Memorandum of Association & Articles of Association

ARUN VERMA (C)

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Arun Verma (c)

Memorandum of AssociationThe first step is the formation of a company is to prepare memorandum of association. This is also known as constitution of the company.

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What is Memorandum of Association of a company?

•Is the constitution or charter of the company and contains the powers of the company. No company can be registered under the Companies Act, 2013 without the memorandum of association. Under Section 2(56) of the Companies Act, 2013 the “memorandum” means 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;

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Six Clauses

CONTENTS OF MEMORANDUM OF ASSOCIATION

Name Registeredoffice

Liability CapitalAssociation

or subscription

Objects

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1. Name Clause•The memorandum must state the name of

the company with ‘limited ‘ as the word ,in case of a public limited company and with ‘private limited', in the case of a private limited company

•the company is free to choose any name but it must not be undesirable or must not resemble the name of any other registered company.

• i.e. President, Prime Minister, Govt. etc

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2.Registered office clause [section 13(1)(b)]

•The state in which the registered office of a company will be situated is mentioned in this clause

•The registered office of the company is the official address of the company where the statutory books and records must normally be kept

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3. Object Clause section 13(1)(c)&(b)]

This clause is quite important and must be very carefully drafted as it determines the activities of the company. In the object clause each and every detail of activities of the business to be carried out must be laid down.

Main object:- this sub-clause contains the main objects of the company to the pursued on its incorporation  

Objects incidental or ancillary :- it covers the objects which are incidental or ancillary to the attainment of the main object

Other objects :- this sub-clause will cover any objects which are not included in the ‘main objects ‘

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4. Liability Clause[section 13(2)] This clause states the nature of liability of the members of

the company In the case of a company limited by share or by guarantee the

fact that the liability of its members is limited must be made absolutely clear . In case of a company limited by shares the liability of a member is limited to the nominal value of the share held by him

If the share are fully paid up his liability is nil. But in case of partly paid-up shares the liability is limited to the amount which is unpaid.

In case of a company limited by guarantee, the liability clause must state the amount which every member undertakes to contribute to the assets of the company in the event of its winding up

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5. Capital Clause[section 13(4)(a)]•This clause states that amount of the

capital with which the company is to be registered

•This clause should also state the number and face value of shares into which the capital of the company is divided

•The capital with which the company is ‘registered’ or ‘nominal’ or ‘authorized’

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6. Association clause [section 13(4)(c)]•The association clause states – in this

cause , the subscribes declare that they desire to be formed into a company and agree to take the shares stated against their names.

•The names, address and occupation of the subscribers must be given each subscriber must sign in the presence of at least

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Arun Verma (c)

Case: Company for Restaurant • Husband and wife, KAMAL and ASHA RASTOGI,

based in DELHI, are forming a company. They want a short name for the company with their surname in it. The company is being formed to run a SHOPPING MALL. They project they would need 2 Crore as the capital of the company. Immediately, the husband would contribute Rs. 2,00,00,000 to the share capital of the company and wife Rs. 10. Mr. RASTOGI hopes to find others, after the company is formed, to take the shares of the company. They also contemplate occasionally hiring out the car they would buy for the company. Develop a Memorandum of Association for the Company.

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Memorandum of Association of the RASTOGI private limited

I . The name of the company is RASTOGI Private Limited

II. The registered office of the company will be situated in the state of Delhi.

III. The objective for which the company is begin established are as follows:

a. Main object: running of shopping mallb. Ancillary object: opening bank accounts,

hiring premises an running of mallc. Other objects: Hiring out of vechicles for

advertisement

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IV. The liability of the members is limitedv. The authorized share capital of the

company is RS.2,00,00,000,divided into 20,00,000

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S.NO Name & Addresses description & occupation of subscribers

No . Of equity shares taken by each subscriber

Signature of subscriber

Name / address description and occupation of witness

Arun Verma (c)

• Special Resolution.• Written Approval of Central Government.• No Approval of Central Government is

necessary if the change of name involves only the addition or deletion of the word “Private”.

• Change by ordinary resolution and approval of Central Government when name is identical or too closely resembles the name of an existing company.

