.ARTICLES AND MEMORANDUMS

THE COMPANY ACT 1956

THE COMPANY ACT OF INDIA 1956

Prepared by AbhinavMohan(10DCP-052) Adesh Mittal (10DCP-053) AdhipVarma(10DCP-054) Akanksha Pandit(10DCP-

055) Akash Jauhari(10DCP-056) Alok Kumar Mishra (10DCP-

057) Alok Munjal(10DCP-058) Aniket Pandey(10DCP-059) Ankit Bhardwaj (10DCP-060)

Under the guidance of

Prof CMD P.K.Goel

CONTENTS OF MEMORANDUM OF ASSOCIATION

o Name clause

o Registered office clause

o Capital clause

o Liability Clause

o Objects clause

o Association Clause

NAME CLAUSEAvoid Undesirable Names o Too similar to the name of another companyo Misleading

Prohibition of use of certain names

Ex: Name, emblem or official seal of

UNO

WHO

Central and State government

President and Governor

Limited Public Company

Private Limited Private Company

If the company is promoting art, science, religion etc Limited and Private Limited can avoided with the permission of central government.

REGISTERED OFFICE CLAUSE

State in which Registered office will be situated.

Exact location of registered office should be intimated within 30 days

Rs. 500 fine everyday

CAPITAL CLAUSEo Share capital amount should be specifiedo Cannot issue more shares for the time beingo Equity or Preference shareso Private company can issue any type of shares

OBJECT CLAUSEo Divided in main objectso Company should commence its business with the

main objecto In case of non-trading companies ,state to which the

objects extend should also be mentionedo In case of trading companies, this need not be

mentioned

LIABILITY CLAUSE

MOA of company

Limited by shares or Limited by guarantee

ASSOCIATION CLAUSE

o Subscriber’s name, address should be mentioned in the MOA

o Each subscriber must take at least 1 shareo MOA should be signed byo At least 7 subscriber for Public companyo At least 2 subscriber for Private companyo Attested by at least 1 witness

ALTERATION OR CHANGE IN MEMORANDUM OF ASSOCIATION

"Memorandum of Association is an unalterable document alterable only in accordance with the provisions of law."

According to Section 16 of the Company's Act 1956, "A company shall not alter the conditions contained in its memorandum of association except in the cases, in the mode, and to the extent for which express provision is made in this Act"

Any alteration in the memorandum, as such, is a difficult and complicated process.

ALTERATION OF NAME CLAUSE

By special resolution o With approval from Central Govt. of Indiao For deletion or addition of Private, Central government

approval is not necessary

Ordinary resolutiono Similar name (Approval By Central Govt.)o Change within 12 months of registrationo Rs 100 is punishing amount for everyday for every

responsible in case of default

Fresh certificate of incorporation (Sec 23).o the registrar shall enter the new name o issue a fresh certificate of incorporation.o alter the Memorandum of Association of the company

CHANGE OF REGISTERED OFFICE

Within a State (Special resolution)

Outside the state

(Special resolution, Confirmation by Central Govt.)

Application (Regional Director)

Confirmation(within 4 weeks)

File with registrar (within2 months)

Company Law Board

Confirmation/

Notice to affected (parties, registrar

Rights & Interests

(members, creditors)

File Copy with registrar

ALTERATION OF OBJECTS

Special Resolution

Conditions

o To carry out business more economically or more efficiently

o To attain its main by new improved meanso To enlarge the area of operationo Adding to objects of MOAo To restrict or abandon a objecto To sell or disposeo To amalgamate

Procedure

Special Resolution

Filing the Special

Resolution (within

4weeks)

Certification of Registration

CHANGE IN LIABILITY CLAUSEo The liability of a member of a company cannot be increased

unless the member agrees in writing.o From unlimited liability, it can be made limited by re-

registration of the company

CHANGE IN CAPITAL CLAUSE

o Increase of authorized share capital.o Consolidation and subdivision of shares.o Conversion of shares into stock & vice versa.o Diminution of share capital

ARTICLES OF ASSOCIATION

Simple Definition: - A document describing the purpose, place of business and detail of a nonprofit organization

Explanatory Definition: - The Articles of Association contain, as per the law requires, provisions on the company name, address and domicile, the purpose of the company, the amount of share capital and the contributions made thereto, the number, the par value and the type of shares, the calling of a general meeting of shareholders and the voting rights of them, the bodies for the administration and the audit, and the form in which the company shall publish notices.

ESSENTIAL CONSTITUENTS OF ARTICLE OF ASSOCIATION:- Provision on the company name Address and Domicile Purpose Share Capital Numbers Type of Shares General meeting of shareholders Voting rights Administration and Audit body Form of publishing notice

PROVISIONS FOR ARTICLE OF ASSOCIATION The name of Association The Registered office of the Association Purpose which includes the various verticals in which the

business is going to be there with the objectives and long term goal of the company.

Details of Share’s of Company and there classification and distribution. The rights of owner and the shareholder

Details of all the Shared Certificates and Intermediated securities

Share Register Power of general meetings which includes the duration of

Annual general meeting , the voting rights and the weighted of each vote

Presiding officers and the minutes of general meeting

PROVISIONS FOR ARTICLE OF ASSOCIATION Number of directors Term of office Organization of board , Remunerations Powers of board in general Delegations of Powers No of Auditors and Rights and Duties of Auditors Details of financial year of the company Business Report Appropriation of profit resulting from the balance sheet Notices Winding up.

