UNIT 4

● Memorandum of Association
● According to section 2(56), “memorandum” means memorandum of association of the
company as originally framed and altered from time to time and registered under the Act.
● In the absence of clear definition of Memorandum under the Companies Act,
memorandum can defined as:
- It is the charter of the company
- It is the constitution of the company
- It gives the fundamental conditions under which a company is incorporated
- It defines the objects of the company
- It specifies the scope of power of the company

● Every company registered under the Act must have a memorandum of association
● Anything done beyond the scope of the memorandum is ultra vires and cannot be
ratified even by the whole body of shareholders
● Purpose of Memorandum
● It enables the investor to know the purpose for which his money will be used by the
company, and the extent of risk he takes while making investments
● Anyone dealing with the company will know without doubt, the contractual powers and
limitations of the company
● Form of Memorandum: [sec.4]
● The memorandum of association should be in the following forms specified in Schedule-
1 depending on the type of the Company
● Table A - for companies limited by shares
● Table B - for companies limited by guarantee and not having share capital
● Table C - For company limited by guarantee and having share capital
● Table D - for unlimited companies and not having share capital
● Table E - for unlimited companies and having share capital
● A company may either adopt the model form as specified or may prepare it on its own
● Contents of Memorandum
● According to Section 4(1), the memorandum of a company must state -
a) Name Clause
b) Situation clause of Registered office clause
c) Objects clause
d) Liability Clause
e) Capital Clause
f) In the case of One person Company, the name of the person who, in the event of
the death of the subscriber, shall become the members of the company
● The above clauses are compulsory and are designated as “conditions” prescribed by the
Act, on the basis of which a company is incorporated
● It is to be noted that the Companies Act 2013 shall override the provisions in the
memorandum of a company, if the latter contains anything contrary to the provisions in
the Act (section 6)
a) Name clause (section 4(1)(a))
● The name of the company shall end with “limited” in case of public company and with the
words “private limited” in case of private company. These words can be dispensed with
in case of section 8 companies
● The names of the company should be one which is not undesirable and should not be
similar or identical with that of an existing company or misleading names
● While designing the name clause, the provisions of the Emblems and Names
(Prevention of Improper Use) Act 1950 and guidelines of MCA should be complied with
● The central government prohibited the use of the names and emblems by companies in
trademarks and patents; name and emblems of the international organisations, the
indian national flag, the official seal and emblems of the government, the name and
pictorial representation of national leaders
● Further, as per sect 4(2) any word that gives the impression that the company is
connected with the government, or any local authority, corporation of government, shall
not be used.
b) Situation clause or registered office clause (sec 12)
● It shall give the name of the state in which the registered office of the company is to be
situated. The actual situation of registered office can be filed with the ROC within 30
days of incorporation.
c) Objects Clause:
● It may be divided into the following three categories -
- The main objects of the company to be pursued after its incorporation
- The objects incidental or ancillary to the attainment of the main objects
- Other objects of the company not included in the sub clauses state above

● As per sec 4(1)(c) division of the objects as above not necessary. State the objects for
which the company is proposed to be incorporated and any matter considered
necessary
d) Liability Clause: (section 4(1)(d))
● The memorandum of a company limited by shares or by guarantee shall also state that
the liability of its members is limited. In case of unlimited company the memorandum
shall state the liability of the members shall extent to the entire debts and liabilities of the
company. In case of a company limited by guarantee, mention the amount upto which
each member under takes to contribute in the event of winding up of the company
e) Capital Clause: (section 4(1)(e))
● This clause must state the amount of capital with which is to be registered unless the
company is an unlimited company. The shares into which the capital is divided and the
nominal value of each share should be specified. Also state the number of shares which
the subscribers to the memorandum agree to subscribe which shall not be less than one
share.
● In case of OPC mention the name of the person, who is the event of death of the
subscriber, shall become the member of the company
● Description For Subscription
● The statutory requirements regarding subscription of memorandum are that -
- Each subscriber must take at least one share
- Each subscriber must write opposite his name the name of shares which he
agrees to take (section 4(1)(e))

● Signing of Memorandum (rule 13 companies (incorporation) Rules, 2014)

● The memorandum and AOA shall be signed by each subscriber, who shall add his
name, address, description and occupation, if any, in the presence of at least one
witness
● Where the subscriber to the memorandum is a body corporate, the MOA and AOA shall
be signed by director, officer of the body corporate duly authorised by a resolution of the
BOD
● Where the subscriber is a LLP, it shall be signed by a partner of the LLP, duly authorised
by a resolution approved by all the partners of the Limited Liability Partnership.

