Memorandum of Association

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This article is written by S. Rajathi of Satyabhama Institute of Science & Technology, an intern under Legal Vidhiya

Abstract :

This paper contain the comparative analysis of association of the companies act of 2013. The principle of a memorandum of association and doctrine of ultra vires will be explained in the essay way. By discussing the development of company law this article will also attempt to situate the doctrine within the context of India. It will also attempt to analyse the changes brought about the new legislative framework in one of the doctrine branches known as substratum. The article will conclude by arguing that even though the new regime of company law legislation include some revision in the memorandum clause the legislature has not addressed the condition of the innocent 3^rd parties who engaged in transaction.

Introduction:

when a group of people band together to accomplish a common goal a corporation is created. Typically this objective has a commercial focus. Companies are typically established in order to profit from their business operation. An application must be submitted to the register of companies in order to incorporate a business. A number of document must be presented with this application. The memorandum of association is one of the key document that must be include with the application for incorporation. The most crucial document for a firm is its memorandum of association. It outlines the purposes for which the firm was established. It include the company right advantage and authorities. As a result it is referred to as the business charter. It determines how the company and outsiders will interact. The memorandum of association serves as the foundation upon which the company entire business is based. A company is not permitted to engage in any operation or activities not specified in the memorandum. Only those power that are expressly indicated in the memorandum may be used by it. In the memorandum of association the company relationship with the outside world is made very explicit. It gives shareholder and creditors permission to learn about the company goals and enable them to understand the spectrum of permissible operation. When a company is incorporated this legal document must be submitted to the registrar of companies. Every business that wants to register as a private or public limited must first creates a memorandum of association. To incorporate it you must submit a memorandum of association to registrar of corporation. In the event of a corporation it must be signed by at least 7 individuals.

Definition of memorandum of association:

Section 2(56) of the companies act 2013 defines memorandum of association. It states that a memorandum means 2things:

Memorandum of association as originally framed : memorandum as originally framed refers to the memorandum as it was during the incorporation of the company.
Memorandum as altered from time to time: this means that all the alteration that are made in the memorandum from time to time will also be a part of memorandum of association. The section also states that the alteration must be made in pursuance of any previous company law or the present act. In addition to this according to section 399 of the company act 2013 any person can inspect any document filed with the registrar in pursuance of the provision of the act. Hence any person who wants to deals with the company can know about the company through the memorandum of association.

Objective in registering memorandum of association : A key document that contains a lot of information about the company is the memorandum of association. It regulates how the business interact with the shareholder. A memorandum is necessary for the registration of a corporation as per section 3 of the companies act of 2013.

In the case of a public corporation seven or more employees are anticipated.
In the case of a private corporation 2 or more people are anticipated.
In case of one person business only one person is anticipated.

A memorandum of association is therefore necessary for the registration of a corporation. A company memorandum of association and article of association must be duly signed by the subscriber and registered with the registrar in accordance with section 7(1)(a) of the act in order for the company to be incorporated.

The memorandum includes further information in addition to this: the following are included

Before purchasing shares it is beneficial for shareholder to learn more about the company. This helps investor decide how much money they can invest in the business.
All the partners who are considering working with the firm in some capacity are informed.

Format of memorandum of association:

A memorandum must take the form specified in table A , B, C, D and E of schedule in accordance with section 4(5) of the companies act. Because different sort of company exist there are many types of tables.

A company limited by shares is covered under table A
A business limited by guarantee without a share capital is covered under table B
A business limited by guarantee and having a share capital is covered under table C
It applies to any uncapped company with a share capital table E

Printed , numbered and separated into paragraph the memoranda should be formatted. It should also be signed by the subscribers of the company.

The key features of a successful memo are as follow:

A memo should always start by representing the reason for the communication among companies.
Focus one key topic subject in short, simple , direct sentences.
Use language that is clear and unambiguous with a polite tone.

Purpose of memorandum of association:

It enables potential investors to gain a fundamental understanding of the business and the risk associated with their investment. It aid in comprehending corporate law.
External parties working with the organization can learn about its goal and determine whether the contract between them fits those goals. It establishes whether or not the business arrangement between the two parties will be profitable.

Content of memorandum of association :

The content of the memorandum are stated under section 4 of the companies act 2013. It include all the important information that the memo must include;

Name clause:

The company name is stated in the first clauses. The company name by anything. However there are several requirement that must be met.

According to section 4(1)(a)states

A firm name should include the word limited if it is a public company. A public corporation like “robotics” would have “robotics limited” as its registered name. private limited should appear in its name if a firm is private one. The private company “secure” shall be known by the name “secure private limited” on its registered document. Section 8 companies are not subject to this stipulation.

Section 8:

The section 8 company was founded in honour of section 8 of the 2013 companies act. It refer to organisation created to further religion, social welfare, business , the art, sports ,and education. Similar to trust and societies, section 8 firms have a stronger reputation and legal standing than the trust and socities.

