What is Memorandum ???

Is the document stating about the relationship

between company and the outsiders and a route of communication to public. Specially meant for shareholders and creditors. No company can be registered without MOA.

IMPORTANCE of MOA
An intending shareholder can find out the purposes

for which his money is going to be used by the company and what risk he is taking in making the investment. The supplier of goods or money, will know whether the transactions he intends to make with the company is within the objects of the company and not ultra vires its objects.

FORMS AND CONTENTS

The memorandum should be printed.
It should be divided into paragraphs, numbered

consecutively, and signed by at least seven persons (2 in case of private company) in the presence of at least one witness, who will attest the signatures. Each of the subscribers must take at least one share and write opposite his name the number of shares he takes. The signatories to the Memorandum shall add their address, description and occupation.

CONTENTS OF MEMORANDUM OF ASSOCIATION

Six Clauses
Name

Objects

Registered office

Liability

Capital

Association or subscription

NAME CLAUSE IN MEMORANDOM OF ASSOCIATION

A company as a separate legal entity must have a name of its own to established its separate identity. The last word in the name of the company is limited or private limited, if limited by shares or by guarantee.

GUIDELINES/PRINCIPLES FOR DECIDING AVAILABILITY OF NAMES

No company should be registered with undesirable

name. A name is said to be undesirable when it is too identical with the name of the company in existence or with a registered trade-mark.

 While applying for the name in the prescribed e-form

1A, using digital signature certificate, the applicant shall be required to furnish a declaration to the effect that: i. He has used search facility available on portal of the Ministry of corporate affairs. ii. The proposed name is not in violation of the provisions of any Emblems. iii. The proposed name is not offensive to any section of people.

 The name if made available to the applicant, shall be

reserved for a period of 60 days from the date of approval and further 30 days extension is given. If the company is not incorporated within such time, then the name shall be lapsed and will be available for other applicants. If the proposed name include words such as Insurance, bank, stock exchange, mutual fund etc., the name may be allowed with a declaration by the applicant that the requirements mandated by the respective regulator such as RBI, SEBI, MCA.

 If the proposed name includes the word State, the

same shall be allowed only in case the company is a government company. If a foreign company is incorporating its subsidiary company, then the original name of the holding company as it is may be allowed with the addition of word India or name of any Indian state or city, if otherwise available.

Sr Key words no 1 2 Corporation, corp, corpn. International, Globe, Global, World, Overseas, Universe, Universal, Continent, Continental, InterContinental, Asiatic, Asia , Asian being the first word of the name. If any of the words at 2 above is used within the name Hindustan, India, Indo, Indian, Bharat, Bharatvarsh, Bhartiya or any other countrys name being first word of the name If any of the words at 4 above is used within the name Industries/Udyog Enterprises, Products, Business, Manufacturing, Venture.

Required Authorized capital 25 crore 5 Crore

3 4

2 crore 2 crore

5 6 7

25 lakh 5 Crore 50 lakh

PUBLICATION OF NAME
Paint or affix its name and address of its registered

office and keep the same painted or affixed on the outside of every office or place of business.
PENALTY: The company and every officer who is in

default shall be punishable with a fine of Rs 500 per day till the default continues.

There are few limitations from ROC on what the name of the company should not be. Identical or too similar name to an already existing company The name of the Company in liquidation cannot be allotted for 2 years from the date of such dissolution Addition or subtraction of word like new, modern, etc.

 Well known abbreviations like TISCO, ITC, etc.

Name should suggest the business that company is

undertaking The name of the company should not be the exact translation of the existing companys name in other language Example Hindustan Steel Industries Ltd. Will not be allowed if there exists a company with the name Hindustan Ispat Udyog Limited.

NAME CHANGE IN MOA

According to Section 21 Changing the Name of the Company requires Special Resolution at General Meeting Written approval of the CG

PROCEDURE
Availability of name Application to ROC Fees Rs. 500 Validity of 6 months Submission of change with a copy of Special resolution
The name must be sanctioned by ROC on behalf of CG

CHANGE BY ORDINARY RESOLUTION

If the name is similar or closely related to the name of

some other company then CG on its own or on the basis of complaint of existing co. of that name can order proprietor to change the name. But, the affected company must complain within 12 months of the registration of the new company. The required changes must be executed in 30 days from the issue of order from CG otherwise proprietor will have to penalty which may be as high as Rs.1000 a day.

