Author : Bhavadharani.G
College : Dr.Ambedkar law university ( School of excellence in law) Chennai.
This paper aims at explaining the concept of “Memorandum of Association”. It is a legal document which is made for the process of a company which defines the relationship with its shareholders. It is approachable to the general public and outlines the name of the company, address of the registered office, shareholder’s name and their dispersal of shares. The paper will also analysis the memorandum of association of the Companies Act, 1956 and The Companies Act, 2013.
KEYWORDS: Shareholder, Share capital, Memorandum of Association, Companies act.
Memorandum of Association is the charter of the company and defines the scope of its activities. Memorandum of Association defines the relation of the company with the rights of the members of the company interest and also establishes the relationship of the company with the members.
As per Section 2(56) of the Companies act, 2013 “ memorandum” means 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 this act.
Forms of Memorandum of Association:
Section 4(6) of the Companies Act, 2013 provides that the memorandum of association should be in any one of the forms specified in Tables A, B, C, D or E of the schedule 1 to the act, as may be applicable in relation to the type of company proposed to be incorporated or in a form as near thereto as the circumstances admit.
i) The form in Table A is applicable in the case of companies limited by shares;
ii) The form in Table B is applicable to companies limited by guarantee not having a share capital;
iii) The form in Table C is applicable to the companies limited by guarantee having a share capital. ;
iv) The form in Table D is applicable to unlimited companies not having share capital;
v) The form in Table E is applicable to unlimited companies having a share capital.
A company shall adopt any of the model forms of the memorandum of association mentioned above, as may be applicable to it.
Contents of Memorandum of Association :
Under Section 4 of the Companies Act 2013, a memorandum of association should comprise of the following clauses as discussed below:
NAME CLAUSE: It is mandatory to mention the name of the company while drafting the memorandum of association. A company may select any name that it prefers but it should not be identical to an existing company. The chosen name of the company as it appears in the memorandum of association should be exactly the same as the one approved by the registrar of companies. A public limited company should end with the word “Limited” and likewise, a private limited company should end with the words “Private Limited”. A company should restrain from using words like “King, Queen, Emperor, Government bodies and names of world bodies like U.N.O, W.H.O, World Bank etc”. In order not to mislead the public a company must not use a name which is prohibited under the Emblems and Names ( Prevention of Improper Use ) Act of 1950. A company is restricted from using any name which may connect it to the government of the state, without obtaining prior permission from the government.
METHODIST CHURCH V. UNION OF INDIA,(1985)1
The Registrar must make preliminary enquires to ensure that the name allowed by him is not misleading or intented to deceive with reference to the objects clause of the memorandum.
T.V.KRISHNA V. ANDHRA PRABHA (P) LTD,(1960)2
The registrar is not however, required to carry out any elaborate investigation at the time of registration of the company. Unless the purpose of the company appears to be unlawful ex-facie or is transparently illegal or prohibited by any statute, it cannot be regarded as an unlawful association.
SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LTD V. MOTOR MANUFACTURERS AND TRADERS MUTUAL INSURANCE CO.LTD3
The plaintiff society was incorporated in 1902 under the name: The Society of motor manufacturers and traders ltd. In 1924 the defendant society was incorporated under the name: Motor Manufacturers and Traders mutual insurance co.ltd. The plaintiff company brought an action to restrain the use of this name. It was held that the defendant company’s name could not be regarded as one “calculated to deceive”
· SITUATION CLAUSE: The Memorandum of Association of a company must contain the name of the state where the company operates and the jurisdiction of the registrar of the company must be specified. It is mandatory for the company to have the registered office within 15 working days. Likewise, the verification of the registered office must be completed in 30 days. This procedure is done to fix the domicile of the company which may or may not be the place where the company is operating.
BHARAT COMMERCE & INDUSTRIES LTD V. REGISTRAR OF COMPANIES (1973)
The court held that the decision of the management was malafide. But on appeal to a division bench his decision was overruled. The court did not like to decide whether it was open to the court to examine the bonafide of the shareholders resolution for removing their office from one state to another.