Kinds of name are not allowed:

The name stated in the memorandum shall not be,

Identical to the name of another company
Too nearly resembling the name of an existing company.

According to rule 8 of the company ( incorporation) rules 2014:

If a company adds limited, private limited, company , corporation, corp , inc and any other kinds of designation to its name to differentiate it from the name of the other company the name would not accepted.

Illustration : info tech limited is same as info tech company

If the plural or singular form are added to differentiate between names.

Illustration : whitetech solution is same as whiteTech solutions.

If type, and case of letters or punctuation mark are added
Different tenses are used in names.

Illustration : Accenture solution is same as accentured solution

If there is an intentional spelling mistake in the name or phonetic changes in the name.

Illustration; infotech is same as infotek

Internet related designation are used like .org , .com etc…

Illustration: infotech solution is same as infotech .com ltd

Exception : the name will not be disregarded if the existing company by a board of resolution allows it.

Change in order of combination of work

Illustration: vetri buliders and contractors is same as the vetri contractor and builders

Addition of a definite or indefinite article

Illustration: infotech solution ltd is same as the infotech solutions ltd

Additionally it will be forbidden to select an unfavourable name.

Undesirable names are those name which in the opinion of the central governmemt are:

Prohibited under the provision of section 3 of emblem and name (prevention and improper use) 1950.
Name that are intended to fool since they are similar to each other. A recogmised trademark is present in the name.
The name contains any term or word that may offend some individuals a individuals. A name that is too similar to or identical to an existing limited liability partnership name

Clause of registered clause:

The country of origin and judicial jurisdiction of a company are determined by its registered office. It serves as a dwelling and the hub for all communication with the business. The registered office of the company is discussed in section 12 of the companies act 2013.

It is sufficient to identify that state where the company is located before the company is incorporated. However the company must declare the precise location of the registered office after incorporation. Within 30 days of establishment the business must also verify its location. Each office where the company conducts business must have its name and registered office address permanently displayed on the outside. The phrase one person company should be inserted in brackets beneath the affixed name of the firm if it is a one person operation. The registrar should be notified of any changes to the registered office within the required time frame.

Clause of object:

The act object clause is described in section 4(c ). The most significant portion of the memorandum of association is the object clause. It outlines the reason the company was founded. The principal object as well as element required to accomplish the specified object commonly to as incidental or supplementary object are both included in the object clause. According to section 6(b ) of the companies act of 2013 the declared objective must be clearly expressed and legitimate. By restricting the company range of authority.

The following are protected by the objective clause:

Shareholder: the object clause makes it clear which operation the firm will conduct. This makes it easier for the shareholder to understand how their investment in the business will be put to use

Creditors: it assures the creditor that their money is safe and that the business is operating within the restrictions outlined in the clause.

Public interest: the object clause restrict the range of issues the corporation may handle making it impossible for the company to diversify its business lines.

Doctrine of ultra vires:

The company action will be ultra vires and void if they go beyond the purview of the authority specified in the object clause.

Impact of ultra vires:

directors are responsible for making sure that the company capital is solely used for the intended purposes. The capital is used for a purpose other than what is specified in the memorandum then the director is held responsible.
Extreme vires loans taken out by the company. A bank would be in violation of the law if it gave the company a loan for a purpose other than what was specified in the object clause. The bank would not be able to get their money back. Lending that is excessive by the company.
The lending would constitute extra vires if the corporation used the fund for an unlawful purpose.
void ab initio: the company ultra vires action are regarded as void from the start.
Injunction : any member of the company may use an injunction as a remedy to stop the company from acting outside of its legal authority.

Liability clause :

The liability clause shields the shareholders from personal liability for the company losses so offering them legal protection.

There are 2 categories;

Limited by shares: a company limited by shares is what the companies act 2013 section 2(22) defines. The sole cost incurred by the shareholder in a corporation limited by shares is the cost of the only extend to the unpaid amount if for any any reason they did not pay the full amount for the shares and the firm falls.
Limited by guarantee: section 2(21 ) of the 2013 companies act defines limited by guarantee. Instead of stockholders a business limited by guarantee has members. These member agree to contribute to the company assets upon dissolution. The member guarantee that they will be responsible for a specific sum. Companies limited by guarantee are a common organisational structure for non profit organisation and other organisation.

Capital clause:

Major clause it details the company entire share capital as well as its share structure. How many shares of what type are issued from the total amount of capital. The shares may be preference shares or equity shares.

Illustration: the company has 80000 rupees in share capital which is divided into 3000 shares at a price of 4000 rupees each.

Subscription clause:

Who is signing the memorandum is stated in the subscription clause. Each subscriber must specify how many shares he is purchasing. The memorandum must be signed by the subscriber in the presence of two witness. A minimum of one share must be purchased by each subscriber.

Relationship clause : in this section the subscriber to the memorandum make a declaration that they intend to attach themselves to the company and form association.

