Llb ii cl u 1.2 memorandum and article, prospectus

MOA and AOA

Course: LLB II

Subject: company Law

Unit: I

contents

1. Memorandum of association

2. Article of Association

Memorandum of AssociationMemorandum of Association

• It is the It is the chartercharter of the company of the company• It contains the It contains the fundamental conditions upon which fundamental conditions upon which

the company can be incorporatedthe company can be incorporated• It contains the It contains the objects objects of the company’s formationof the company’s formation• The company has to The company has to act within objects specifiedact within objects specified in in

the MOAthe MOA• It It defines as well as confinesdefines as well as confines the powers of the the powers of the

companycompany• Any thing done beyond the objects specified in the Any thing done beyond the objects specified in the

MOA will be MOA will be ultra vires. Their transactions will be ultra vires. Their transactions will be null and voidnull and void

• The outsider have The outsider have to transactto transact looking into the MOA looking into the MOA

Definition of Memo:The purpose of the memorandum is to enable the members of the company, its creditors, and the public to know what its powers are and what is the range of its activities. The memorandum contains rules regarding the capital structure, the liability of the members, the objects of the company, and all other important matters relating to the company.

Conditions of the MOAConditions of the MOA• It should be It should be printedprinted• Divided into Divided into paragraph and numbers consecutivelyparagraph and numbers consecutively• SignedSigned by at least seven persons or two in case of public by at least seven persons or two in case of public

and private company respectively.and private company respectively.• The signature should be in the The signature should be in the presence of a witness, who presence of a witness, who

will have to attestwill have to attest the signature the signature• Members have to take Members have to take shares and write the number of shares and write the number of

sharesshares taken with full address (1) taken with full address (1)

The MOA of the Limited The MOA of the Limited CompanyCompany

• The name of the company with ‘The name of the company with ‘limited’limited’ as the as the last wordlast word

• The name of the The name of the state where the registered state where the registered officeoffice of the company is to be situated of the company is to be situated

• The objects of the company stating the The objects of the company stating the ‘Main ‘Main objects’ and the ‘other objects’objects’ and the ‘other objects’

• The declaration about the The declaration about the liability of the liability of the membersmembers is is limitedlimited ( limited by shares or ( limited by shares or guarantee)guarantee)

• The amount of the The amount of the authorized share capital, authorized share capital, divided into shares of fixed amounts.divided into shares of fixed amounts.

Contents of the Memorandum

• Name Clause

• Registered Office / Situation Clause

• Object Clause- main objects and other objects

• Liability Clause- limited by share or guarantee

• Capital Clause.

• Association Clause

Name Clause• A company not to be registered under a name

which is undesirable, identical or too nearly resembles another company. [Section 20]

• It must not be misleading or intended to deceive with reference to its object.

• A mere similarity of name does not give right to injunction, there should be likelihood of deception or confusion.

• The name and address must be printed or affixed outside every office in English and local language.

• Inadvertent mistake in name can be changed by passing an ordinary resolution and by obtaining written approval of Central Government.

Situation Clause

• Only the state in which the Registered Office is

situated is mentioned.

• Exact address can be filled with RoC separately

in Form 18 within 30 days of incorporation.

Object Clause

• Must divide object clause into two sub-clauses - Main Objects and Other Objects.

• It determines the purpose and capacity of the company hence carry great importance.

• Acts beyond this ambit are ultra vires and hence void. Even the entire body of shareholders cannot ratify such acts.

• Subscribers enjoy unrestricted freedom to choose the objects.

Doctrine of ultra vires

• An act or transaction, which may not be illegal, is beyond company's power by not being within the object of the Memorandum.

• An act ultra vires the company is incapable of ratification.

• Act which is intra vires the company but outside the authority of directors may be ratified by the company in proper form.

• The shareholders can ratify an act ultra vires the directors.

The The consequences of the consequences of the ultra viresultra vires transactions are as followstransactions are as follows::

a)a) Injunction Injunction b)b)Directors’ personal liability.Directors’ personal liability.c)c) If a property has been purchased and it is an If a property has been purchased and it is an

ultra viresultra vires act, the company can have a right act, the company can have a right over that property.over that property.

d)d)The doctrine to be used exclusively for the The doctrine to be used exclusively for the companies’ interest.companies’ interest.

e)e)But the others cannot use this doctrine as a tool But the others cannot use this doctrine as a tool to attack the companyto attack the company

Effect of ultra vires transaction

• Injunction to restrain the company from doing

an ultra vires act.

