The Memorandum of Association is the charter of the company, and provides the foundation on which the structure of the company is built. It defines the scope of the company’s activities as well as its relation with the outside world.
Section 2(28)of the Companies Act defines a Memorandum as “the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous Company Laws or of this Act”. Section 13 of the Act specifies the contents of the memorandum.
The importance of the Memorandum is that it lays down the ambit of the powers of the company, the area within which the company can operate and beyond which it cannot go. The purpose of the Memorandum is to enable the shareholders, creditors and those who deal with the company to know what is its permitted range of enterprise.
The Memorandum of Association must be (a) printed, (b) divided into paragraphs, numbered consecutively, and (c) signed by each subscriber.
Contents of the Memorandum of Association
- Name Clause: The Memorandum of every company must state the name of the company with the word “Limited” as the last word of the name in the case of public limited company and with “Private Limited” as the last words of the name in the case of private limited company.
- Domicile (or) Situation Clause: This clause mentions the name of the State in which the registered office of the company will be situated. This determines the jurisdiction of the Court and indicates the domicile and nationality of the company. The full address of the company should be communicated to the Registrar within thirty days from the date of registration.
- Objects Clause: The Memorandum must include under this clause statement of (a) the main objects of the company and objects incidental or ancillary to the main objects, and (b) any other objects. The objects clause lays down the scope of activities of the company and defines the extent of its powers. It “states affirmatively the ambit and extent of powers which are given to the company by law”.
- Liability Clause: A limited company has the liability of its members limited to the face value of the shares held by them. The liability clause of the Memorandum contains a clear statement to this effect. The effect of this clause is that no member can be held liable for debts of the company beyond the amount which he has agreed to contribute to the share capital of the company. If the shares held by a member of the company are fully paid-up, his liability in the debts of the company will be nil. Similarly, in the case of a company limited by guarantee, the liability of the member is limited to the amount of guarantee given by him.
- Capital Clause: In the case of a limited company having share capital, the Companies Act requires that the Memorandum shall state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount [Sec.13(4)]. This is the maximum amount of share capital that the company is authorized by the memorandum to raise. Hence, it is called the ‘ authorized’, ‘registered’ or ‘nominal’ capital.
- Association Clause: Under this clause, subscribers to the Memorandum express their assent to form a company and signify their agreement to associate for that purpose. The statement of agreement to form a company also mentions the ‘subscribers’ consent to take the number of shares shown against their respective names.
Alteration of Memorandum of Association
1. Alteration of Name Clause
A company may change its name by a special resolution and with the approval of the Company Law Board (CLB) signified in writing. But a change of name which merely involves the deletion or addition of the word ‘Private’ on the conversion of a private company into a public company or vice versa does not require the approval of the CLB. If through inadvertence or otherwise, a company is registered by a name which, in the opinion of the CLB, is identical with, or too nearly resembles, the name of an existing company, the company:
- May change its name, by ordinary resolution and with the previous approval of the CLB.
- Shall change its name if the CLB so directs within twelve months of its first registration or registration by its new name, as the case may be.
Where a company changes its name, the Registrar shall enter the new name in the Register in the place of the old name and issue a fresh certificate of incorporation with the necessary alterations embodied therein to the company.
2. Alteration of Situation Clause
This may involve:
- Change of registered office from one place to another place in the same city, town or village.
- Change of registered office from one town to another town within the State.
- Change of registered office from one State to another State.
In case of change of registered office from one place to another place in the same city, a notice is to be given within thirty days after the date of the change to the Registrar who shall record the same. In case of change of registered office from one town to another town within the State, a special resolution is required to be passed at the general meeting of the shareholders and a copy of it is to be filed with the Registrar within thirty days. Then within thirty days of shifting of the office, a notice has to be given to the Registrar of the new location of the office. In case of change of registered office from one State to another State, a special resolution is required to be passed at the general meeting of the shareholders and a copy of it is to be filed with the Registrar within thirty days. The alteration shall take effect only when it is confirmed by the CLB. A certified copy of the order confirming the alteration shall be filed by the company with the Registrar of each of the States and the Registrar of each State shall register the same. All the records of the company shall be transferred to the Registrar of the State in which the registered office of the company is transferred.
3. Alteration of Object Clause
By Sec.17(1), the objects of a company may be altered by special resolution so as to enable the company:
- To carry on its business more economically or more efficiently.
- 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 objects specified in the Memorandum.
- To restrict or abandon any of the objects specified in the Memorandum.
- To sell or dispose of the whole, or any part, of the undertaking, or of any of the undertakings, of the company, or
- To amalgamate with any other company or body of persons.
4. Alteration of Liability Clause
A company limited by shares or guarantee cannot change its Memorandum so as to impose any additional liability on the members or to compel them to buy additional shares of the company unless all the members agree in writing to such change.
5. Alteration of Capital Clause
The procedure for alteration of capital and the power to make such alteration are generally provided in the Articles of Association of a company. If the power and procedure are not laid down in the Articles the company must alter the Articles by passing a special resolution. If so authorized by the Articles, a company may alter its share capital so as to:
- Increase the amount of its share capital;
- Consolidate and divide its share capital into shares of higher denomination;
- Subdivide the existing shares into shares of lower denomination; however, the proportion between the amount paid and the amount, if any, unpaid on each reduced share must be the same as it was for the share before reduction;
- Cancel the unissued capital;
- Convert all or any of its fully paid shares into stock and reconvert stock into shares.
Credit: Business Law-CU