1. Company Law
Unit - 3
By Radhika Gohel
Faculty of Company Law

2. Memorandum Of Association
 Memorandum of association is one of the documents which
has to filed with the registrar of companies at the time of
incorporation of a company.
 The memorandum of association is an extremely important
document in relation to the affairs of the company. It contains
the fundamental conditions upon which alone the company is
allowed to be incorporated.
 The purpose of the memorandum is to enable shareholders,
creditors and those who deal with the company to know what
is the permitted range of the enterprise.

3. Cont.
 It defines as well as confines the powers of the company; it not
only shows the object of its formation, but also the utmost
possible scope of its operation beyond which its action cannot
go.
 Lord Cairns in Ashbury Railway Carriage Co. V. Riche
pointed out, “The memorandum is as it were, the area beyond
which the action of the company cannot go; inside that area
the shareholders may make such regulations for their own
government as they think fit.”
 It defines the scope of the company’s activities and its
relations with the outside world.

4. Definition
Section 2(28)defines a memorandum to mean
“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.”

5. FORM OF MEMORANDUM
OF ASSOCIATION
 Section 14 of the Companies Act provides that the
memorandum of association should be in any one of the Forms
(or in any form as near to them as possible) specified in:
 --Table B (if it is limited by shares)
 --Table C (if it is limited by guarantee and not having share
capital)
 --Table D (if it is limited by guarantee and having share
capital)
 --Table E (if it is an unlimited company)

6. Purpose of memorandum
 The purpose of the memorandum is two fold.
1. To let the share holder who contemplates the investment of his
capital know within what field it is to be put at risk.
2. Anyone who will deal with the company will know without
reasonable doubt whether the contractual relation into which
he decides entering with the company is one relating to a
matter within its corporate objects.
• The memorandum shall be printed, divided into consecutively
numbered paragraphs, and shall be signed by each subscriber,
with his address, description and occupation added, the
presence of at least one witness who will attest the same.

7. Contents of Memorandum
 According to section 13, the memorandum of association of
every company must contain the following clauses:
1. The name of the co.
2. The registered office of the co.
3. The objects of the company to be classified as:
a. The main objects of the company to be pursued by the
company on its incorporation and objects incidental to the
attainments of the main objects, and
b. Other objects not included above

8. Cont.
4. In the case of companies with object not confined to one state,
the states to whose territories the objects extend.
5. The liability of members is limited if the company is limited
by shares or by guarantee.
6. In the case of a company having a share capital, the amount of
share capital with which the company proposes to be
registered and its division into shares of a fixed amount.

9. Different clauses
1. Name clause:
2. Registered office clause: [DOMICILE CLAUSE]
3. Objects clause:
4. Liability clause:
5. Capital clause:
6. Association or subscription clause:

10. Name clause
 No company shall be registered by a which is identical or which too nearly
resembles the name of an existing company
 that the public are likely to be deceived
 Every public company must write the word “LIMITED” after its name.
 A company cannot adopt a name which violates the provisions of the
emblems and names act 1950.
 This act prohibits the use of the name and emblems of the united nation,
and the world health organization, the official seal and emblem of the
central and the state governments, the Indian National Flag, the name and
pictorial representation of Mahatma Gandhi and the prime minister of
India.

11. Registered office clause: [DOMICILE
CLAUSE
 Firstly, It ascertains the domicile and nationality of a company. This
domicile clings to it throughout its existence.
 Secondly, it is the place where various registers relating to the company
must be kept and to which all communications and notices must be sent.
 Such office must be in existence from the date on which the company
begins to carry on business or within 30 days after incorporation,
whichever is earlier.
 Notice of situation of the registered office and every change therein must
be given within 30 days from the date of incorporation of the company.

12. Objects clause
 The objects clause is the most important clause in the memorandum of
association of a company. It is not merely a record of what is contemplated
by the subscribers, but it serves a two-told purpose:
(a) It gives an idea to the prospective shareholders the purposes for which
their money will be utilized.
(b) It enables the persons dealing with the company to ascertain its powers.
 The objects clause must state separately:
(a) Main objects. This sub-clause has to state the main objects to be pursued
by the company on its incorporation and objects incidental or ancillary to
the attainment of the main objects.
(b) Other objects. This sub-clause shall state other objects which are not
included in the above clause.

13. Liability clause
 This clause states that the liability of the members of the company is
limited. In the company is limited.
 In the case of a company limited by shares, the member is liable only to
the amount unpaid on the shares taken by him.
 In the case of a company limited by guarantee the members are liable to
the amount undertaken to be contributed by them to the assets of the
company in the event of its being wound up. However, this clause is
omitted from the memorandum of association of unlimited companies.
 If a company carries on business for more than six months, while the
number of members is less than 7, in the case of public company and less
than 2 in case of a private company each member aware of this fact, is
liable for all the debts contracted by the company after the period of six
months has elapsed.

