Chapter :-2

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Memorandum of Association & Articles of Association

Memorandum of Association

The first step is the formation of a company is to prepare memorandum of association. This is also known as constitution of the company.

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What is Memorandum of Association of a company?

• Is the constitution or charter of the company and contains the powers of the company. No company can be registered under the Companies Act, 1956 without the memorandum of association. Under Section 2(28) of the Companies Act, 1956 the “Memorandum means the memorandum of association of the company as originally framed or as altered from time to time in pursuance with any of the previous companies law or the Companies Act, 1956.”

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Six Clauses

CONTENTS OF MEMORANDUM OF ASSOCIATION

Name Registeredoffice

Liability CapitalAssociation

or subscription

Objects

1. Name Clause[ section 13(1)(a)]

• The memorandum must state the name of the company with ‘limited ‘ as the word ,in case of a public limited company and with ‘private limited', in the case of a private limited company .the company is free to choose any name but it must not be undesirable or must not resemble the name of any other registered company.

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2.Registered office clause [section 13(1)(b)]

• The state in which the registered office of a company will be situated is mentioned in this clause .the registered office of the company is the official address of the company where the statutory books and records must normally be kept

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3. Object Clause section 13(1)(c)&(b)]

This clause is quite important and must be very carefully drafted as it determines the activities of the company. In the object clause each and every detail of activities of the business to be carried out must be laid down.

Main object:- this sub-clause contains the main objects of the company to the pursued on its incorporation

Objects incidental or ancillary :- it covers the objects which are incidental or ancillary to the attainment of the main object

Other objects :- this sub-clause will cover any objects which are not included in the ‘main objects ‘

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4. Liability Clause[section 13(2)] This clause states the nature of liability of the members of

the company .in the case of a company limited by share or by guarantee the fact that the liability of its members is limited must be made absolutely clear . In case of a company limited by shares the liability of a member is limited to the nominal value of the share held by him .if the share are fully paid up his liability is nil. But in case of partly paid-up shares the liability is limited to the amount which is unpaid.

In case of a company limited by guarantee ,the liability clause must state the amount which every member undertakes to contribute to the assets of the company in the event of its winding up

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5. Capital Clause[section 13(4)(a)]

• This clause states that amount of the capital with which the company is to be registered .this clause should also state the number and face value of shares into which the capital of the company is divided

• The capital with which the company is ‘registered’ or ‘nominal’ or ‘authorized’

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6. Association clause [section 13(4)(c)]

• The association clause states – in this cause , the subscribes declare that they desire to be formed into a company and agree to take the shares stated against their names .the names ,address and occupation of the subscribers must be given each subscriber must sign in the presence of at least

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Case: Company for Restaurant • Husband and wife, Niraj and Seema Mishra, based in

Mumbai, are forming a company. They want a short name for the company with their surname in it. The company is being formed to run a restaurant. They project they would need 20 lakhs as the capital of the company. Immediately, the husband would contribute Rs. 2,00,000 to the share capital of the company and wife Rs. 10. Mr. Mishra hopes to find others, after the company is formed, to take the shares of the company. They also contemplate occasionally hiring out the car they would buy for the company. Develop a Memorandum of Association for the Company.

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Memorandum of Association of the Mishra private limited

I . The name of the company is Mishra Private Limited II. The registered office of the company will be situated

in the state of Maharashtra.III. The objective for which the company is begin

established are as follows:a. Main object: running of restaurantsb.Ancillary object : opening bank accounts, hiring

premises an running of bakeryc. Other objects: Hiring out of vechicles

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IV. The liability of the members is limitedv. The authorized share capital of the company

is RS.20,00,000,divided into 2,00,000

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S.NO Name & Addresses description & occupation of subscribers

No . Of equity shares taken by each subscriber

Signature of subscriber

Name / address description and occupation of witness

• Special Resolution.• Written Approval of Central Government.• No Approval of Central Government is

necessary if the change of name involves only the addition or deletion of the word “Private”.

