Memorandum of Association Concepts
The memorandum of association of a company is a document that governs the relationship of a company with the outside world. It is one of the most important documents needed for the incorporation of a company.
Meaning of Memorandum of Association
The Memorandum of Association is considered as the constitution of a company. It provides the foundation to the structure or the building of the company. The memorandum of association is defined as a company’s charter. It defines the limitations of a company’s powers.
Particular parts of the memorandum can be altered by the company whenever and however required.
The memorandum of association enables shareholders, creditors and investors to know the permitting range of the company.
It regulates the company’s external affairs.
Importance of Memorandum
The memorandum of association comes with its own importance −
- It defines the limitations of the company.
- The whole structure of the company is built on the basis of the memorandum.
- It defines the scope of activities of the company.
- It sets out a company’s written goals.
Clauses of Memorandums
The memorandum of association contains the following clauses −
The Name Clause
- A company (being a separate legal entity) must have a name.
- The name of a company should be unique and should not resemble the name of any other company.
- It should not contain words like king, queen, emperor or names of any government bodies.
- A public company is required to have the suffix ‘Limited’ at the end of its name.
- Private companies are required to have the suffix ‘Private Limited’ at the end of their names.
- The name of the company must be painted outside every place where business of the company is to be carried out.
Registered Office Clause
Every company must have a registered office.
The location of the office can be intimated to the registrar within 30 days of incorporation.
With intimation to the registrar, a company can change its place in the same town.
However, for changing the place of the office in a different town in the same state, a special resolution must be passed.
To change the location of the office from one state to another, various reforms are needed to be performed on the memorandum.
- It determines the rights, powers and sphere of the activities of a company.
- It should be defined carefully as it is difficult for the clauses to be altered later on.
- The company cannot incorporate any activity, which is not present in the object clause.
- The subscribers to the memorandum choose the object clause.
- Shareholders are protected by the object clause as it ensures that the funds raised for the undertaking will not be used by any other undertaking.
- It states that the liabilities of the shareholders are limited to the value of the shares owned by them.
- The shareholders are liable to pay the unpaid balance of their shares.
- The liabilities of the members may be limited by guarantee.
- It also contains the amount that every member of the company undertakes to contribute to the assets of the company in the event of winding up.
- It states the total capital of the proposed company.
- The total number of shares of each category should be present in the capital clause.
- The exact nature of any special rights and privileges enjoyed by any shareholders must be mentioned in the capital clause.
- The names and signatures to the memorandum of association is contained in this clause.
- At least 7 persons should sign the memorandum in case of public companies.
- At least 2 persons should sign the memorandum in case of a private company.
Contents of the Memorandum of Association
The contents of the Memorandum of Association are detailed out below.
Purpose of Memorandum
Shareholders must know the field of business in which their money is going to be used and the risks involved in the investment.
Outside allies of the company must also know the objects of the company.
Printing and Signing of Memorandum
The memorandum of association should be divided into paragraphs and should be numbered consecutively before printing.
At least one witness should be present while a subscriber signs the association.
Form of Memorandum
The Memorandum of Association should be in the form B, C, D, or E tabular form in accordance with the Companies Act, 1956.
Contents of Memorandum
The following clauses should be included in the Memorandum of association of each and every company.
The word “limited” or the word “private limited” are required to be added as suffixes at the end of the name of a public company or a private company respectively.
The main objectives of the company.
The objectives auxiliary to the main objectives of the company.
In case of a company having its capital in shares,
Each subscriber shall take at least one share and shall write his name opposite to the number of shares he takes.
A company limited by guarantee should ensure that each member contributes a certain sum to the assets of the company.
Doctrine of Ultra Vires
- A company can invoke all its powers as allowed by the Companies Act, 1956.
- Everything else is Ultra Vires (“Ultra” means beyond and “Vires” means power).
- A company acting Ultra Vires means it is acting illegal in the eyes of the law.
Ultra Vires by the Directors
If a transaction is made by a Director beyond the power of a Director but within the power of the company, the shareholders can rectify it in a general meeting.
Any irregularities can be cured by the consent of the shareholders, if the act is within the reach of the company.