• Personally liability of the directors.

• Ultra vires contract are void ab initio.

• An ultra vires borrowing does not create a

relationship of a debtor and creditor.

Liability Clause• The Memorandum of a company limited by

shares or by guarantee shall state that the liability of its members is limited.

• Where the liability is limited by shares, a member can be called upon to pay only the unpaid balance on his shares.

• In case the company is limited by guarantee the members are liable up to the maximum amount which they have guaranteed.

• Where the company is limited by both share and guarantee the liability of members is dual.

Capital Clause• Shares must be of fixed value.

• Nominal, authorised or registered capital.

• Not authorised to issue capital beyond its authorised capital unless the Memorandum is altered.

• In case of unlimited company having share capital, the liability is unlimited as against creditors only in case of winding up.

• In case of going concern, liability is limited to shares subscribed.

Association Clause

• Must be signed by each subscriber in presence

of one witness.

• Each subscriber must take at least one share.

• A subscriber cannot, after registration of

company, repudiate his liability even on the

ground that he was induced to sign by

misrepresentation.

Alteration of the Memorandum:

For the purpose of alteration, the provisions of the memo can be divided into two classes :

(i) provisions the inclusion of which is made compulsory by the Act (e.g., the name, objects, place of registered office etc.)

(ii) other provisions which the organisers of the -company have thought it desirable to include.

Provisions coming under the first category are called "Conditions contained in the Memorandum". The "conditions" can be altered in the manner stated below:

Alteration of the Memorandum:

1.Change of name:

• A company may change its name by special resolution provided the Company Law Board approves of the change

• When the name is validly changed, the Registrar shall enter the new name in the Register of companies and shall issue a fresh Certificate of Incorporation.

• Change of name does not affect the rights and obligations of the company and pending suits by or against the company. (2)

2. Change of Object:

The object clause of the memo can be changed for the purpose of enabling the company, for example :

(a) to carry on its business more economically or more efficiently; (b) to attain its main purpose by new or improved means ; (c) to enlarge or change the local area of its operation;

The following procedure must be adopted for changing the object clause :

(i) A special resolution must be passed.(ii) A petition must be filed to the Company Law Board for confirmation of the change.(iii) Notice must be given to all persons whose interests will be affected by the change.(iv) The consent of the creditors of the Company must be obtained or other claims paid

off or secured; etc. (3)

. 3.Change in the location of the registered office from one State to another

The procedure to be adopted is the same as in the case of alteration of object.

The alteration must be registered with the Registrar of Companies of the 'State in which the registered office of the Company was originally situated and also the Registrar of the 'State to which the office is being transferred.

4. Alteration of the Capital Clause

Alteration of the capital clause can be done in the following methods (i) Alteration, including Increase of Capital: (ii) Reduction of Capital (iii) Variation of Shareholders' Rights(iv) Creation of Reserve Capital.

Alteration of the Articles Of Association:

Although alteration of articles is permitted, there are certain restrictions on the nature and extent of the alterations that can be made, for example:

Articles can be altered by special resolution only. If the articles of the company prescribed a different procedure, e.g., an ordinary resolution, it will not be followed. Confirmation by the Court is not necessary.

No change is permitted which will violate the provisions of the Companies Act. No change is permitted which is contrary to the conditions contained in the Memorandum of

Association of the Company. The alterations must not 'contain anything illegal. The liability of the members or any class of members, cannot be increased without their

consent. But any alteration made bona fide, in the interests of the company as a whole, is valid and

binding even though the private interests of some members may be affected.

The legal effects of the Memorandum:

The Contractual Powers of a CompanyA Company or a Corporation is a legal person capable of suing and of being sued. But the

contractual powers of a company are limited in two ways : (i) natural possibility and (ii) legal possibility.

