Importance

• It is the foundation on which structure of a company is based• It states name• Address of registered office• Whether co. has share capital or not• Limited by guarantee or otherwise• Defines scope of activities within which company can function• It is a document that delimits the capacity to contract of the

company.• A company cannot take operations that are not mentioned in its

memorandum.• Any act outside the activities as laid down in the memorandum is

said to be ultra vires and not binding on it.

• It is the constitution of the company in its relation to the outside world.

• It is a public document and persons dealing with the company may ask for copies of it at payment of nominal charges.

• Every person dealing with the company is presumed to have sufficient knowledge of its contents.

• Anybody dealing with the company shall be bound by its provisions and cannot bind the company for ultra vires acts.

• No company is allowed to tamper with its contents without the sanction of the central government or the company law board or court of law.

• The act prescribes a complicated procedure to be followed by a company inteneding to alter any of its provisions and that is why this document is regarded as an unalterable charter.

• Section 15 says it must be printed and divided into numbered paragraphs and signed by each subscriber mentioning his description, occupation and address in presence of at least one witness.

Contents of Memorandum

• The Name clause: Any suitable name can be chosen with following restriction

• Limited by shares or limited by guarantee –limited must be there, could be pvt or public.

• Exception charitable co’s to promote art , culture etc under licence from central govt.,to register with ltd. Liability , but without the limited as par of its name.

• Unlimited co’s only name is to be given• Inclusion of word company is not essential.

• Undesirable names: Too identical names, Misleading names.

• Once name is chosen and co. registered, scetion 147 requires that it along with the address of registered office must appear outside every office or place of business of co.,in conspicuous manner.

• Registered office clause• The name of state in which registered office is located.• This is to fix the domicile of the state.• The importance of registered office is that it is the

address at which all communication and notices are to be sent and a place where all registers are to be kept.

• Although It is not required to be stated in memorandum, every company must have specified premises in a town fixed as its registered office either from day of on which it begins to carry business or as from the 30 th day after the date of its incorporation ,which ever is earlier.

• The object Clause:• The company is not legally bound to anything

other than what is there in its object.• This is meant to protect : one the members who

can know the purpose for which the money is to be employed and can know the risks involved

• Two : the public at large who deal with the company, whether a particular transaction can be entered into or not.

• While drafting following points to be kept in mind:

• Objects must not be illegal• Must not be against the provisions of co. act.• Not against public policy• No ambiguous statement• Must be elaborate.The objects must be divided into two sub clauses: the main objects :

The main objects and objects incidental to attainment of it s objects must be stated

The other objects not included in main objects can be stated in this.

Apart from powers expressedly provided in object clause a trading co. has certain implied powers 1) to borrow money 2) to act by agents 3)to compromise disputes 4)to mortgage or sell land.

• Liability Clause: Liability is limited to the amount if any of shares unpaid.

• Liability of directors may be made unlimited

• If limited by guarantee to state the amount every share holder is undertaking to contribute assets in case of winding up.

• The capital Clause: The capital is described as authorized or nominal capital , the amount on which stamp duty is to be paid.

• The companies whose equity shares are dematerialzed (cease to exist in physical form and corresponding credit given in the in the form of book entry in the records of the depository)shall have the freedom issue equity shares in any denomination which should not be less that a rupee.

• The amount of authorized share capital should be sufficiently high so that further issue of shares may easlily be done to finance the expanding buisness.

• It is optional for a a company to state the division of authorisedcapital , it may be divided into different classes of shares , if any and the rights of classes of share holders in this clause.

• Unlimited co. having share capital, need not have capital clause, however it must be stated in the articles section 27(1).

• Association Clause:• There is declaration of association , under their signatures, duly

attested.• Each subscriber must take at least one share.• Statement “ We the several persons whose names and addresses

are subscribed are desirous of being formed into a company in pursuance to the MOA and we agree to take the number of shares in the capital of the company shown against our names.

• At least seven signatories in case of public and two in case of pvt.• Subcribers usually act as first directors of the company• In case of co. ltd. By guarantee or unlimited liability and which has

no share capital, purchase of at least one share not applicable.