● Alteration of Memorandum: (section 13)

● Alteration of name clause:
- Change of name by company voluntarily (sec 13)
- Change of name by order of the registrar (sec 4(5))
- Change of name by order of the tribunal (Sec 7(7)(a))
- Change of name when incorporated with similar or identical name of an existing
company (sec 16)

● Publication of Name: sec 12(3) : where a company has changed its name during the
last two years, it shall affix or print or paint, along with its name, the former name or
names so changed during the last two years

● Change of Situation or Registered Office Clause (sec 12 & 13):

● Shifting from one plate to another place in the same city, town or village
● Shifting to a place outside the city, town or village in the same state
● Shifting from the place under jurisdiction one of ROC to another ROC in the same state
● Shifting of Registered office from one state to another state (sec 12(4 to 7))
● Procedure requirements :
- Board resolution in board meeting
- Special resolution of members in general meeting (sec 13(1))
- Approval by the central government (sec 13(4))

● Restriction on shifting of registered office:

● The shifting of registered office shall not be allowed if any inquiry, inspection of
investigation has been initiated against the company or any prosecution is pending
against the company under the Act
● Filing with Registrar:
● The certified copy of the order of the central government, approving the alteration of the
memorandum for transfer of registered office of the company from one state to another
within 30 days from the date of receipt of certified copy of the order

● Alteration of Objects clause (Sec 13):

● The alteration of objects clause by special resolution of members of the company. The
Act impose restrictions on on the alteration of objects clause of the company, which has
raised money from the public for one or more objects mentioned in the prospectus and
has any unutilized money
● The Act itself specifies that along with obtaining an approval by way of a special
resolution, a company would be required be ensure following if it intends to alter its
objects clause:
- Publish the notice of the aforesaid resolution stating the justification of variation
in 2 newspapers, one in English and one in vernacular language at the place of
registered office of the company
- Exit option is given to dissenting shareholders by the promoters and
shareholders having control in accordance with the regulations to be specified by
the SEBI

● Alteration of Liability Clause (sec 13(1)):

● A company can change the liability clause of its memorandum of association by passing
a special resolution and the resolution must be filed with Registrar within 30 days

● Alteration of Capital Clause (sec 61):

● A limited company having a share capital may make the following types of alterations in
its memorandum by an ordinary resolution, if so authorised by its articles, at its general
meeting to -
- Increase its authorised share capital by such amount as it thinks expedient;
- Consolidate and divide all or any of its share capital into shares of a larger
amount that its existing shares;
- Convert all or any of the its fully paid-up shares into stock, and reconvert that
stock into fully paid-up shares of any denomination;
- Sub-divide its shares into shares of smaller amount that is fixed by the
memorandum
- Cancel shares which, have not been taken or agreed to be taken by any person
and diminish the amount of its share capital by the amount of the shares so
cancelled
● These alterations are, however required to be notified and a copy of the resolution
should be filed with the registrar within 30 days of the passing of the resolution along
with an altered memorandum (sec 64(1))

● Articles of Association: (section 5,10 and 14)

● According to section 2(5), articles means ‘articles of association of a company as
originally framed or altered from time to time under the Companies Act’
● The articles of association (AOA) of a company are its bye-laws or rules and regulations,
that govern the management of its internal affairs and the conduct of its business
● The articles mostly deal with the rights of the members with that of the company and the
rights of members inter-se
● The articles are subordinate to the Companies Act and also the memorandum. Thus, the
memorandum lays down the scope and powers of the company, the articles govern the
method in which the objects are to be achieved.
● The articles must be printed and be divided into paragraphs, consecutively numbered,
stamped and signed by each subscriber of the memorandum duly witnessed and should
be filed along with the memorandum
● In case of a public company limited by shares, it may have its own registered articles or
alternatively adopt Table F of the Schedule I as its registered articles.
● In case of a private company it must have its own registered articles specifying the
restrictive clauses in its articles. Similarly, a company limited by guarantee or an
unlimited company must also have its own registered articles.
● The articles shall be in respective forms specified in tabled F, G, H, I and J in Schedule I.
A company may adopt all or any of the regulations contained in the model articles
applicable to such company.
● Every type of company whether public or private and whether limited by shares or limited
by guarantee having a share capital or not having a share capital or an unlimited liability
company register its articles of association.

● Contents of articles (section 5)

● Matters relations to shares: allotment of shares, calls on shares, lien on shares,
transfer and transmission of shares, forfeiture of shares, alternations of share capital,
share certificate, conversion of shares into stock etc.
● Directors: appointment, disqualification, share qualification, vacation of office, removal,
resignation, etc.
● Powers of directors , managing director and limitations on powers.
● Conduct of meetings: boards and general meeting, notices, quorum, chairman,
proxies, voting rights, minutes, constitution of committees, etc.
● Financial matters: dividends including interim dividend, issues of bonus shares,
accounts and audit, borrowing powers, etc.
● Other clauses - common seal, company secretary, indemnity, winding-up etc.