EFFECT OF NAME CHANGE

It shall not affect any rights or obligations of the

company. If any legal proceeding is commenced, after the name change the plaint can be amended to substitute the new name. By change of name constitution of the company does not change as in case of partnership.

Registered office clause

States the name of the state in which registered office

is situated Exact address of office where books are normally kept Provided in form no.18 to RoC (sec.146) Any change or alteration in the name

Alteration in Registered office clause

Change of registered office from one premises to

another premises in the same city, town or village. Change of registered office from one town or city or village to another town or city or village in the same state. Special resolution Confirmation of regional director Copy of special resolution and confirmation by regional directors to be filed with ROC.

Alteration in Registered office clause

Change of registered office from one state to another. Passing special resolution and confirmation from

Central Government. Sufficient notice should be given to the creditor and all the persons whose interest are effected. Loss of revenue or employment of state whether relevant consideration. Example Orient paper mills Ltd i.e. shifting from Orissa to west Bengal. Example of Minerva mills Ltd.

The Capital Clause [ Sec. 13(4)(a)]

This clause states the amount of share capital with which the company is registered and the mode of its division into shares of fixed value, i.e., the number of shares into which the capital is divided and the amount of each share.
This clause lays down the limit beyond which a company cannot issue shares without altering the memorandum as provided by Section 94 of the Act.

Alteration of Capital Clause

Section 94 provides that, if the articles authorize, a

company limited by share capital may, by an ordinary resolution passed in general meeting, alter the conditions of its memorandum in regard to capital so as-

1.

To increase its authorized share capital by such amount as it thinks expedient by issuing fresh shares.
Within 30 days of passing of the resolution, a notice of increase in share capital must be filed with the RoC. The Registrar shall record the increase and also make necessary alterations in the companys memorandum or articles or both.

If default is made in filing the notice, the company and every officer of the company who is in default shall be punishable with fine up to Rs. 500 per day during which the default continues.

2. To consolidate and divide all or any of its share capital into shares of larger amount than its existing shares.
Consolidation means 10 shares of Rs. 10 each may be consolidated

into 1 share of Rs. 100.

Subdivision of shares is just the opposite of consolidation. It means

1 share of Rs. 100 may be divided into 10 shares of Rs 10 each.

Once a resolution has been passed, a copy of resolution is required

to be sent within 30 days to the Registrar of Companies.

3. To convert all or any of its fully paid up shares into stock , and reconvert the stock into fully paid up shares of any denominations

Stock- A set of fully paid up shares & is transferable in any

denomination or fraction. Share- Transferable as a whole. E.g A share of Rs 10 can be transferred as a whole. But if 10 shares of Rs. 10 each fully paid are converted into stock of Rs. 100, then the shareholder can transfer stock say worth Rs. 17 also. Section 94, empowers a company to convert its fully paid-up shares into stock by passing a resolution in the general meeting if its articles authorize such conversion. A notice is to filed with the Registrar within 30 days of passing the resolution specifying the shares so converted.

4. To cancel shares, which, at the date of passing of the resolution in that behalf, have not been taken by any person and thus diminish the amount of its share capital by the amount of shares so cancelled.

Section 94 provides that a company may, if the articles authorise ,

by resolution in the general meeting, cancel shares, which, at the date of passing of the resolution in that behalf, have not been taken by any person and thus diminish the amount of its share capital by the amount of shares so cancelled.

