Memorandum of Association &Articles of Association

Both the Memorandum of Association and the Articles of Association are very important documents for any type of company whether it a public-limited company or a private-limited company.

Memorandum of Association

Memorandum of association is a basic document of the joint stock company .It is also known as Charter of company. It sets out the limits outside which the company cannot go. Its main purpose is to enable shareholders, creditors and all those who deal with the company to know what is permitted range of enterprises.

It is a document which sets out the constitution of the company and as such, is really the foundation on which the structure of the company rests.

Clauses of Memorandum of Association:

The main clauses of memorandum have been described in sections 16,17 and 18 of the companies ordinance 1984 as under :

1-Name Clause

According to this we have to state the name of the company. A company may adopt any name but it should not be identical to the name of an existing company registered with the registrar of the company.

Conditions:

a) It should not resemble the name of any other company

b) It should not contain the word like king, queen, emporer, government bodies

c) The name should not be objectionable in the opinion of government.

The companies ordinance provides that the name of the company must end with the words “Limited”.

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2- Situation Clause

As the name indicates it describes the different situations.  This clause a company must have a registered office at which all the communications and notices are to be addressed. The memorandum will only state the name of the province where office is situated and not the address where office is situated.

Advantages:

a) A person can know through this clause, the jurisdiction of the court under which the company operates.

b) It also indicates the place for holding the annual meeting of the company.

c) The creditors, customers, government know the whereabouts of the company

3-Object Clause

This is the most important clause in the memorandum. It clearly defines the sphere of the company's activities. It indicates the series of objects for which the company is started .object clause should be drafted carefully.

4-Liability Clause

This clause of memorandum contains the declaration that the liability of the shareholders is limited to the extent of the value of shares held by them. In case the shareholder is to pay the unpaid calls on the shares, he can be compelled to pay up to the extent of unpaid amount on the shares and beyond that nothing more.

5-Capital Clause

This clause is required to specify the amount of share capital with which the company proposes to be registered and secondly the divisions of that capital into shares of a fixed amount. The capital as mentioned us called Authorized Capital

6-Subscription Clauses

This clause contains a statement by the subscribers that they are eager of forming themselves into a company and agree to have a number of shares written against their

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respective names. Each signature of the subscriber must be supported b the signature if a witness with his address. The subscriber is required to take at least one share each.

Depending on the type of the company other clauses can be included in the memorandum:

Form 10:

In this form the details of the first director, secretary and the address of the registered office is required. Also the directors have to give their birth and occupation details, as well as the details of the directorships they held within the last five years.

Form 12:

Form 12 must be signed at the last when all the registration requirements have been completed and this form is signed in the presence of commissioner.

Alternation of Memorandum1. Change of name:

Name of the company can be changed either by passing special resolution or ordinary resolution.

2. Change of registered office:

If the company wants to change registered office from one place to another board of directors will pass a resolution and the registrar must be informed about it within 30 days.

3. Change of object clause:

A company has no limited right to alter the object clause of memorandum. The power of alternation of object clause is subject to substantive limit and procedural limit. A company shall pass a special resolution sanctioning the alternation to that affect and file it with the registrar.

4. Change of liability clause

Ordinarily liability clause cannot be altered so as to make the liability of members unlimited. Any alternation in the memorandum will be void if the affect of the alternation is enhancement of liability of members.

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Articles of AssociationArticle of association is a legal document second in importance to the memorandum. The articles of association are the regulations or bylaws which govern the internal organization and conduct of company .in other word it is concerned with the procedural matters in the routine of the affairs of the company. Articles deal with internal matters such as general meetings, appointment of directors, issue and transfer of shares, dividends, accounts and deposits.

Contents of Articles

1) Share capital

Amount of shares capital issued, transmission of shares

2) Shareholders rights

Rights of shareholders regarding voting, dividend and return of capital.

3) Rules for issuance

Rules regarding the issue of shares and debentures

4) Call on shares

Procedure as well as regulations in respect of making calls on shares

5) Transfer of shares

Manner of transfer of shares

6) Rules regarding directors

Rules regarding the appointment of directors, managing directors, agents, secretaries and treasuries.

7) Power and qualification of directors

Number, qualifications, remuneration, powers and liabilities of directors,

8) Meetings

Convening and conduct of meetings with reference to notice, quorum, poll, proxy, resolutions etc

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9) Alternation of capital

Articles of association empower the company to change the capital. It will alter either by resolution or by meeting.

10) Dividend

Declaration of dividend.

11) Forfeitures of shares

Rules regarding surrender or forfeitures of shares .

12) Account and audit

Matters relating to account and audit.

13) Wind up

Rules regarding winding up of company

14) Managing agents

Functions and powers of managing agents

Alternation of article of AssociationAccording to section 28 of companies ordinance, a company may alter or add to its articles by special resolution. The alternation made in the articles should not conflict with the memorandum.

Difference between Memorandum and Article of Association

Basis of difference Memorandum of association Articles of association

RegistrationIt is prepared at the time of registration it is must for getting the company registered

Public companies may not have their articles before registration. It can adopt table A in its place

It is the primary document of the It is the 2nd most important

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Importance company. It is a subsidiary document to memorandum of association.

document to be filed with the registrar.

Subject MatterIt contains information capital liability sphere of the activities of the company.

It contains rules and regulation framed for the internal management of the company

ProvisionsIt cannot contain anything contrary to the companies ordinance

It is subordinate to memorandum and ordinance. it cannot contain anything contrary to both.

RelationshipIt is the nature of the contract between the company and the outside world dealing with it

It creates relationship between the members of the company.

Legal statusIt has more legal sanctions than articles. an agreement which is not permitted by the memorandum cannot be enforced by law.

If violation of articles take place, it is not void unless other party is aware of this violation

Ratification If the company violates the memorandum it is absolutely void. it cannot be made valid even by the unanimous consent of all the shareholders.

If the company does anything beyond the scope it is not void. It can be made valid later.

Changes The changes in the various clauses can only be made under exceptional circumstances.

Alternation is not difficult. It can be changed by passing special resolution

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