Memorandum of Association – MODDING ZONE

Memorandum of Association

Prior to the incorporation of the company various memorandums are to be prepared. These are – Memorandum. of Association, Articles of Association and Prospectus. Among these memorandums, Memorandum of Association is most important.

Memorandum of Association is the constitution of the company. It is called as foundation-stone of company establishment.

According to Lord Cairns, “Memorandum of Association is the Charter of a Company and defines its raisond’etre.” (means the area beyond which the action of the company cannot go.

The contents of memorandum of any type of company has been assessed in Section 13, according to which the following essential details are necessary-

1.In the memorandum of the Unlimited Company




2.In the memorandum of the company limited by guarantee without share capital-

3.In the memorandum of the company limited by guarantee with share capital-

4.In the memorandum of the company limited by shares-

The above mentioned contents of the memorandum are called as “conditions of memorandum’ and each condition is called separately as the clause of memorandum (mostly in Hindi language the word sentence or phrase are also written for clause). The intention of different clauses and legal ruling related thereto can-be produced as under-,

(a)Name clause

(b) Registered office or domicile clause,

(c).Object clause,

(d) Liability clause,

(e)Capital clause,

(f)Union and signature clause.

(1) Name Clause- Being a legal personality for its recognition, a name of the company is most essential. This name is the mark of its own entity. Any name can be given to the company. But the Central Govt. can restrict an undesirable name or the name just similar to the name of any other registered company. A registered company acquires monopoly on its name and this is mark of its business fame/ reputation. If the liability of the members is limited then the last word of the company’s name must be limited. Two things are mainly worth referring in connection with the name of company-

(i) Any company cannot have its such a mistrading name which is similar or identical to any other incorporated company. If a company is in existence, name of which has been adopted by a newly established company feels that there is possibility of confusion or fraud in the public due to similar or identical names, then that company can approach the court for injunction against that newly established company and it can compel that newly established company not to have that name. In this connection it is also worth referring that if a company adopts erroneously such a name which is identical to the name of any other existing company, then that previous company can get its name changed after passing ordinary proposal in its meeting and sanction obtained from the Central Govt.

(ii) One more important thing in connection with the name of the company is this that each public company must Suffix the word limited with its name. Like wise for the private company it is necessary to Suffix the word ‘private limited with its name. Its purpose is to make all the persons related to the company well conversant with this point that the liability of its members is limited. The Central Govt., in some particular circumstances can provide exemption from using the word limited or ‘private limited’. This can be done then only if that company is established for the purpose of business, science, art, donation or any other useful object or the income of company is being utilised for fulfillment of those objects without paying any type of bonus to its members.

The change in the name of the Company – The name of the company can also be changed after getting written sanction of the Central Govt. and approval of the special proposal for changing the name. If the registration of the company has got done in the name of an unwanted company or in the identical name of any other company then the name can be changed by an ordinary proposal also. The Central Govt. can also issue order for changing the name within a period of twelve months from the date of registration. After change in the name it becomes the duty of registrar to make any entry of the fresh/new name in the register and to issue a fresh certificate. No change arises in the rights and liabilities of the company on √°ccount of change in its name.

(2) Registered Office or Domicile Certificate – The second clause of the company’s memorandum pertains to the registered office of the company the name of that state only is endorsed therein in which the registered office of the company is located. The state in which the registered office of the company is established, that is called the domicile of the company and the place where the office of the company is located that is called the residence of the company. For the registered office of the company, only the namne of state is to be written and not full address. The information regarding exact place must be forwarded to the registrar within thirty days form the date of business of company’s incorporation. The company can shift its office within one city only, but if the office is to be shifted to some other city in the same state then for this purpose a special proposal must be passed/ approved and information to this effect must reach the registrar.

(3) Object Clause -Object clause is the most imporlant part of the memorandum because jurisdiction and obJects of the company are mentioned therein. This clause decides the jurisdiction of the company and the company Cannot do anything beyond the limit assessed therein. While aScertaining its object the company must pay special attenon towards two things. Firstly, there should not be any Such thing in the object clause which is illegal and contrary to law and secondly, the company should not be authenticated by the object clause to do any such thing which violates the provisions of  Companies Act.