Objects Clause In MOA

Objects Clause Section 13(1)(c)&(d)

It defines the objects of the company and indicates its

sphere of its activities Ultra Vires cannot be ratified even of the assent of the whole body of shareholders Company may do anything which is incidental to and consequential upon the objects specified. Eg Trading company

2 parts of Objects
Main objects of the company to be pursued by all the

company on its incorporation and objects incidental or ancillary to the attainment of the main objects
Other objects of the company not included in the

above clause

Commencement of business
May commence business given in the main objects

only after obtaining certificate to commence business In case of objects not confined to one state the memorandum must give the name of the State. Commencement of business under other objects needs prior approval of shareholders in regards to a special resolution passed in general meeting in case special resolution is not passed, Central government may give the permission provided the votes cast in favor of the resolution exceed the votes cast in against of the resolution if any.

 The objects of the company must not be immoral,

illegal or opposed to public policy or in contravention of the Act

ALTERATION OF OBJECT CLAUSE

Special resolution. To attain main purpose by new or improved means To enlarge or change the local area of operations. To carry on business which under existing circumstances may conveniently 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.

Liability Clause[sec13(2)]
This clause of memorandum contains the declaration that

the liability of the shareholders is limited to the extent of the o value of shares held by them o Guarantee given and accepted A declaration that the liability of the members is unlimited in case of the unlimited companies must be given.

EXCEPTION OF THIS LIABILITY

If a member agrees in writing to be bound by the alteration of MA / AA, requiring him to take more shares or increasing his liability, he shall be liable up to the amount agreed to by him.
If every member agrees in writing to re-register the company as an unlimited company and the company is re-registered as such, such members will have

unlimited liability.
If to the knowledge of a member, the number of shareholders has fallen below the legal minimum, and the company has carried on business for more than 6 months, while the number is so reduced, the members for the time being constituting the

company would be personally liable for the debts of the company, contracted during that time.

SPECIMEN OF LIABILITY CLAUSE AGAINST GUARANTEE

Every member of a company undertakes to contribute to the assets of company in the event of its being wound up while he is a member or within one year after he ceases to be a member for payment of his debts and liabilities of company contracted before he ceases to be a member and the costs, charges and expenses of winding up and for the adjustment of the rights of the contributories amongst themselves such amount as many be required not exceeding Rs.1000

ALTERATION IN LIABILITY CLAUSE

ORDINARILY LIABILITY CLAUSE CANNOT BE ALTERED

SO AS TO MAKE THE LIABILITY OF MEMBERS UNLIMITED. ANY ALTERATION IN MEMORANDUM WILL BE VOID IF THE EFFECT OF THE ALTERATION IS THE ENHANCEMENT OF THE LIABILITY OF MEMBERS. IT DOESNOT APPLY TO A CASE WHERE THE MEMBERS AGREE IN WRITING TO BE BOUND BY THE ALTERATION.

Doctrine of Ultra Vires

Introduction
Act of the company beyond the objects clause Expression ultra vires consists of two words: ultra

and vires.
An ultra vires act is void and cannot be ratified even if

all the directors wish to ratify it.

Is It Ultra Vires Or Illegal?

Ascertainment Of The Ultra Vires

An act is not ultra vires if it is found:

Within the main purpose, or

Within the special powers expressly given by the statute to

effectuate the main purpose,

Neither within the main purpose nor the special powers

expressly given by the statute but incidental to or consequential upon the main purpose and a thing reasonably done for effectuating the main purpose.

Protection of creditors and invsetors

Enables the investors to know the objects in which

their money is to be employed.

Doctrine prevents the wrongful application of the

companys assets.
Prevents directors from departing the object for which

the company has been formed.

Exceptions
An act, which is intra vires the company but outside

the authority of the directors may be ratified by the shareholders in proper form.
An act which is intra vires the company but done in an

irregular manner, may be validated by the consent of the shareholders.

If the company has acquired any property through an

investment, which is ultra vires, the companys right over such a property shall still be secured.

Exceptions(contd)
Certain acts under the company law, which though

not expressly stated in the memorandum

The company can alter its articles in order to validate

the act.

ASSOCIATION OR SUBSCRIPTION CLAUSE

At the end of the memorandum of every company

there is an association or subscription clause or a declaration of association which reads something like this:We the several persons whose names and addresses and occupations are subscribed, are desirous of being formed into a company in pursuance of this memorandum of association, and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.