14. Capital clause
 The capital clause in the memorandum of a co., having a share capital,
states the amount of capital with which it is registered, divided into shares
of a certain amount.
 This capital called the “registered” , “nominal” , or “authorized” capital.
 The effect of this clause is that the co. cannot issue more shares than the
authorized for the memorandum for the time being.
 A public co. can issue only kinds of shares – preference and equity and the
shares must not give disproportionate voting rights.
 A pvt. Co. may however, issue any kinds of share & with
disproportional voting rights.

15. Association or subscription clause
 This clause provides that those who have agreed to subscribe to the
memorandum must signify their willingness to associate and form a
company. According to section 12 of the act, at least two persons in the
case of a private company.
 The memorandum has to be signed by each subscriber in the presence of at
least one witness who must attest the signatures. Each subscriber must
write opposite his name the number of shares he shall take. No subscriber
of the memorandum shall take less than one share. This clause need not be
numbered.

16. Alteration of memorandum of
association
 For the purpose of alteration, the provisions contained in the memorandum
are classified into two heads.
 Condition
Conditions are those provisions which are compulsory clauses,
namely, the name, the registered office, objects, limited liability & share
capital.
 Other provisions
The other provisions, such as the terms of appointment of MD of
manager contained in the MOA can be altered by a special resolution with
the approval of the Central Govt., or a clause in the memorandum fixing
limit of dividends to be paid on a particular class of shares can be altered
by a sp. Resolution.

17. Alteration of name
•
The name of the co. can be changed any time by a sp. Resolution and with
the written approval of the central government. If the change merely
involves the addition or deletion of the word “PRIVATE” on the
conversion of a public co. into pvt. Co. or vice versa, no approval of the
central govt. is necessary.
•
It must be communicated to the registrar by filing a printed or type written
copy of sp. Resolution within 30 days of the passing thereof. The registrar
will then issue a fresh certificate of incorporation, and the change of
name will be effective only there after. The changed name should be noted
in each copy of the memorandum and articles.
•
It affect any rights and obligations of the company, or legal proceedings
commenced under the old name.

18. Alteration in registered office
(a) Change within the local limits of same town
-Simply by a Board resolution and then giving a notice of the change to the
Registrar in e-Form No. 18 within 30 days of such change.
-There is no need to alter memorandum.
(b) Change from one city to another within the same State
-By passing a special resolution in the general meeting of the company and
filing e-Form 23 with a copy of the resolution to ROC within 30 days –
Also a notice to ROC of the new location of the office in e-Form No. 18
– No need to alter memorandum.
(c) Change of Registered office from one State to another
-As per Section 17, the company to pass a special resolution and it must be
confirmed by the Company Law Board/Central Government.

19. Alteration Of Objects Clause Of The
Company
According to Section 17(1), such change is possible only for
certain reasons like:
(a) to carry on its business more economically and more
efficiently;
(b) to attain its main objects by new or improved means;
(c) to enlarge or change the local area of its operations;
(d) to sell or dispose of the whole, or any part of the undertaking,
or of the undertakings, of the company;
(e) amalgamate with any other company

20. Cont.
Before confirming the alteration, the Company Law
Board/Central Government must be satisfied that proper notice
has been given to every debenture holder or creditor, his
objections are considered and either he is satisfied or is paid
off.
– CLB/CG shall arrange to serve notice to ROC for his
objections also, if any.
– Notice may also be served on the State Government concerned
for its objections or suggestions.
-The certificate shall be conclusive evidence.

21. Alteration Of Liability Clause
-Ordinarily, the limited liability clause of a company cannot be
altered so as to make the liability unlimited, unless permitted
by the articles and consented by the person like manager or
director concerned who is likely to be affected by the same.
-Section 32 permits an unlimited company to register as a limited
company but it shall not affect any debts or liabilities incurred
before the conversion.
-The whole procedure for forming a new company will have to
be followed in respect of the above sections.

