Memorandum of Association

 

Meaning and Importance

For the formation of a company one of the first steps is to prepare a document called the memorandum of association. According to the Act, ‘memorandum’ means “the memorandum of association of a company as originally framed or altered from time to time in pursuance of any previous companies law or of this Act”.

21 This definition however, does not state the nature of this document nor is indicative of its importance. According to Lord Cairns, the memorandum of association of a company is its charter and defines the limitations of the powers of a company. It contains the fundamental condition upon which alone the company is allowed to be incorporated.

Thus the memorandum of association is the charter of the company, but it is not unalterable. The memorandum shall be drawn up in such a form as is given in Tables B,C,D and E in Schedule I to the Act. It has to be printed, divided into paragraphs, numbered consecutively and signed by at least 7 persons (2 in the case of private company) in the presence of at least one witness, who will attest the signature(s). Each of the subscribers shall at least take one share.

 

Contents

The memorandum of a limited company is to contain the following clauses:

a) Name of the Company — With ‘limited’ or ‘private limited’ as the last word(s) of the name.

b) Registered Office — The name of the state in which the registered office is to be situated.

c) Objects of the Company — Stating separately:

i. The main objects.

ii. Incidental or ancillary objects.

iii. Other objects not included in (i) and (ii) above.

d) Liability — A declaration is made that the liability of the member is limited.

e) Capital — The amount of authorised share capital divided into shares of fixed amounts.

f) Association or Subscription — The initial members are called subscribers, who sign the memorandum in the presence of one witness.

The above clauses of the memorandum are called compulsory clauses. In addition to these, the memorandum may contain other information, for example, rights attached to various classes of shares. The memorandum cannot contain anything contrary to the provisions of the Act.

 

Doctrine of ‘Ultra-vires’

The word ‘ultra’ means beyond and the word ‘vires’ means the powers. Therefore the term ‘ultravires’ means beyond the powers. In case of a company, it means beyond the powers of the company.

The powers of a company are contained in the statute constituting it and the memorandum of association.

The rule of ultra-vires was for the first time laid down in the case of Ashbury Railway Carriage and Iron Company Ltd. v. Riche.22 In this case the company was formed with the object ‘to make and sell, or lend or hire railway carriage and wagons and all kinds of railway plants, to carry on the business of mechanical engineers and general contractors’. The company contracted with Riche to finance the construction of railway line in Belgium.

The company repudiated the agreement and was sued for breach of contract. Riche contended firstly, that the contract in question came well within the meaning of the words ‘general contractors’, and, was therefore, within the powers of the company, Secondly, that the contract was ratified by the majority of the shareholders.

The court (House of Lords) held that the term ‘general contractors’ must be taken to indicate the making generally of such contracts as were connected with the business of mechanical engineers, otherwise it would authorise the making of contracts of any kind and every description and would, therefore, be altogether un-meaningful. Hence the contract was entirely beyond the objects in the memorandum of association. The effects of ultra-vires transactions are:

a) Void abinitio – The ultra-vires acts are null and void abinitio (The company is not bound by these acts).

b) Injunction – A member can get an order of restraint (injunction) from the court against such an act (ultra-vires) of the company.

c) Personal liability of directors – For ultra-vires acts of the company, directors will be personally liable.

d) Acquisition of property that is ultra-vires – In such a case company’s right over such property is held secured.

e) Directors are personally liable to third parties.

 

Alteration of Memorandum

The contents of a memorandum can be altered only in the manner and to the extent provided in the Act. All the clauses of the memorandum, except the subscription clause can be changed. The provisions regarding alteration of clauses can be summarized as follows:

a) Alteration of name clause.

i. For the change of name special resolution by a company and written approval of the central government is required. However no approval of the central government is necessary if the change of name involves only the addition or deletion of the word ‘Private’.

ii. When name is identical or too closely resembles the name of an existing company then change of name can be done by passing an ordinary resolution and the written approval of the central government.

 

b) Change of registered office.

i. From one premises to another premises in the same city, town or village, by passing a resolution of the Board of Directors.

ii. From one town or city or village to another town or city or village in the same state, by passing a special resolution. Confirmation of Regional Director is required if the jurisdiction of the Registrar of company is changed. A copy of the special resolution and the confirmation of the Regional Director, if required, is to be filed with the Registrar who is also given notice of new location within thirty days.

iii. From one state to another state special resolution and confirmation of the central government is required. This change is permissible only for certain purposes as given in Section 17 of the Act.

c) Alteration of objects clause:

i. Special resolution is passed by the company and a copy of the same is filed with the Registrar within 30 days.

ii. Alteration is sought on any of these grounds.

a. To carry on its business more economically and more efficiently.

b. To attain its main purpose by new or improved means.

c. To enlarge or change the local areas of its operations.

d. To carry on some business which under existing circumstances may conveniently          or advantageously be combined with the business of the company.

e. To restrict or abandon any of the objects specified in the memorandum.

f. To sell or dispose off the whole or any part of the undertaking.

g. To amalgamate with any other company.

 

d) Alteration of liability clause:

i. The liability of a member of a company cannot be increased unless the member agrees in writing.

ii. From unlimited liability, it can be made limited by re-registration of the company.

 

e) Alteration of capital clause:

If the articles authorise a company limited by share capital may by an ordinary resolution alter the capital so as:

i. To increase the authorised share capital.

ii. To consolidate and subdivide share.

iii. To convert shares into stock and vice versa.

iv. To cancel shares not taken up.

 
 

 

 

 

 

 

 

Registration


A password will be e-mailed to you.

Feedback Form

Name (required)

Email (required)

Feedback