Alteration of memorandum

• To name clause : By passing special resolution and with approval from central govt. in writing.

• When name change is only addition or deletion no approval needed or when pvt. Becomes public.

• If through in adverance, a name is registered which is identical to other registered co. , name can be changed through ordinary resolution.

• The central govt. within 12 months can ask a co. to change its name.

• Within 30 days a copy of resolution is to filed with registrar of co. Also a copy of Govt’s order of approval shall be filed with registrar within three months of the order.

• New Name is put in register and fresh incopration certificate is issued.

• Alteration of registered office clause : • Within same city by board resolution to that effect and

informing registrar.• If a company wants to change is office within a a state

then it must do so by passing a special resolution and file its copy with registrar.

• Regional directors approval for shifting within state Sectuon 17 (a): Shall require passing of spl. Resolution along with approval of regional director. A certified copy of confirmation along with resolution is necessary. This will have applicability to T.N, Maharashtra.

• Change from one state to another:• Spl. Resolution• Sanction of company law board. It ensures that

creditors have been and other interested persons have been informed and they have given their consent.

• A certified copy of law board confirmation along with altered memorandum must be filed with registrars within three months.

• Certificate of registration of transfer from both registrars are obtained

• Registered office shifted.

• Alteration of Object Clause:• Under section 17(1) object clause and registered clause

can be altered only if change enables the company :• To carry business more economically or efficiently.• To attain main purpose by improved means.• To enlarge or change local area of business.• To carry some business which can be suitably combined

with present.• To restrict or abandon any objects.• To amalgamate with any other co.• To sell any part of undertaking of company.

• Alteration of Liability Clause:• The liability of director, MD, or manager can be made

unlimited by passing spl. Resolution.• Alteration of Capital Clause: A company can alter its

share capital in any of the following ways:• It may increase its authorized share capital. Further

issue of unissued shares within authorized capital is governed by section 81 and does not alter memorandum.

• Board of directors is authorized by articles may increase the issued capital within the limit of authorized capital by passing resolution.

• It may consolidate or subdivide the whole or any part of its existing shares of larger or smaller denomination.

• It may convert fully paid up shares into stock or vice versa.• It may cancel its unissued shares , ie. Shares which have not been

subscribed by any person and diminish the amount of its authorized share capital by the amount of shares so cancelled.

• Diminition of authorized share capital by cancellation of unissued shares does not amount to reduction of share capital, for the shares have ever been issued to anyone.

• The object of cancelling may bet to get rid of an unissued shares carrying in convenient rights.

• To do all the above company can do this by passing an ordinary resolution, provided it is authorized by its articles.

• It is also important to note that there is no need to pass a resolution when the capital subscribed stands increased by reason of:

• An order of central govt. for conversion of any loan or debenture into shares of the company.

• An order by the central government on the application of any “public financial institution” which proposes to convert any debenture or loans with conversion clauses into shares of the company

Doctrine of Ultra vires

• According to this doctrine all such acts or transactions of a company which are ultra vires (beyond powers) of the object clause of its MOA shall be wholly null and void and can never be subsequently ratified and validated even though all the shareholders consent or purport to ratify such transactions is there.

• In view of company being an artificial person, devoid of conscience and intelligence and therefore cannot look after its own interest, Doctrine of ultra vires is of great importance to as far as the interest of shareholders and creditors of the company are concerned because the doctrine implicitly prohibits the use of capital in unauthorized activities.

• The directors and other officers have a broad general responsibility to ensure that the company’s action remain within the ambit of the object clause of MOA.

• The managerial personnel to check to make sure that no transaction is ultra vires.

• Outsiders also to check before entering into contract.• The directors can be made personally liable.• Thus if any one enters a contract which is apparently inconsistent

with powers of the company ,he can neither make the co. Liable nor the directors.

• “Ultra vires acquired property”and “ultravires lending” :Company interest are protected just like minors right, a person borrowing from a company under a contract which is ultravires the memorandum can be sued by company to recover the amount.