Use of memorandum of association:

It establish a company boundaries within which it is not permitted to operate it.
It control how a corporation interacts with the outside world.
Without it the firm cannot be incorporated because it is required throughout the registration process.
It aids anyone seeking information about the company with it. Due to the fact that it contains all of the information about the firm its member and their liabilities it is also known as the company charter

Subscription of memorandum of association:

The company earliest stockholder are its subscribes. They are the ones who consented to unite and establish the business. In the memorandum each subscriber name and contact information are listed. The number of subscriber required for incorporation varies depending on the types of company.

Private company: a private business must have a minimum of 2 subscriber
Public company : a public company must have seven or move subscribes.
One person firm : only one person is necessary for a one person firm.

Particulars mentioned in memorandum of association:

The information that must be included in the memorandum is outlined in rule 16 of the companies( incorporation ) rules 2014

The following information about each subscriber should be stated:

Name (including last and family name )
A photo and the memo should be scanned together.
Names of the mother and father
Nationality
Date of birth
Birth place
Qualification
Continuous account number
Current and consistent address phone number
Fax number
2 identity document require a permanent account number.
Proof of residence no more than 2 months old.
If the subscriber is an alien they must provide the proof of nationality.
If the subscriber is an active director or promoter his title name and company identification number are required

The following information should be included if a body corporate is subscribing to the memorandum.

The company corporate identity number or the body corporate registration number.
The geographic location of the legal entity is indicated by the global location number.
The name of the body corporate if applicable the business registered address.
Email address

A certified copy of the board resolution authorising the subscription to the memorandum if the body corporates is a company. The specifics needed in this instance are;

A body corporate must subscribe for a certain number of shares.
The authorised person name , position, and address are provided

If the corporation body is limited liability partnership. The particulars required are;

A certified copy of the resolution
The no. of shares that the firm is subscribing to
The name of the authorized partners

In case the body corporate is registered outside the country . the particulars required are;

The copy of certificate of incorporation
The address of the registered office

Alteration of memorandum of a company:

Different parts of the memorandum have different processes for amendment:

Change in Name Clause: A specific resolution is needed to change the company’s name. The copy of the resolution is delivered to the registrar following adoption. The application for a name change must be submitted in Form INC- 24 together with the required cost. A new certificate of incorporation issued following the name change.
Change to the registered office clause; a form INC 23 application and the required cost must be submitted to the central government in order to change the location of the company registered office.

The clearance of the central government is necessary if the company is switching its registered office. The central government must resolve the issue within 60 days and should make sure that all the parties involved in the enterprise are in agreement with the new location.

Change to the object clause ; a specific resolution must be adopted in order to make changes to the object clause. The authority must approve the adjustment. The revised memorandum should be filed with the registrar together with the paperwork that the validates the change by authority. If the company is a public company the modification must be announced in the newspaper serving the company registered office. The changes to the object clause must also mentioned on the company website.

Alteration to the liability clause ;

The memorandum liability provision cannot be changed without the unanimous written permission of all of the company member. The liability of the company director can be increased by changing the liability clauses. In any scenario the stockholder liability cannot be deemed limitless. The liability provision may be altered by passing a special resolution and sending a copy of the resolution to the registrar of companies.

Alteration to the capital clause:

A regular resolution may change the capital clause of a firm.

The business may,

Boost the company permitted share capital
exchange the shares for stock
divide and consolidate all of its shares
cancel the shares for which a subscription has not been made,
reduce the cancelled shares share capital.

After passing the resolution the modified memorandum of association must be delivered to the registrar within 30 days.

Case law :

K. Leela Kumar vs government of india :

The court ruled that although the articles of association frequently deals with private affairs and cannot be challenged on the ground mentioned above the memorandum of association cannot contain anything that is in violation of the companies act 1956.

NEPC India ltd vs registrar of companies:

The company stating that a business was engaging in activities not stated in the aims clause of the memorandum of association had to be filed within 6 months of the date of knowledge the court held in the case of NEPC India vs registrar of companies

Sivashanmugam vs butterfly marketing :

When the purpose clause said that the firm may join into any partnership for any purpose that may benefits the company the court held in sivashanmugam vs butterfly marketing ltd that this allowed the company to enter into partnership for garment manufacture.

Ashbury railway carriage and iron co. ltd vs riche:

According to lord cairn the memorandum of association is the company charter that specifies its restriction. It has both negative and positive restriction according to lord cairn. In the same way that it positively described the limits of the power it also negatively stated the result of going beyond the limit of power.

Conclusion;

Every organization must have a memorandum of association which is a crucial document. It is recommended you print out this text break it into paragraphs and serially number each one. Regulations must not exceed the authority of the business as specified in the memorandum of association. Because it offers the company advice on a variety of topics the company must maintain it. Additionally it aids in the management of business administration. It is a crucial component of the company incorporation. If a change is made the firm mu[1]st follow a legal process that is outlined in the 2013 companies act.

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