22. Alteration Of Capital Clause
(a) A company can make the certain alterations by an ordinary
resolution, if authorised by its articles to do so (Section 94):
-increase its share capital or consolidate existing shares or
subdividing existing shares or converting fully paid shares into
stock and vice versa or cancelling unissued shares.
-The above alterations do not need the confirmation of CLB but
notice of the resolution to be filed with ROC within 30 days

23. Cont.
(b) Increase in Share Capital is possible if permitted by AOA
and by passing an ordinary resolution
– Notice of resolution to be filed with ROC within 30
– This procedure is not necessary if it is ordered by CG to
convert any debentures into shares or where any PFI converts
any debentures issued by company based on options attached

24. Cont.
(c) Reduction of capital: Share capital of a company can be
reduced by extinguishing liability on share capital not paid up
or by writing off lost capital etc.
-A company can reduce its share capital by any of the above
mentioned methods, only if permitted by AOA and by passing
a special resolution and also after obtaining confirmation by
Court (to safeguard the interest of creditors)
-However, the above mentioned procedure is not necessary if
redeemable preference shares are redeemed or when shares are
forfeited for non payment of calls.

25. Articles of Association
 As per Section 2(2), ‘articles’ means “the articles 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.”
 The articles of association of a company are its bye-law or
rules and regulations that govern the management of its
internal affairs and the conduct of its business. They are
subordinate to and are controlled by the memorandum of
association.

26. Cont.
 The memorandum lays down the scope and powers of the
company, and the articles govern the ways in which the
objects of the company are to be carried out.
 The following companies must have their own articles viz.
unlimited companies, companies limited by guarantee and
private companies limited by shares under the Companies
Act.

27. REGISTRATION OF ARTICLES
 According to Section 26,
 public company limited by shares – may at its option
If articles are not registered, automatically Table A
applies.
 The articles of a private company must contain the four
restrictions as contained in Section 3(1)(iii).
 The articles of association of an unlimited company should
state the number of members with which the company is to
be registered and the amount of share capital with which it is
to be registered.
 A company limited by guarantee or a private company
limited by shares or an unlimited company must register their
articles.

28. STATUTORY REQUIREMENTS
As per Section 30, articles
must be printed,
divided into paragraphs,
 numbered consecutively,
stamped adequately,
signed by each subscriber to the memorandum and duly
witnessed and filed along with the memorandum.

29. CONTENTS OF ARTICLES
 It generally contains matters
like





number and value of shares,
allotment of shares,
calls,
lien,
transfer and transmission of
shares,
 alteration of capital,







voting rights, meetings,
directors, seal,
borrowing powers,
dividends,
accounts,
audit,
winding up etc.

30. Cont.
 Articles cannot contain any provision for expulsion of a
member though Stock Exchanges incorporated under the
Companies Act may have such provisions.

31. ALTERATION OF ARTICLES OF
ASSOCIATION
 The right to alter the article is subject to certain conditions
like;
 it should not exceed the powers given in MOA and the Act,
 it should not lead to illegality,
 it should not liberalise the provisions of MOA or the Act,
 it should not expulsion a fraud on minority,
 it should not relieve the company from any existing liability
and it cannot have retrospective effect.
 Effect of Altered Articles
 Alteration binds members in the same way as original articles.

32. LEGAL EFFECT OF THE
MEMORANDUM AND ARTICLES
 The memorandum and articles, when registered, bind the
company and its members to the same extent as if they have
been signed by the company and by each member.
 Therefore, each member is bound to the Company and
vice versa on the basis of the conditions of MOA
 However a member is not bound to another member
directly on the basis of MOA

33. Cont.
 Similarly the company is not bound to outsiders (nonmembers) even if their names are mentioned in MOA
 If directors contravene any provisions of AOA, if it is not
ratified by members, the directors are liable to members

34. DOCTRINE OF ULTRA VIRES
 “Ultra” means “beyond”, & “vires” means “powers”. MoA
of a Co. defines the powers of the co.
 Any act done contrary to or in excess of the scope of the
activity as laid down by its MoA is ultra vires the company, i.e
beyond the legal powers and authority of the co. & will be
wholly void & not binding on the co. In the case of a company
whatever is not stated in the memorandum as the objects or
powers is prohibited by the doctrine of ultra vires (ultra means
beyond and vires means powers) As a result, an act which is
ultra vires the company is void, and does not bind the
company.

35. Cont.
 Neither the company nor the other contracting party can sue on it.
The company cannot make it valid, even if every member assents to





it.
-If the act is ultra vires the directors only, it can be ratified by the
company
-The rule is meant to protect shareholders and the creditors of the
company.
-A shareholder can get back his money under ultra vires allotment of
shares
-Where money is borrowed intra vires but is afterwards misapplied
by a director, the lender’s right to recover from the company is not
affected
-If a third party has knowledge of ultra vires nature of the
transaction, he cannot enforce such a transaction .

36. Doctrine of Indoor Management

38. Assignment to be submitted before
5/10/2013
Que. 1 Distinguish between
MoA & AoA
And
Que. 2 Doctrine of Indoor
Management