ALTERATION OF NAME CLAUSE

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From one premises to another premises in the same city, town or village

• By passing a resolution of Board of Directors

CHANGE OF REGISTERED OFFICE15

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From one town or city or village to another town or city or village in the same state

1. Special Resolution.2. Confirmation of Regional Director — when

jurisdiction of Registrar of companies is changed.

3. Copy of (i) & (ii) to be filed with ROC.4. Notice of new location to ROC within 30

days.

CHANGE OF REGISTERED OFFICE16

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From one state to another state1. Special Resolution2. Confirmation of Central Govt.3. For certain Purposes only

(As given in section 17)

CHANGE OF REGISTERED OFFICE17Arun Verma (c)

A. Special ResolutionB. Alteration is sought on any of these grounds:

• To carry on its business more economically & more efficiently

• To attain its main purpose by new or improved means• To enlarge or change the local area of its operations• To carry on some business which under existing

circumstances may conveniently or advantageously be combined with the business of the company

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

• To sell or dispose off the whole or any part of the undertaking

• To amalgamate with any other companyC. Copy of (A) is filed with ROC within 30 days

ALTERATION OF OBJECTS CLAUSE

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• The liability of a member of a company cannot be increased unless the member agrees in writing.

• From unlimited liability, it can be made limited by re-registration of the company.

ALTERATION OF LIABILITY CLAUSE

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• A company can reduce share capital by first passing a special resolution for reduction of capital but powers to reduce share capital must be guaranteed in the articles of the company, otherwise the share capital can be altered by special resolution giving such powers.

• The company can apply to the court by petition for getting confirmation from the court for reducing the share capital . The main duty of the court is to look after the interest of the creditors and different classes of shareholders, and then decide whether the company should be allowed to reduce share capital .

ALTERATION OF CAPITAL CLAUSE20

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The words :• Ultra means beyond• Vires means the powers• Ultra Vires means beyond the powers

A company which owes its incorporation to statutory authority cannot effectively do anything beyond the powers expressly or impliedly conferred upon it by the statute or Memorandum of Association.

DOCTRINE OF ‘ULTRA VIRES’21Arun Verma (c)

Articles Of Association•A document that specifies the regulations

for a company's operations. The articles of association define the company's purpose and lays out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled.

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Items covered by the Articles of Association include :-

• Adoption of preliminary contracts.• Number and value of shares• Allotment of shares• Calls on shares• Transfer of shares• Forfeiture, reissue, surrender of shares• Alteration of share capital• Share certificates• Conversion of shares into stocks• Meetings and proceedings • Voting rights, proxies and polls• Appointment , Remuneration, etc of Directors• Borrowing powers• Dividend and Reserves• Accounts and audit• Procedure of winding up• Seal of the company

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Companies which must have Articles

•Unlimited Companies:▫The Articles of such a company must state: Total number of members; and Share capital.

•Companies limited by Guarantee:▫Articles of such company must state total number of members.

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Companies which must have Articles …contd.

•Private Companies limited by shares:▫must include requirements of Section 3(1)(iii).

No Article Company•A public limited company having share capital may be registered without Articles.

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Doctrine Of Ultra Vires•Ultra vires to the articles of association•Ultra vires the memorandum of

Association

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Alteration of Articles•Articles may be altered by a company

by passing special resolution at a general body meeting of shareholders

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Doctrine of Constructive Notice• According to Section 610, every

person dealing with the company is deemed to have read M/A and A/A and understood the contents thereof in the correct perspective.

• Doctrine of Indoor Management

• Rule of Indoor Management is an exception to the Doctrine of Constructive notice.

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Memorandum of Association Articles of Association

Charter of Company Regulations for internal management

Defines the scope of the activities Rules for carrying out the objects of company.

Supreme document Subordinate to the memorandum.

Must for every company Company limited by shares need not have it (Table ‘A’ applies)

Strict restrictions, alteration only with sanction of central govt./ tribunal.

Can be altered by special resolution.

It define the relationship between the company & the outsiders

It define the relationship between company & its staff and between members & members interests

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