Chapter :-2
Memorandum of Association &
Articles of Association
1
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.
2
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.”
3
CONTENTS OF MEMORANDUM OF
ASSOCIATION
Six Clauses
Name
Liability
Objects
Registered
office
Capital
Association
or subscription
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
10
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 restaurants
b.Ancillary object : opening bank accounts, hiring
premises an running of bakery
c. Other objects: Hiring out of vechicles
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IV. The liability of the members is limited
v. The authorized share capital of the company is
RS.20,00,000,divided into 2,00,000
S.NO
Name &
Addresses
description &
occupation of
subscribers
No . Of equity
shares taken by
each subscriber
Signature of
subscriber
Name /
address
descripti
on and
occupati
on of
witness
13
ALTERATION OF NAME CLAUSE
• 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.
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CHANGE OF REGISTERED OFFICE
From one premises to another premises in the
same city, town or village
• By passing a resolution of Board of Directors
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CHANGE OF REGISTERED OFFICE
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.
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CHANGE OF REGISTERED OFFICE
From one state to another state
1. Special Resolution
2. Confirmation of Central Govt.
3. For certain Purposes only
(As given in section 17)
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ALTERATION OF OBJECTS CLAUSE
A. Special Resolution
B. 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 company
C. Copy of (A) is filed with ROC within 30 days
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ALTERATION OF LIABILITY CLAUSE
• 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.
19
ALTERATION OF CAPITAL CLAUSE
• Increase of authorized share capital.
• Consolidation and subdivision of shares.
• Conversion of shares into stock & vice versa.
• Diminution of share capital.
20
DOCTRINE OF ‘ULTRA VIRES’
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.
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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
3(1)(iii).
Section
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
• EXAMPLE :- Ashbury Railway carrige co. vs
Riche
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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.
• However, where alteration has the effect of
converting a public company into a private
company (i.e., introduction of restrictive
clauses of Section 3(1)(iii), approval of
Central Government must be obtained.
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
•
•
The rule was first laid down in Royal British
Bank v. Turquand.
Rule of Indoor Management is an exception to
the Doctrine of Constructive notice.
Exceptions of Indoor Management
1. Knowledge of irregularity : Case: Howard v.
Patent Ivory Co.
2. Negligence : Case: Anand Behari Lal v.
Dinshaw & Co. (Bankers) Ltd.
3. Forgery : Case: Ruben v. Great Fingal
Consolidated [Secy. Forged signatures of two
directors]
4. No knowledge of articles : Case: Rama
Corporation v. Proved Tin & General
Investment Co.
Memorandum of
Association
Articles of Association
Charter of Company
Regulations for interal 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.
Act, ‘Ultra Vires’ is wholly void &
cannot be ratified.
Act ‘Ultra Vires’ (but intra vires the
memorandum) can be ratified.