Contents of object Clause – Some amendments are made by Companies (Amendment) Act, 1965 regarding the object clause of the company, according to which it will be quite sufficient to mention the object only in the memorandum of objectioning prior to the enactment of this Act but those companies, which have come to existence after this Amendment Act, shall divide its object clause in two sub-clauses respectively –

(a) Main objects and those incidental or ancillary objects which are meant for fulfillment of the main objects, and

(b) Other objects.

Assessment of objects is the right of company’s promotors. But here after these are restricted. The object should not be contrary to the law and order of the nation and Companies Act. No Company can be established for advertisement of gambling, because it is contrary to the policies and rules of the state. There is necessity of objects for this purpose that although the cumulative property is vested in the company. Therefore the shareholders must have knowledge of the fixed objects by which the shareholders get protection/shelter. The creditors also get safety by this because the property of the company cannot be utilised in the works other than the assessed objects.

Alteration in the Object – According to Section 17 of the Companies Act, any of the companies can alter its, object in the following circumstances –

(1) If the company intends to run its business more efficiently and economically then it can alter its object clause but while altering the objects it is necessary to be cautious that no alteration is made in the substantial form of the company and only such alterations be made which are necessary for development and economy of the company.

(2) The company can adopt modern resources and scientific ways by altering its objects to develop its main aim.

(3) The company can alter its objects for increase in its jurisdiction of for its local extension.

(4) The company can alter its objects to get it dissolved also in any other company.

(5) The company can alter the object clause of its memorandum to limit or renounce an object mentioned in the memorandum.

(6) The company can alter its objects for purchase or transfer of a part completely or partially. Procedure of alteration in the Object Clause: It is necessary for the company to suggest a special proposal to get the alterations authorised made in the objects of its memorandum which must have been passed by 3/4 majority of the members. The alteration is not accepted as an effective one even after approval of this special proposal until it is not confirmed by the Board of Company Law. Prior to approval of alteration the Board of Company Law shall intimate the Registrar in this regard so that he may forward problems/ complications or suggestions to the Board of Company Law in connection with the alterations. Similarly, the Board of Company Law must be satisfied before approving such an alteration that each debenture-holder, share-holder or each such an individual whose interests may be affected by that alteration has been intimated regarding the alteration. If the shareholders are having any objection pertaining to the alteration, then in this regard the Board of Company Law must be informed the application submitted by the company for obtaining approval for the purpose of alteration within three months from the date of obtaining this approval, certified copy of the said order and one printed copy of alteration-memorandum must be forwarded to the office of Registrar by the company. Within one month from the date of receipt of these copies, the Company Registrar shall send a certificate of registration of alteration to the concerned company and the alteration shall be treated as effective from that very day on which it has been registered

If the company has not applied for registration within the aforesaid period then all efforts made in connection with alteration in the objects shall be of no use.

(4) Liability Clause- One clause of the memorandum defines the liabilities of the members. If the company is organised alongwith the liabilities, then it must be absolute that the liability of the members is limited by the shares. It means that full payment of the shares of members is made,then their liability becomes void. If the company is limited by the guarantee, then the amount of guarantee of each member shall be explained in the clause, which shall be paid by him in the event of liquidation of the company.

The liability of the directors or the managers shall be declared unlimited in the memorandum of the limited company (Sections 322-323) in such position, the liability of the said officers shall be unlimited.

(5) Capital Clause-Entire capital of the company and number of shares are endorsed under this clause (Section 13) in which it is distributed. Normally its language is like this if the share capital of the company is one lakh rupees then it shall be divided in one thousand shares each of
rupees one hundred.

Alteration of share capital- The Company can make alteration in the capital clause of its memorandum after becoming authorised by the articles according to Section 94(1).

The alterations can be of the following types-

1.To increase the share capital by issue of shares.

2.Consolidation or division of its total share capital or some part thereof in the shares of present value.

3.Repealing such a capital which is neither taken from anyone nor any agreement has been made for taking the same.

4.No alteration in the stock of its all or some shares or no alteration in the full paid shares of any cost of the stock.

According to Section 94(2) the aforesaid alterations in respect of the company-capital can be made by its ordihary meeting and for this confirmation by the court is not necessary. According to Section 94(3) the company can increase its share capital by approval of normal proposal after becoming authorised by the articles. According to Section 100, if a company wants to reduce its share capital, then for this it shall have to pass a special proposal and shall have to obtain permission also from the Court. According to Section 102, on receipt of such an application, the court can issue this order to the company that it should get the causes.

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