Where a company want to shift its registered office from New Delhi to Gurgaon, the company’s resolution was confirmed subject to this condition that Delhi based shareholders, who were willing to attend annual general meetings, must be provided free transport facility.4
Where a company had one manufacturing unit in Bihar and the other in Maharashtra and because it had undertaken massive expansion programme in Maharashtra, its desire to carry the registered office to Pune was allowed.5
In the event of a change in location of the registered office the memorandum needs to be altered , the procedure for the same is mentioned below.
OBJECT CLAUSE : The objective for which the company is formed must be mentioned in the memorandum of association. It is one of the key clause and should be drafted carefully mentioning all the types of businesses that the company may possibly engage in future. A company is legally prohibited from carrying out any activity that is not specified in the object clause. The objects are classified as Main objects, Ancilliary objects and other objects. The objects must be stated articulately and must not be ambiguous in nature. The objects must not also be illegal or against the prohibition of the act or the public policy of the country.
CASE LAW: COTMAN V. BROUGHAM6
The main objects rule was excluded by a declaration in the objects clause that “ every clause should be construed as a substantive clause and not limited or restricted by reference to any other sub-clause or by name of the company and none of them should be deemed as merely subsidiary or auxilliary”.
LIABILITY CLAUSE : The liabilities of the members of the company must be clearly stated in the memorandum of association. They may be limited by share or by guarantee. In case of unlimited liability company, the entire clause can be eliminated.
When a company limited by shares, the liability of its members remains limited to any unpaid amount on the shares owned by them. When it is limited by guarantee the members of the company are liable to pay the amount stated in the memorandum at the time of liquidation of the company. In case of unlimited companies, the liability of the members is unlimited, involving personal assets.
CAPITAL CLAUSE : The maximum amount of authorized capital that can be generated by the members of the company is ought to be specified in the memorandum of association. Stamp duty is applicable on this amount. Although there is no legal limit to the maximum amount of capital that can be raised by a company, it cannot increase the authorized share capital once it has been incorporated. The denomination for each such share has to be either Rs.10 or Rs.100 in case of equity and preference shares respectively. A company should make sure that the raised authorized capital is sufficiently high for further expansion of business in the future. All other rights and privileges, as agreed upon by shareholder, creditors, investors and other members of the company may also be specified in this charter.
It is not mandatory for an unlimited company having an authorized share capital to mention it in the memorandum.
ASSOCIATION OR SUBSCRIPTION CLAUSE: The amount of authorized capital and the number of shares owned by each member of the company should be mentioned in the memorandum of association of the company. The subscribers to the memorandum must own a minimum of one share each. Each subscriber must write the number of shares owned by him and sign the memorandum in the presence of at least one witness who is required to attest the signature.
After incorporation no subscriber can withdrawn his name on any ground whatsoever. “ The subscriber to the memorandum cannot have rescission on the ground that he was induced to become a subscriber by the misrepresentation of an agent of the company”.7
But he may withdrawn his name before the memorandum is actually registered as up to that time “ there is no contract at all”.8
CONCLUSION: A Memorandum of Association is a document of vital importance in the incorporation of a company. It should be drafted with utmost sincerity. To amend and alter the name of the organisation, the office of registration, object clause, the authorised share capital of the company and any other legal liabilities, the company is required to a follow a complicated legal procedure as mentioned in the scope of this article. All other social responsibilities and supporting activities and range of other related activities should also be clearly stated in the Memorandum of Association to provide flexibility to undertake new projects as and when the opportunities arise. Hence it is advisable to present the company’s scope of activities in a more generic manner instead of mentioning any particular area of focus.
1. 57 com cases 443 (Bombay).
2. 30 com cases 437 (AP)
3. (1925) 1CH 675:133 LT 330
4. AKS Acoustics (India) ltd re, (1996)
5. Neelachal auto ltd re, (2000)
6. 1918 AC 514
7. Metal Constituents Ltd,re,(1902) 1 CH 707,709:86 LT 291.
8. But see, Banwari Lal v. Kundan cloth Mills Ltd, AIR 1937
Company Law – Avtar Singh