● Alteration of articles of associations: (sections 14)

● Any provision in the articles can be altered by passing a special resolution in the
general meeting of the company.
● File with the ROC, within 15 days of passing the special resolution together with altered
copy of the articles of registration.
● If the shares of the company are listed on the Stock Exchanges, the alteration should be
informed to the Stock Exchanges concerned within 30 days as per the listing agreement.

● Limitation on power to amend articles:

● Alteration is subject to the following limitations or restrictions:
- The alterations should not be inconsistent with any of the provisions of the
Companies Act or any other Statute
- The alterations should not be in conflict with the provisions of the MOA. in the
event of conflict the MOA will prevail.
- That the altered articles must not obtain anything illegal or against public policy
- The alterations must be in the bona fide interests of the company as a whole and
not just for the benefit of a group of shareholders or otherwise.
- Shuttle Worth V. Cox Bros & Co. Ltd 1927
- A company cannot justify a breach of contract with other parties by altering its
articles. Though the right to alter the articles cannot be questioned, it shall
remain liable for the damages for its breach (British Moorae Syndicate V.
Alpherten Rubber Co. Ltd)
- The alteration must not constitute a fraud on the minority nor inflict any kind of
hardship on them (Brown V. British Abrasive Wheel Co. Ltd)
- The alteration must not be inconsistent with an order of the court.
- No alteration can increase the liability of the members on the share unless all the
members concedes in writing to such increased liability.
- Any alteration to articles empowering the directors to expel a member from the
company is illegal and void
- The alterations of articles may be with prospective or retrospective effect.

● Conversion of Company: (section 18)

● For the conversion of a company of any class registered as a company of other class, by
alteration of memorandum and articles of the company in accordance with the provisions
of the Act. File the same with ROC within 15 days.
● The Registrar shall on an application with fee, effecting the conversion of a private
company into a public company or vice-versa, after satisfying that the provision have
been complied with, close the form registration of the company and after registering the
documents, issue a certificate of incorporation in the same manner as its first
registration.
● The conversion shall not affect any debts, liabilities, obligations or contracts incurred or
interested into by the company before such conversion.
● For conversion of Public company into private company the existing promoters,
directors, major shareholders and others should take effective steps to purchase the
shares so as to reduce the number of member to 200
● Inform the Stock Exchange concerned where the shares of the company are listed
regarding the board meeting which is considering the proposal for conversion.

● Procedure for incorporation of a company: (section 7)

● Type of company (sec 3)
● Name of the company
● Preparation of MAO
● Preparation of AOA
● Vetting of MOA and AOA
● Statutory declaration in Form no. INC.8
● Situation of Registered Office in Form No. INC.22
● Consent of directors in Form No. INC.12
● Particulars of first directors in Form No. INC.12
● Power of attorney
● Payment of fees
● Application for incorporation of company (Rule 12 of the Companies (incorporation)
Rules, 2014)
● Certification of incorporation (Rule 18)
● Corporate identity Number : sec 7(3)
● Preservation of all documents : sec 7(4)

● Legal effect of MOA and AOA

● The MAO and AOA, 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 to observe and
be bound by all the provisions of MOA and AOA.
● Also, all monies payable by any member to the company under the MOA or AOA shall
be a debt due from him to the company (section 10)
● The extent to which the MOA & AOA bind:
a) The members of a company :
- Boreland’s Trustee V. Steel Brother and Co. Ltd (1901)
b) The company to the members
c) The members inter-se
d) The company to outsiders
- Eley V. Positive Life Insurance Co. (1876)

● Doctrine of constructive notice

● The MOA & AOA are public documents and can be inspected by any person on payment
of a nominal fee. The documents filed with the Registrar are public documents as per
Section 399 of the Act
● Every person entering into a contract with the company has to ascertain not only the
exact powers of the company but also extent which the powers have been delegated to
the director and limitations on such powers.
● The Doctrine imposes an obligation on persons dealing the company to read and
understand MOA & AOA before entering into any contract
● Therefore, every person dealing with the company is presumed that he read the MOA &
AOA and understood properly.
● If the articles provide that a cheque must be signed at least by two directors, the outsider
dealing with the company must see that it is so signed; otherwise he cannot claim under
it.
● This doctrine protects the company against the outsider
● In Kotla Venkataswamy V. Rammurthy, AIR 1934 Mad, the articles of a company
required that all the documents and deeds of the company shall be signed by MD, the
secretary and a working director of the company. A mortgage deed was signed by the
secretary and working director only. It was held that the mortgage deed was invalid even
though the plaintiff had acted in good faith and money was utilised for the benefit of the
company.