alter this clause later on. No activity can be taken up by

the company which is not mentioned in the object clause Moreover, the investors i.e.,

shareholders will not mentioned in the object clause. Moreover, the investors i.e., shareholders

will know the sphere of activities which the company can undertake. The choice of the object

clause lies with the subscribers to the memorandum. They are free to add anything to it provided

it is not contrary to the provisions of the Companies Act and other laws of the land.

The Companies (Amendment) Act 1965 requires that in cause of companies formed after this

amendment, the memorandum must state separately (a) main objects, and (b) other objects. Main

objects will include objects to be pursued by the company on incorporation and objects

incidental or ancillary to the attainment of the main objects. Other objects will include all other

objects which are not included in the main objects.

The object clause offers protection to the shareholders by ensuring that the funds raised for the

undertaking are not going to be risked in any other undertaking. The creditors also feel protected

by this clause. By confining the activities within a specified field, it serves the public interest

also.

The object clause can be changed to enable a company to carry on its activities more

economically, or by improved means to carry on some business which under existing

circumstances may conveniently by combined with the object clause.

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Liability Clause:

This clause states that the liability of the members of the company is limited. In the company is

limited. In the case of a company limited by shares, the member is liable only to the amount

unpaid on the shares taken by him. In the case of a company limited by guarantee the members

are liable to the amount undertaken to be contributed by them to the assets of the company in the

event of its being wound up. However, this clause is omitted from the memorandum of

association of unlimited companies.

Any alteration in the memorandum compelling a member to take up more shares, or which

increases his liability, would be null and void.

If a company carries on business for more than six months, while the number of members is less

than 7, in the case of public company and less than 2 in case of a private company each member

aware of this fact, is liable for all the debts contracted by the company after the period of six

months has elapsed.

This clause states that the liability of the members is limited to the value of shares held by them.

It means that the memes will be liable to pay only the unpaid balance of their shares. The

liability of the members may be limited by guarantee. It also states the amount which every

member will undertake to contribute to the assets of the company in the event of its winding up.

If articles so permit, the liability of the Directors Managing Directors or Manager can be made

unlimited by passing a special resolution. The officer concerned should also accord his consent

for making the liability unlimited.

Capital Clause:

The clause states the total capital of the proposed company. The division of capital into equity

share capital and preference share capital should also be mentioned. The number of shares in

each category and their value should be given. If some special rights and privileges are conferred

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on any type of shareholders, mention may also be made in the clause to enable the public to

know the exact nature of capital structure of the company.

The memorandum of a company limited by shares must state the authorized or nominal share

capital, the different kinds of shares, the authorized or nominal share capital, the different kinds

of shares, and the nominal value of each share. The capital clause need not state anything else

and it is usually better that it should not do so.

Association or subscription clause :

This clause provides that those who have agreed to subscribe to the memorandum must signify

their willingness to associate and form a company. According to section 12 of the act, at least

seven persons are required to sign the memorandum in the case of a public company, and at least

two persons in the case of a private company.

The memorandum has to be signed by each subscriber in the presence of at least one witness

who must attest the signatures. Each subscriber must write opposite his name the number of

shares he shall take. No subscriber of the memorandum shall take less than one share. This

clause need not be numbered.

This clause contains the names of signatories to the memorandum of association. The

memorandum must be singed by at least seven persons in the cause of public limited company

and by at least two persons in the case of private limited company. Each subscriber must take at

least one share in the company. The subscribers declare that they agree to incorporate the

company and agree to take the shares stated against their names. The signatures of subscriber are

attested by at least one witness each. The full addresses and occupations of subscribers and the

witnesses are also given.

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Alteration of a Memorandum of Association

Memorandum of Association is a basic document of the company. Any change in various clauses

of memorandum may have an adverse effect on any of the parties connected with the company.

Company Law has prescribed a particular procedure for making a change in the memorandum.

The procedure provided for different clauses varies. The following procedure is followed for

carrying out a change in the memorandum:

Articles of association

The articles of association set out how the company is run, governed and owned. The articles can

put restrictions on the company’s powers – which may be useful if shareholders want comfort

that the directors will not pursue certain courses of action, at least without shareholder approval.

By default, however, the Companies Act 2006 gives a company unlimited powers.