Forms of Contracts and Deeds of a Company

• The Doctrine of Ultra Vires• The Memorandum of Association determines the constitution and the powers of 'the

Company. • The important rules concerning the legal effects of the memorandum can be summed up as

follows, for example:• The terms of the memorandum constitute a binding contract between the Company and the

members. • All acts done by the directors or members beyond the powers given in the memo, are ultra

vires and not binding on the Company.• The members cannot ratify ultra vires acts, even by an unanimous resolution.• If an act is within the powers given by the memo (intra vires the memo) but contrary to some

provision of the articles (ultra vires the articles) members can change the articles and ratify the act.

• Directors entering into ultra vires contracts may be liable to the third party for breach of warranty of authority.

Limitation on Alteration• Must not exceed the power in the Memorandum.

• Must not be inconsistent with the provisions of the Act.

• Must not include anything illegal or opposed to public

policy.

• Must be bona fide for the benefit of the company.

• Must not constitute fraud on minority.

• Cannot be altered so as to have retrospective effects.

• In case of listed companies approval of Stock Exchange is

required.

AOA AOA

• AOA plays a AOA plays a subsidiary partsubsidiary part to the MOA to the MOA• Any thing Any thing done beyond the AOA will be considered to be irregular and done beyond the AOA will be considered to be irregular and

may be ratified by the shareholdersmay be ratified by the shareholders..• The content of the AOA may differ from company to company as the The content of the AOA may differ from company to company as the

Act has not specified any specific provisionsAct has not specified any specific provisions• Flexibility is allowed to the persons who form the company to adopt Flexibility is allowed to the persons who form the company to adopt

the AOA within the requirements of the company lawthe AOA within the requirements of the company law• The AOA will have to be conversant with the MOA, as they are The AOA will have to be conversant with the MOA, as they are

contemporaneous documents to be read together.contemporaneous documents to be read together.• Any Any ambiguity and uncertainty in one of them may be removed by ambiguity and uncertainty in one of them may be removed by

reference to the other. (4)reference to the other. (4)

Contents of the AOA may be as Contents of the AOA may be as follows:follows:

• Share capitalShare capital• Lien on sharesLien on shares• Calls on sharesCalls on shares• Transfer and transmission of sharesTransfer and transmission of shares• Forfeiture of the sharesForfeiture of the shares• Surrender of the sharesSurrender of the shares• General meetingsGeneral meetings• Alteration of the capitalAlteration of the capital• Directors etc..Directors etc..• Dividends and reservesDividends and reserves• Account and auditAccount and audit• Borrowing powersBorrowing powers• Winding upWinding up• Adoption of the preliminary contracts etc….Adoption of the preliminary contracts etc….

Articles of Association

• Articles are by-laws or rules and regulations for the govern the management of its internal affairs and conduct of business.

• It also includes regulation contained in Table A of Schedule I.

• Deals with the rights of the members inter se.

• Articles are subordinate to and controlled by Memorandum.

Articles of Association

• Unlimited companies, companies limited by guarantee and private companies must have their own Articles of Associations.

• Must be printed, divided into paragraphs, numbered consecutively, stamped adequately, signed by each subscriber to Memorandum and duly witnessed. (5)

Articles of AssociationArticles of Association• It is the companies It is the companies bye- laws or rules to governbye- laws or rules to govern the management of the management of

the company for its the company for its internal affairs and the conduct of its businessinternal affairs and the conduct of its business..• AOA defines the AOA defines the powers of its officers and also establishes a contract powers of its officers and also establishes a contract

between the company and the members and between the members between the company and the members and between the members inter seinter se

• It can be originally framed and altered by the company under It can be originally framed and altered by the company under previous or existing provisions of law. (6)previous or existing provisions of law. (6)

Alteration of Articles

• Subject to the provisions of the Act and

Memorandum, a company, by special

resolution alter the Articles. [Section 31]

• The alteration binds members in the same

way as original Articles.

• A company cannot in any manner deprive

itself of the powers to alter its Articles.

references• 1. gospelonetoone.blogspot.com• 1.http://www.mca.gov.in/Ministry/pdf/

Companies_Act_1956_13jun2011.pdf pg:30• 2.http://www.mca.gov.in/Ministry/pdf/





Companies_Act_1956_13jun2011.pdf pg:35

Thank you

Llb ii cl u 1.2 memorandum and article, prospectus

Education

Transcript of Llb ii cl u 1.2 memorandum and article, prospectus