• Change by ordinary resolution and approval of Central Government when name is identical or too closely resembles the name of an existing company.

ALTERATION OF NAME CLAUSE

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From one premises to another premises in the same city, town or village

• By passing a resolution of Board of Directors

CHANGE OF REGISTERED OFFICE

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From one town or city or village to another town or city or village in the same state

1. Special Resolution.2. Confirmation of Regional Director — when

jurisdiction of Registrar of companies is changed.

3. Copy of (i) & (ii) to be filed with ROC.4. Notice of new location to ROC within 30

days.

CHANGE OF REGISTERED OFFICE

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From one state to another state1. Special Resolution2. Confirmation of Central Govt.3. For certain Purposes only

(As given in section 17)

CHANGE OF REGISTERED OFFICE

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A. Special ResolutionB. Alteration is sought on any of these grounds:

• To carry on its business more economically & more efficiently

• To attain its main purpose by new or improved means• To enlarge or change the local area of its operations• To carry on some business which under existing

circumstances may conveniently or advantageously be combined with the business of the company

• To restrict or abandon any of the objects specified in the memorandum

• To sell or dispose off the whole or any part of the undertaking

• To amalgamate with any other companyC. Copy of (A) is filed with ROC within 30 days

ALTERATION OF OBJECTS CLAUSE

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

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

ALTERATION OF LIABILITY CLAUSE

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• A company can reduce share capital by first passing a special resolution for reduction of capital .but powers to reduce share capital must be guaranteed in the articles of the company ,otherwise the share capital can be altered by special resolution giving such powers

• The company can apply to the court by petition for getting confirmation from the court for reducing the share capital . The main duty of the court is to look after the interest of the creditors and different classes of shareholders , and then decide whether the company should be allowed to reduce share capital .

ALTERATION OF CAPITAL CLAUSE

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The words :• Ultra means beyond• Vires means the powers• Ultra Vires means beyond the powers

A company which owes its incorporation to statutory authority cannot effectively do anything beyond the powers expressly or impliedly conferred upon it by the statute or Memorandum of Association.

DOCTRINE OF ‘ULTRA VIRES’

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Articles Of Association

• A document that specifies the regulations for a company's operations. The articles of association define the company's purpose and lays out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled.

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Items covered by the Articles of Association include :-

• The important• Powers, duties, rights and liabilities of Directors• Powers, duties, rights and liabilities of members• Rules for Meetings of the Company• Dividends• Borrowing powers of the company• Calls on shares• Transfer & transmission of shares• Forfeiture of shares• Voting powers of members

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Companies which must have Articles

• Unlimited Companies:– The Articles of such a company must state:

• Total number of members; and• Share capital.

• Companies limited by Guarantee:– Articles of such company must state total

number of members.

Companies which must have Articles …contd.

• Private Companies limited by shares:– must include requirements of Section

3(1)(iii).

No Article Company• A public limited company having share

capital may be registered without Articles.

Doctrine Of Ultra Vires

• Ultra vires to the articles of association• Ultra vires the memorandum of Association

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Alteration of Articles

• Articles may be altered by a company by passing special resolution at a general body meeting of shareholders

Doctrine of Constructive Notice

• According to Section 610, every person dealing with the company is deemed to have read M/A and A/A and understood the contents thereof in the correct perspective.

• Doctrine of Indoor Management

• Rule of Indoor Management is an exception to the Doctrine of Constructive notice.

Memorandum of Association Articles of Association

Charter of Company Regulations for internal management

Defines the scope of the activities Rules for carrying out the objects of company.

Supreme document Subordinate to the memorandum.

Must for every company Company limited by shares need not have it (Table ‘A’ applies)

Strict restrictions, alteration only with sanction of central govt./ tribunal.

Can be altered by special resolution.

It define the relationship between the company & the outsiders

It define the relationship between company & its staff and between members & members interests