Before the Companies Act 2006 came into force the memorandum of association had to state in

an ‘objects clause’ - the types of business and transactions that a company could enter into. For

companies registered before 1 October 2009 this will still restrict the company’s powers as these

limitations are now treated as being part of the articles. Older companies should therefore review

their memorandum and articles of association for any changes needed, including the need to

remove this objects clause. The removal of this clause is only effective if form CC04 is

submitted to Companies House, together with the special resolution approving the amendment.

There are exceptions to the unlimited powers given to companies. Charitable companies must

state the charitable objects that the company is restricted to and community interest companies

must restrict the company to objects that benefit the community.

There is no prescribed form for the articles although there are certain provisions that need to be

included in them. To assist with this there are model articles for the three most common type of

company (private company limited by shares, private company limited by guarantee and public

limited company) set out in The Companies (Model Articles) Regulations 2008, as amended.

The most up to date versions of these are available on Companies House's website. In addition,

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http://www.companieshouse.gov.uk/about/modelArticles/modelArticles.shtml


for charitable companies the Charity Commission has a set of model articles which can be used

and the Community Interest Companies Regulator has a version for community interest

companies.

If the model articles are not being adopted then the full articles need to be sent to Companies

House when applying to form the company so that Companies House can review them to ensure

that they are acceptable. If there is a perceived problem with the articles of association

Companies House will refuse to approve the formation of the company until the articles are

amended. For charitable companies the articles also need to be sent to the Charity Commission

for approval. For community interest companies the articles are forwarded to the regulator by

Companies House to be approved.

The articles should cover the following:

Liability of members;

Directors' powers and responsibilities;

Directors' meetings, voting, delegation to others and conflicts of interest;

Retaining records of directors' decisions;

Appointment and removal of directors;

Shares,unless a limited by guarantee company;

o issuing shares;

o different share classes;

o sharecertificates;

o share transfers;

Dividends and other distributions to members;

Members' decision making and attendance at general meetings;

Means of communication;

Use of the seal, if applicable; and

Directors' indemnity and insurance.

The articles can be amended by a special resolution of the members. If a company changes its

articles other than to the model articles a copy of the articles should be sent to Companies House

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within 15 days of the change for review. A copy of the amending resolution must also be send

within 15 days of being passed. You do not need to tell Companies House why you are changing

the articles of association.

The directors and company secretary (if one is appointed) of a company should have a good

working knowledge of the company’s constitutional documents, especially the articles of

association. When managing the business of the company, they need to be comfortable that they

are acting within the powers conferred by the articles and following and processes or other

formalities laid down there.

It’s also sensible for the board to review the articles on a regular basis. As the company and its

circumstances change, some existing clauses may no longer be useful or new provisions may be

desirable. By reviewing and, where appropriate, updating the articles of association the company

can achieve the most appropriate balance between the needs of the directors and shareholders,

giving the former the right powers to run the company while protecting the interests of its

members.

Difference Between Memorandum and Article Of Association

Memorandum and articles are public documents. They are inter-linked and require to be

registered for the formation of a company. Where there is any ambiguity or where the

memorandum is silent on any point, the articles may serve to explain or supplement the

memorandum. Beyond this, the two documents have nothing in common and differ from one

another in the following respects:

1. Memorandum of association is the charter of the company and defines the scope of its

activities. Articles of association of the company is a document which regulates the internal

management of the company. These are the rules made by the company for carrying out the

objects of the company as set out in the memorandum.

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2. Memorandum of association defines the relation of the company with the rights of the

members of the company interest and also establishes the relationship of the company with the

members.

3. Memorandum of association cannot be altered except in the manner and to the extent provided

by the act, whereas the articles being only the byelaws of the company can be altered by a

special resolution.

4. Memorandum is a supreme document of the company whereas articles are subordinate to the

memorandum. They cannot alter or control the memorandum.

5. Every company must have its own memorandum. But a company limited by shares need not

register its articles. In such a case table A applies.

6. A company cannot depart from the provisions contained in its memorandum, and if it does, it

would be ultra-vires the company. Anything done against the provisions of articles, but which is

intra-vires the memorandum, can be ratified

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Documents

Memorandum of Association