MEMORANDUM OF ASSOCIATION

MEANING & DEFINITION

The memorandum of association of a company also called its charter is the companies principal document.It refers to that document which defines the principal conditions on which the company is incorporated. No company can be registered without a memorandum of association since it defines the rights and objectives of the company. According to LORD CAIRNS, the memorandum contains the fundamental conditions upon which the company is allowed to be incorporated.

FEATURES

It is mandatory for a company. It is the constitution of the company. It cannot be altered by the company. It defines the scope of the companies activity. It is a public document. It defines the company relation with outside individual.

IMPORTANCE OF MEMORANDUM OF ASSOCIATION

It is a fundamental document. It is an unalterable document. It defines the limitation of the companies operations. It forms the basis of relationship between the company and outsiders. It contains clauses that give important information about the company.

FORMS OF MEMORANDUM ACC. TO SEC 14

Limited company by shares (table b) Limited company by guarantee without share capital (table c) Limited company by share capital (table d) Non-limited company (table e)

SUBJECT MATTER OF MEMORANDUM OF ASSOCIATION (SEC 13) The name of the company. The address of the companys registered office. The objects of the company. The liability of the company. The capital of the company. The association of the company.

NAME CLAUSE: This clause contains the name by which the company is registered but the following legal formalities must be kept in mind while naming a company: The name must not be undesirable in the opinion of the central government.The case of NORTH CHASHIER AND MANCHESTER BREWERY CO. VS. MANCHESTER BREWERY CO.

The name must not be prohibited under emblems and name act 1950. The name must end with words limited or private limited. A licence may be granted by the central govt. by which, it shall not be necessary for a body to which a licence is so granted to use the word limited or the words private limited as a part of its name. The name of the company must be presented and published.

SITUATION CLAUSE

This clause describes the address , city and state in which the companys registered office will be located.on the basis of this information only it is possible to establish the domicile of the company and determine its nationality and the local laws that will govern its operations. It also establishes whether the company is an indian or a foreign company.

OBJECT CLAUSE

This is probably the most important clause in the memorandum of association of the company,and defines the objects or aims for which the company is to be set up.it is splitted into two parts: Main objects Other objects Incidental or ancillary objects: there is a case in this which is of ATTORNEY GENERAL VS.GREAT EASTERN RAILWAY CO. and one more case is of LONDON COUNTRY COUNCIL VS. ATTORNEY GENERAL

Two main reasons why a company needs to state its objects in the memorandum of association To inform its members how it will use the investors capital in its business. To inform its creditors & members of the public dealing with the company about the rights of the company.

Immoral :The company objects should not be immoral, like running a smuggling narcotics. Illegal: A company cannot not be set up for an illegal activity. Like running a gambling or operating a lottery. Opposed to Public policy: A company also cannot be formed for any activity which is against the public interest, like dealing with an enemy country or setting up a monopoly. Violation of Indian companies act: No company can be formed for any activity which violates the provisions of the indian companies act like a public company paying dividends out of companies capital.

LIABILITY CLAUSE
According to section 13 (2) of the companies act . The memorandum of a company limited by shares or by guarantee shall also state the liability of its members is limited.

Association and subscription clause

This is the final clause of the memorandum. Under this clause .a declaration of association is made by the signatories of the memorandum under their signatures,duly attested by a witness,that they desire to be formed into a company and that they agree to purchase the qualification shares.

CAPITAL CLAUSE
The memorandum of association of a limited company must state,in this clause .the authorised capital of the company and its division into share of a fixed denomination

CONVERSION OF LIMITED LIABILITY TO UNLIMITED LIABILTY

According to section 45, if at any time the number of members of a company is reduced, in the case of a public company, below 7, or in the case of a private company, below 2,and the company carry on business for more than 6 months while the no. is so reduced and is cognisant of the fact that it is carry on business with fewer than 7 members or 2 members, as the case may be, the members shall be severally liable for the payment of the whole debts of the company contracted during that time and may be severally sued there for. Section 45

In a limited company,the liability of directors or of any director or manager may, if so provided by the memorandum, be unlimited. Section 322 A limited company may, if so authorised by its articles, by special resolution, alter its memorandum so as to render the unlimited liability of its directors or of any director or manager. Section 323 If it is evident that the company has wilfully acted in a manner to defraud its creditors, the court can hold each director of the company guilty of such malafide conduct individually and make him unlimitedly liable for the companys debts

ALTERATION OR CHANGE IN THE MEMORANDUM OF ASSOCIATION

As a matter of course, the memorandum of association is an unalterable document. According to sec 16 of the companies act 1956, a company shall not alter the conditions contained in its memorandum of association except in the cases, in the mode, & to the extent for which express provision is made in this act.

ALTERATION IN THE NAME CLAUSE

Alteration in the name clause may be made in the following two ways: By special resolution and permission from central government. (SEC.21) By rectification of omission in name. (SEC.22)

EFFECT OF CHANGE IN NAME

WITH THE CHANGE OF NAME OF THE COMPANY THE POWER AND THE RESPONSIBILITIES ARE NOT CHANGED BECAUSE OF THIS CHANGE OF THE NAME LEGAL AFFAIRS OF THE COMPANY ARE NOT AFFECTED.BESIDES, IT DOES NOT AFFECT COMPANIES EXISTENCE.BUT AFTER THE NEW NAME IS REGISTERED ,LEGAL AFFAIRS CANNOT BE CONTINUED WITH THE OLD NAME.

CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY, OR VICE VERSA

When a public company is altered to a private company or a private company is changed into a public company, then the word private before the word limited has to be added or deleted in the companys name depending upon the change being affected. The registrar is empowered to make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association. (Sec.24)

ALTERATION IN REGISTERED OFFICE CLAUSE

Shifting from one place to another in the same city or town section 146(1) Shifting from one town to another in the same state section 146(2) Shifting from one state to another

EFFECT OF NON REGISTRATION OF ALTERATION

If the directive of the central government with respect to alteration is not carried out with in the time allowed, or extended, by the government, all proceedings connected with the alteration, at the expiry of such period become void and in operative. The central government may,on sufficient cause shown,revive the order on application made with in a further period of one month. Under section 10fa of the companies second amendment act, 2002 the company law board has been abolished. So alteration in different clauses of memorandum of association will now be rectified by central government (section19)

ALTERATION IN OBJECT CLAUSE

It is extremely difficult to alter the object clause because the law has laid down strict limitations on such alteration. section 17 of the companies act defines these limitations, and any alteration must necessarily be within these.

UNDER SEC17(1), THE OBJECT CLAUSE CAN BE ALTERED ONLY IF THE ALTERATION IS REQUIRED TO UNABLE THE COMPANY:

To carry on its business more efficiently To attain its main purpose by improved means To enlarge or change the local area of operations To carry on some business which can be advantageously combined with the business of the company To restrict or abandon any of the objects specified in memorandum To amalgamate the company with any other company To sell or dispose of the whole or any part of the undertaking of the company

PROCEDURE OF ALTERATION

Special resolution Ratification by central government Registration of alteration (section 18) Effect of non registration of alteration (section 19)

ALTERATION IN LIABILITY CLAUSE (section 323)

conversion of limited liability into unlimited liability Registration of unlimited liability company as limited liability company

ALTERATION IN CAPITAL CLAUSE

Increase in share capital (section 97) Reduction share capital Reorganization of share capital