ALTERATIONS OF ARTICLES

1. Every company has the power to alter its articles of association by a special resolution.

2. Limitations on the power of alteration3. 1) It must not be in contravention of the provisions of the

Act.4. 2) The power of Alteration in the article is subject to the

conditions contained in the MoA.5. 3)An Alteration cannot require a member to purchase more

shares or increase his liability in any way except with his consent in writing.(s.38- effect of alteration in the MoA or AoA)

6. 4)Alteration must not constitute a fraud on the Minority

DIFFERENCES BETWEENMEMORANDUMS OF ASSOCIATION AND ARTICLES

OF ASSOCIATIONMemorandums Articles

1. The Memorandum of Association is a document that sets out the constitution of the company. It contains, amongst others, the objects and the scope of activity of the company and also defines the relationship of the company with the outside world.

2. The memorandum describes the company’s Objective and power it possesses.

1. The Articles of Associations are the regulations governing the internal affairs of the company, and are a requirement for the establishment of a company under the Company Act 1956.

2. The article describes how these objectives will be achieved and power exercised.

DIFFERENCES BETWEENMEMORANDUMS OF ASSOCIATION AND

ARTICLES OF ASSOCIATION

Memorandums Articles

3. The Company Act requires the Memorandums to be explained with great details.

4. Memorandum contain the fundamental condition upon which alone company is incorporated.They are the condition introduced for benefit of creditors, share holders and outside people.

5. Memorandums lay down the limitation beyond which the company cannot go.

3. Such high details about Articles are not mandatory.

4. The Articles of association are internal regulations; they only regulate the relationship between company and its members and members among themselves.

5. Articles are subordinate and are governed by Memorandum.

DIFFERENCES BETWEENMEMORANDUMS OF ASSOCIATION AND ARTICLES

OF ASSOCIATION

Memorandums Articles

6. Memorandums of association can be altered only under certain circumstances and under manner provided by the act.

7. Memorandums can be altered after taking permission fromCentral government, Company Law board, Court ;Besides general body meeting of share holders.

8. Acts done by a company beyond the scope of Memorandum are void.They cannot be rectified even by unanimous vote by share holders.

6. Articles can be altered in a simpler manner by passing resolutions, outside Authority may not be involved.

7. Articles can alter by members by passing a special resolution.

8. Acts done beyond Articles rectified provided they are not beyond memorandums.

EFFECTS OF MEMORANDUM AND ARTICLES

1. Members bound to Company

 Each Member must observe the provisions of articles and memorandum.

In Boreland Trustee vs. Steel Brothers – it was held that a even a insolvent member is bound to articles.

Shareholders therefore cannot among themselves enter into an agreement which is contrary to articles.

EFFECTS OF MEMORANDUM AND ARTICLES

2. Company bound to members

A company is bound to its members by whatever is contained in its memorandums and articles.

A member can restrain a company for spending money beyond its powers.

A member can breach company for enforcement of personal right like voting in general meeting.

Action of breach of article against company can be brought only by a majority of members.

EFFECTS OF MEMORANDUM AND ARTICLES

3. Members bound to members

Rights and duties as stated in articles binds members.

Articles do not create a express contract between members.

It is a company alone which can sue the offender so as to protect the aggrieved member.

DOCTRINE OF CONSTRUCTIVE NOTICE : A companies memorandum and article of association

become a public documents on registration with the Registrar of companies .

These doc’s are available for public inspection in the registrar’s office of fees prescribed

Every person who deals with the company is deemed to know the content of these two doc’s—this is known as Doctrine of constructive notice.

It is presumed that the person who deals with the company have not only read these doc’s but also understood their clear meaning.

Therefore if a person enters into a contract , which is beyond the power of the company, he cannot acquire any rights under the contract against the company

CASE: Case-kotla venkatswami v ram murthi-here all deeds

were to be signed by the managing dir. The secretary ,and a working dir as per article of the company .

Now Ram accepted deeds from the company which was signed by only two of them on behalf of the company . therefore ram could not claim under this deed

STATUTORY REFORM OF CONSTRUCTIVE NOTICE

o The ‘doctrine of constructive notice’ is more or less an unreal doctrine. It does not take notice of the realities of business life. People know a company through its officers and not through its documents.

Conclusion:

o Thus, the doctrine of constructive notice seeks too protect the company against the outsider by deeming that such an outsider had the notice of the public documents of the company. However, in India the courts with a view to protect the innocent third parties acting in good faith have not relied upon the doctrine seriously.

DOCTRINE OF INDOOR MANAGEMENT The doctrine of indoor management is an exception to the

rule of constructive notice. According to this doctrine, a person dealing with a company is bound to read only the public documents. He will not be affected by any irregularity in the internal management of the company.

The rule of indoor management had its genesis in Royal British Bank v. Turquand- The directors of the company borrowed a sum of money from the plaintiff

-The company was however held bound for the loan. Once it was found that the directors could borrow subject to a resolution, the plaintiff had the right to assume that the necessary resolution must have been passed.

 -The rule is based on public convenience and justice and the following obvious reasons:

The internal procedure is not a matter of public knowledge. An outsider is presumed to know the constitution of a company, but not what may or may not have taken place within the doors that are closed to him.     2. The lot of creditors of a limited company is not a particularly happy one; it would be unhappier still if the company could escape liability by denying the authority of officials to act on its behalf

   -  The rule/doctrine is applied to protect persons contracting with companies from all kinds of internal irregularities

EXCEPTIONS TO THE RULE:

 Knowledge of irregularity 

Negligence and suspicion of irregularity

 Representation through articles

CASE STUDY

NUCLEAR POWER CORPORATION OF INDIA LIMITED

(PUBLIC COMPANY LIMITED BY SHARES)

MEMORANDUM OF ASSOCIATION

Last amended

Organization’s objective

Core Members

Share Capital

ARTICLE OF ASSOCIATION

Rules And Regulations of the Organization

Board Of Directors

Audit Mechanism